By Kim Jae-kyoung
Staff Reporter
The nation's foreign currency reserves continued to fall in November for the eighth consecutive month, dropping to their lowest level in 46 months and raising concerns that the emergency fund will sink below the psychologically important $200 billion level soon.
The Bank of Korea (BOK) reported Wednesday that foreign reserves reached $200.5 billion in November, down $11.74 billion from the previous month, the lowest since it recorded $199.7 billion in January 2005.
The continuing fall came as authorities expanded the dollar supply to the banking sector in a bid to calm jitters over a deepening liquidity crunch here.
``Despite higher investment returns and an early recollection of dollars supplied to the state pension fund, the reserves declined as authorities injected dollars into banks to stabilize the currency market,'' BOK economist Ha Keon-chul said. The won has dipped over 36 percent to the dollar so far this year.
``A stronger U.S. dollar also brought down the dollar conversion value of assets in other currencies such as the pound, yen and euro,'' he added. Currently, about two-thirds of reserves consist of dollars, with the rest being made up of other currencies.
The central bank and the Ministry of Strategy and Finance supplied a total of $31.9 billion in October and November to the market. The amount is equivalent to 58 percent of the total amount of the planned dollar supply ($55 billion).
Given that a major portion of the supply in the offing will be injected this month and banks are still saddled with short-term external debts, the reserves are likely to fall below $200 billion in the months to come.
``Capital accounts showed a record-high deficit of $25.5 billion in October, due to the repayment of banks' short-term external debt. The repayment would continue for the time being, considering our view of a persistent global deleveraging,'' Citigroup economist Oh Suk-tae said.
``So the sizable deficit in the account will also continue to exceed the likely surplus in the current account, resulting in a deficit in the overall balance of payments and a burden on the Korean won,'' he added.
He pointed out that the total amount of external debt repayment in October will be around $24.2 billion, which will probably be mostly borne by the currency reserves.
However, a senior economic policymaker countered that the reserves will not fall below $200 billion, as more dollars are expected to flow into the country.
``I expect that things will get better going forward, given demand and supply conditions for dollars,'' Vice Finance Minister Kim Dong-soo said on a local radio program.
Kim said that an improvement in the nation's current account, a new credit line with the U.S. Federal Reserve and other government measures will help limit a further decline in the nation's foreign reserves.
Regarding concerns over the level of the emergency funds, some analysts say that sticking to some psychological level is not the right way to looking at the issue.
``What's important is that the world knows that Korea is both solvent and ready to defend its currency from sharp fluctuations,'' Mauro F. Guillen, director of The Lauder Institute at The Wharton School of Business, told The Korea Times.
``Now that inflation is not a problem and interest rates are low, a slight decline in the value of the won is not too problematic, and it would help improve export competitiveness,'' he added. ``The only problem is for companies with debt denominated in foreign currency, which would suffer from a declining won.''
As of the end of October, the country was the world's sixth-largest holder of foreign reserves. China held the world's largest foreign reserves, worth $1.9 trillion, followed by Japan with $977.7 billion, Russia with $484.6 billion, Taiwan with $278.2 billion and India with $252.9 billion.