 Kim Dong-soo |
The government has used the Korea National Oil Corp. (KNOC) to buy dollars for its bid to take over a British oil explorer in order to slow the falling of the won-dollar exchange rate, an official at the state-owned Export-Import Bank of Korea (EXIM Bank) said Friday.
It is the first acknowledgement from the government side that it actually tried to slow down the appreciation of the Korean won in the currency market.
KNOC acquired U.K. oil company Dana last month and it needs some $2.95 billion to pay the old shareholders. As part of the dollar financing, Eximbank provided loans worth $750 million, which was only half of what KNOC needed, the official said. The rest was bought in the market, he said.
“KNOC had to buy another $750 million of dollar by itself in the foreign exchange market, because the government hoped the purchase could influence the won-dollar exchange rate,” the official told the Korea Times on Thursday. “It was done that way even though buying dollars in the market might cost them more (then borrowing from Exim bank).”
It is unusual, the official said, since firms doing business overseas usually prefer simply having dollar-denominated loans from state-owned Eximbank ― otherwise, firms have to borrow in Korean won and then convert the loan to the dollar in the volatile foreign exchange market, which is what KNOC has done, he said.
At $750 million, the volume of the purchase is not significantly big to change the flow of the foreign exchange market in Seoul, where the daily trading volume can be tens of billions of dollars each day. “
Over the past weeks, several Western news media including the Financial Times have named Korea as one of the countries that have “intervened” in the foreign exchange market to defend their currencies, with no supporting evidence. The won-dollar exchange rate has been falling fast this year to close on 1,100 won to the dollar. During the global financial crisis, the rate was once over 1,600 won to the dollar.
The won and almost all currencies of export-oriented economies have been appreciating against the dollar, which can make their goods more expensive in the global market, thus weakening export and economic growth.
In the so-called currency war, the United States and some European countries are claiming that China, Japan and other Asian countries are buying dollars in massive amounts in order to slow down the speed of appreciation against the greenback. At the same time, the United States is expected to print more dollars in the so-called “quantitative easing” policy, which will have the same effect of devaluing the dollar against other currencies.
The Korean government is known to have an influence in the foreign exchange market but it keeps most of the records secret.
KNOC is expected to pursue more mergers and acquisitions from overseas with strong support from the government.
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