By Lee Hyo-sik
Staff Reporter
After securing $30 billion from the U.S. Federal Reserves, South Korea has shifted its attention to its two neighbors, requesting that China and Japan set up a tripartite currency swap fund as a joint effort to deal with the ongoing global credit crunch.
Deputy Strategy and Finance Minister Shin Je-yoon told The Korea Times Friday that the Korean government is seeking to expand its foreign exchange swap arrangements with Asia's two economic giants and eventually establish the three-way monetary fund, aimed at helping members cope with a possible liquidity shortage at a time of financial crisis.
``We need to increase cooperation with other economies in order to ride out the unfolding international financial crisis. After reaching a $30 billion swap deal with the U.S., we are now trying to enlarge the existing currency swap agreements with Japan and China. We would like to eventually create a Northeast Asia currency swap fund, which will symbolize our joint efforts to stabilize the Asian region,'' Shin said.
South Korea already has foreign exchange swap programs with Japan ($13 billion) and China ($4 billion). But Japan and China have been uninterested in Korea's proposals as they do not have to worry about their external balance of payments because of huge foreign reserves.
China holds the world's largest foreign reserves with $1.81 trillion, followed by Japan with $996.7 billion. Korea has the world's sixth largest reserves of $240 billion.
Shin then said the swap arrangement with the U.S. will help ease market jitters and stabilize the domestic foreign exchange market.
``The pact is a clear indication that Korea's economic fundamentals are sound even if the nation could face a short-term liquidity trouble. We are not heading toward another financial crisis,'' the deputy finance minister stressed.
The world's 13th largest economy received another boost Friday from Citigroup, which played a crucial role in Korea's realization of the $30 billion foreign exchange swap agreement with the U.S. Citi Director & Senior Counselor Robert Rubin and Citi Chairman & CEO William Rhodes were said to have persuaded the reluctant Federal Reserves officials to include Korea in the swap deal.
The world's largest financial group said in its latest report that the currency swap agreement between the Bank of Korea and the Fed significantly reduces Korea's perceived default risk.
``Although Korea's external vulnerability is among the highest among Asian countries due to the recent surge in short-term external debt, the odds of a default now appear to be effectively non-existent considering the sound fundamentals, especially a balanced current account, and sufficient liquidity support, which is around 30 percent of external debt matured within one year.
It said the amount of external debt matured within one year was $222 billion as of June, while outstanding foreign reserves would jump to $300 billion if Korea utilizes all liquidity support programs.