By Kim Tae-gyu
Staff Reporter
Korea's foreign exchange reserves seem to be about to plummet below the psychologically important level of $200 billion this month.
The reserves were around $260 billion earlier this year but fell to $240 billion in September and $212 billion in October as the government used the war chest to cope with the ongoing financial funk.
``The market consensus is that the reserves have already dropped below the $200 billion mark,'' said a local source familiar with the issue, while declining to be named.
``To be frank with you, many worry that the actual reserves will be reduced to less than $190 billion,'' said the anonymous source, who had worked as a high-ranking financial bureaucrat and still has close ties with the current top policymakers.
His logic: the Bank of Korea (BOK) has spent a total of $7.5 billion this month to dole out a series of swap deals with domestic banks and it also poured dollars to help banks go through trading deals.
In addition, the central bank poured dollars into stabilizing the won-dollar exchange rate, which has shot up of late to above 1,500 won per dollar from approximately 900 won earlier this year as many preferred the safer asset of dollars.
When contacted, the BOK refused to disclose the precise amount of the current foreign exchange reserves but insinuated they might have plummeted below $200 billion.
``We have yet to calculate the foreign exchange reserves as of the end of November and we cannot guess the amount as there are so many variables such as the exchange rates between the dollar and other main currencies including euros and yens,'' BOK economist Ha Keon-chul said.
``However, the amount should be reduced because we used some dollars to help the sagging banking industry to reimburse debts due this month. If not, we would have been under fire for sitting idle,'' he said.
Currently, about two-thirds of the country's foreign reserves are composed of dollars with the rest being made up from other major currencies such as the euro, yen and pound.
Because the greenback has appreciated against other currencies, Korea's foreign reserves calculated in terms of dollars at the end of every month were affected negatively.
``This month, the euro depreciated a lot against the dollar. Although the yen appreciated, its gain is not enough to offset the big loss of the euro. Hence, we expect further decline in foreign reserves,'' Ha said.
While providing every reason why the foreign exchange rate would dip below the $200 billion milestone, however, Ha fell just short of confirming it.
He strongly denied the rumor that the foreign reserves would end up at below $190 billion this month but refused to make any comments on whether it would end below $200 billion or not.
If the reserves end up diving to below $200 billion as of the end of this month, it means that the government has consumed more than $40 billion over the past two months.
The amount would be bigger than the $30 billion swap contract between the United States and the Korean government, which was agreed last month to prevent financial turmoil.
Under the bilateral agreement, the U.S. Federal Reserve promised to exchange dollars worth $30 billion with the Korean won.
Observers say that the reserves below $200 billion may generate concerns under the worst-case scenario.
``Our sort-term debts are estimated at $170 billion, due next year. If our companies fail to roll them over, we will face hitches,'' Kim Se-jung, an analyst of Shin Young Securities, said.
Should domestic outfits manage to roll over near-term debts and the trade remains in the positive territory, however, Kim projected the problems could be tamed.