By Choi Sung-jin
The Korean government has dismissed the possibility of another currency crisis hitting the nation, claiming the country has sufficient foreign reserves. But a recent research paper says this may not be the case.
"As of 2014, the nation's actual foreign reserves of $363.6 billion fell $79.7 billion short of assuring the nation can get over a possible currency crisis," says a Korea Economic Research Institute report.
The report, by following the standards set by the Bank of International Settlement, defined the sum of three elements _ cash that can settle a quarter of annual import, short-term external liability and one-third of foreign investment in stocks and bonds _ as "foreign reserves needed in times of crisis."
Applying that standard, Korea should have $443.3 billion in foreign reserves, $79.7 billion more than it had as at the end of 2014. China, Thailand and Brazil had larger foreign reserves than necessary in times of crisis, the report said.
Also, Korea's foreign reserves accounted for only 26 percent of its gross domestic product, compared with 80.5 percent for Taiwan, 33.9 percent for China, and 27 percent for Japan.
"International credit-rating agencies have recently upgraded Korea's standing based on its foreign reserves and other reasons, but Korea's credit standing was rated good even just before the 1997-98 crisis," said Kim Chang-bae, a researcher at the think tank. "We cannot rule out the possibility of another currency crisis if the real economy falls into an emergency."
A Ministry of Strategy and Finance official reiterated the government's position that the nation's foreign reserves were sufficient.
"No foreign institutions have pointed out insufficiency in Korea's foreign reserves," the official said. "Accumulating foreign reserves is not everything, either, as it is not without costs."
The Korean government has dismissed the possibility of another currency crisis hitting the nation, claiming the country has sufficient foreign reserves. But a recent research paper says this may not be the case.
"As of 2014, the nation's actual foreign reserves of $363.6 billion fell $79.7 billion short of assuring the nation can get over a possible currency crisis," says a Korea Economic Research Institute report.
The report, by following the standards set by the Bank of International Settlement, defined the sum of three elements _ cash that can settle a quarter of annual import, short-term external liability and one-third of foreign investment in stocks and bonds _ as "foreign reserves needed in times of crisis."
Applying that standard, Korea should have $443.3 billion in foreign reserves, $79.7 billion more than it had as at the end of 2014. China, Thailand and Brazil had larger foreign reserves than necessary in times of crisis, the report said.
Also, Korea's foreign reserves accounted for only 26 percent of its gross domestic product, compared with 80.5 percent for Taiwan, 33.9 percent for China, and 27 percent for Japan.
"International credit-rating agencies have recently upgraded Korea's standing based on its foreign reserves and other reasons, but Korea's credit standing was rated good even just before the 1997-98 crisis," said Kim Chang-bae, a researcher at the think tank. "We cannot rule out the possibility of another currency crisis if the real economy falls into an emergency."
A Ministry of Strategy and Finance official reiterated the government's position that the nation's foreign reserves were sufficient.
"No foreign institutions have pointed out insufficiency in Korea's foreign reserves," the official said. "Accumulating foreign reserves is not everything, either, as it is not without costs."
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