Greece crisis not to weigh on Korea

By Kang Seung-woo

As global worries about the sovereign-debt crisis of Greece are growing, the world is bracing for the potential default and debt restructuring of the southern European country, with Korea also on alert over the fallout.

During the first episode of the financial malaise last year, Korea saw around $700 million exiting Seoul’s stock market.

However, the head of the nation’s leading think tank for the global markets said that the Asia’s fourth-largest economy will be little affected by the debt fiasco in Greece although it is more serious than before.

“When the eurozone’s sovereign-debt crisis took place for the first time, there were more uncertainties because we could not predict how it would evolve. The highest risk factor is uncertainty in the global financial market,” Korea Center for International Finance (KCIF) President Lee Sung-han said in an interview with The Korea Times.

“One year after the financial storm traveled across the globe, we can analyze the exact problems there.

“Therefore, the impact will be limited.”

Debt-laden Greece received an EU-level support package last year and is expected to see another bailout package soon.

The eurozone nations and international financial bodies including the International Monetary Fund (IMF) are moving to back Greece, despite skepticism over whether their measures will be able to prevent it from defaulting.

Lee, a long-time bureaucrat, also said that Korea has been gearing up for financial failures from the outside by coming up with various measures and it can withstand such problems.

“The government has introduced new measures including regulations on currency forwards to ease financial volatility and prevent abrupt capital outflows from causing chaos in the economy,” he said.

“The other reason that Korea has experienced limited impact from the on-going Greek issue is foreign investors give high credit to Korea. The country is vindicating that it has grown sound going through two financial crises.”

According to Lee, along with the debt crisis in Greece, the weakening U.S. economic recovery and growing inflationary pressure in rising nations may weigh on global financial markets.

“The U.S. economic recovery is faltering, being labeled a soft patch ― a period of economic slowdown amid a larger trend of economic growth ―, and the world’s largest economy is showing signs that it could last for the time being, with its indicators for employment and housing prices sagging,” Lee said.

He added that the end of the U.S. Federal Reserve’s second round of quantitative easing (QE) this month is another factor to watch.

“As for inflation, a few rising countries such as China and India can play a damaging role in the global markets.”

China’s consumer prices soared 5.5 percent in May from a year earlier to a 34-month high, according to its National Bureau of Statistics, and last month’s growth in the consumer price index (CPI) was up from a 5.3 percent gain in April. The inflation gauge of the world’s second-largest economy grew more than 5 percent for the third straight month.

Global risk watch tower

After the Asian currency crisis in 1997, the KCIF was established in April 1999 to help the government to head off financial crises via real-time monitoring of foreign exchange markets and international financial markets and operate an early warning system.

“The KCIF is comprised of 38 people divided into six departments. Despite the limited staff, the center issues around 1,500 reports and analyses on the global financial markets, watching them round the clock,” Lee said.

“In short, the KCIF is a global risk watch tower.”

In addition, the center offers advice to the government and the private sector on international financial activities including the overseas financing for public and private institutions and the management of foreign currency-denominated assets and liabilities.

Lee is making efforts to share the KCIF’s expertise with more private sectors which cannot afford to acquire the information.

“The center’s various reports and data are based on high-quality information that is not easy to obtain and expensive to purchase. Given that if the KCIF expands its financial information to more fields, it will serve as a public server providing knowledge on the global finance and information.”