Korea More Vulnerable to Global Financial Stress
By Yoon Ja-young
Staff Reporter
Korea is more vulnerable to the financial troubles from developed countries compared with other emerging economies, a study showed.
A report titled ``The Transmission of Financial Stress from Advanced to Emerging Economies'' by the International Monetary Fund (IMF) analyzed co-movement in financial stress between emerging and advanced economies by using a new financial stress index, Emerging Markets Financial Stress Index (EM_FSI), to study how financial stress is transmitted from advanced to emerging economies.
``The unprecedented spike in financial stress in advanced economies elevated stress across emerging economies above levels seen during the Asian crisis, but with significant cross-country variation,'' the report said.
The study finds that in late 2008 financial stress in emerging economies was exceptionally high and surpassed peaks seen during the 1997-98 Asian crisis.
``Higher current account and fiscal balances do little to insulate emerging economies from the transmission of financial stress in advanced economies, although they may help dampen the impact on the real economy,'' it explained.
Korea's stress index marked 0.706, higher than those of major emerging economies, which mostly stand at between 0.4 and 0.5.
It was indeed hit by the global financial crisis, with the economic growth rate plunging 3.4 percent in the fourth quarter last year from a year ago and marking a more than 4 percent fall in the first quarter.
Among the 18 emerging economies, the IMF assessed that Mexico had the highest stress figure of 0.830, followed by Peru with 0.819, South Africa with 0.803, Pakistan at 0.771 and Hungary at 0.761. The indexes of Malaysia, Thailand and the Philippines also hovered above 0.7, but China marked 0.662, Argentina 0.665, Brazil, 0.649, Turkey 0.641, and Chile 0.677
Poland and Morocco were relatively little affected by the financial crisis in developed economies, with a stress index below 0.5.
The fund concluded that financial links appear to be a key conduit of transmission. Emerging economies with higher liabilities to advanced economies have been more affected by financial stress in developed countries than emerging economies that are less linked.
``Emerging economies are able to obtain some protection against financial stress from lower current account and fiscal deficits during calm periods in advanced economies. However, during periods of widespread financial stress in advanced economies, the calming effects are too small to prevent stress transmission,'' it added.