Bahk cautions against overreaction

By Kang Seung-woo

The finance minister said Wednesday that the Korean financial market is overreacting to Europe’s sovereign debt crisis.

“Financial and currency markets are responding sensitively to external fear factors," Strategy and Finance Minister Bahk Jae-wan said in a weekly crisis management meeting amid growing uncertainties in the eurozone.

“Though the real economy remains on its recovery track and the employment situation is improving, there are signs of a slowdown based on sentiment-related data.”

His remarks come as the local stock market was hit hard Tuesday amid intense concerns with the ongoing impasse over Greece’s debt problem and a possible ripple effect on neighboring countries and the global economy. Worse, Italy on Tuesday had its credit rating cut three notches by Moody’s.

The benchmark Korea Composite Stock Price Index tumbled 63.46 points, or 3.59 percent, to 1,706.19 on the first trading session of the week (it was closed Monday for National Foundation Day), while the local currency closed at 1,194 won against the U.S. dollar, losing 15.9 won from Friday after plunging to a 15-month intra-day low of 1,210 won.

The minister also said that the government needs to ensure that the nation’s economic and financial fundamentals are well prepared for the ongoing crisis.

“Koreans have a specific DNA to turn crisis into advantage and we will have to try to take advantage of it,” he said.

“The government plans to closely monitor domestic economic trends by sector and respond to the market situation. We will recheck weak points exposed during the 1997 Asian currency crisis and the 2008 global financial crisis and come up with countermeasures.”

The government has a plan to first overview the trade and services accounts, which include education, medical treatment and tourism.

“During the past 20 straight months, the country’s trade balance stayed in the black, but if the global economy slows down, it is inevitable that it will have a negative impact on exports. Therefore, the Ministry of Knowledge Economy will fortify monitoring and devise countermeasures,” the minister said.

He added that a variety of efforts will be made to improve the services account, too.

The local financial market is going through volatility in the face of external uncertainties with heightened anxiety that Asia’s fourth-largest economy faces another financial turmoil like that of 2008.

But policymakers say that the nation has enough foreign exchange reserves and lower short-term debt than then.