By Lee Hyo-sik
Staff Reporter

South Korea's dollar shortage is all but over, government officials claim, saying it has become easier for banks and businesses here to borrow dollars from overseas in recent weeks.

But analysts warn that it is premature to uncork the champagne because Korean banks must renew maturing short-term debts of about $100 billion won in 2009. In addition, it is still unclear how much capital outflow from the stock market will occur next year. Unless the current account remains in the black, Korea will see another currency crisis, which is manageable but needs close monitoring, Park Seung, former governor of the Bank of Korea, said.

Private analysts also cautioned that the nation should remain vigilant against unexpected shocks from outside, stressing the government should be prepared to take preemptive measures to deal with unpredictable global financial market conditions.

``I think the worst is behind us. But it is absurd to say that the crisis is over because the real economy is going into a deep downturn as a result of the financial market mess. We should not become complacent and be prepared for the worst-case scenario early next year,'' Citigroup economist Oh Suk-tae said.

Oh suggested the government provide more liquidity to the financial sector if necessary and introduce a range of measures to calm the financial market.

Government officials said, however, that the nation is no longer suffering from a liquidity shortage as global financial market conditions have improved on a series of unprecedented measures, including the U.S. Federal Reserves' near zero interest rate policy.

The local currency is projected to gain ground against the dollar in the coming months on the globally weak dollar sentiment and that the foreign exchange market here to stabilize further on the improving current account balance.

Officials also say that the Korean government's capital injection into the financial sector over the past few months, coupled with currency swap arrangements with the U.S., China and Japan, has boosted investor confidence in the won and the overall financial market here.

However, private analysts caution that it is too early to say that Korea's dollar shortage is over, saying that the global credit market could worsen any time soon if banks and other financial firms are hit hard by surging non-performing loans as a result of corporate bankruptcies in the wake of the worldwide economic downturn.

They say now is the time to strengthen the monitoring of market conditions at home and abroad, rather than celebrate the restored market stability in recent weeks, stressing the government should continue to take a range of measures to help banks and businesses improve their balance sheets.

The world's 13th largest economy has been grappling with a dollar shortage since the summer as foreign investors dumped local stocks and bonds and took dollars out of the country in the wake of the global credit squeeze.

It became almost impossible for domestic lenders and companies to borrow dollars from abroad as financial firms around the world rushed to secure cash rather than extend credit, drying up the nation's dollar supply and sending the won-dollar rate to the highest level since the 1997-98 Asian financial crisis.

Additionally, Korea's current account balance has worsened on surging prices of oil and other imported commodities, while its outbound shipments have declined sharply as a result of falling overseas demand for Korean-made goods.

``The nation's foreign exchange and other financial markets have stabilized to some extent, thanks to a host of factors over the past month. We think that the worst is over. An improvement in the current account balance and other macroeconomic factors are behind the recent market stabilization here,'' Deputy Strategy and Finance Minister Shin Je-yoon told The Korea Times.

The current account surplus reached $4.91 billion in November, the largest since 1980, when the Bank of Korea began tracking data, mainly on falling import prices of oil and other commodities. It was a dramatic turnaround from a deficit of $1.35 billion in September. The government projects the surplus will reach $10 billion in 2009.

Shin also said it has become a lot easier for banks to reschedule loans and bring in fresh funds from overseas at much lower costs with the government's loan guarantees worth over $100 billion. The globally weak dollar as a result of a series of interest rate cuts by the Federal Reserve also helped bring down the won-dollar rate and increase the dollar supply on the local currency market.

``Korea's currency swap deal with the U.S. in October has greatly helped local banks and businesses raise dollars overseas, stabilizing the domestic foreign exchange market. Also, the expansion of the currency swap arrangements with Japan and China to $30 billion each early this month has significantly boosted investor confidence in the local currency and the financial market here,'' he stressed.

Foreign investors have become a net buyer of local shares in recent trading sessions, bringing much needed-dollars into the country. ``We think that the foreign selling of local stocks has come to an end. More investors will come back and snatch up shares here in the coming months,'' Shin said.

But he warned against outright optimism, saying that the government will continue to closely monitor market conditions at home and abroad. ``We will also be ready to introduce the necessary steps to stabilize the nation's foreign exchange and financial markets.''

leehs@koreatimes.co.kr