By Lee Hyo-sik
Staff Reporter
The nation has signed currency swap arrangements with the United States, Japan and China, while trying hard to reach a similar deal with the European Union, to better insulate its financial market from outside shocks amid the global credit crunch.
However, critics argue the Korean government remains reluctant to sign currency swap accords with Mongolia and other developing countries that want to borrow dollars from the world's 13th largest economy.
They say Korea has an obligation to financially aid troubled developing economies in a way that it has been helped by advanced economies through the swap accords.
Currently, the government is seeking to expand its $30 billion currency swap deal with the United States. It is also calling on the world's largest economy to extend the maturity of the swap deal beyond October, while soliciting a similar arrangement with the EU.
``We also requested China to allow us to borrow dollars from the world's fastest growing economy, instead of yuan, because it is much harder to use the yuan as a currency for international settlements,'' a senior official at the Ministry of Strategy and Finance said on condition of anonymity.
Last October, the swap deal with the U.S. greatly aided Korea, which had been grappling with a dollar shortage since the summer as foreign investors dumped local stocks and bonds and took dollars out of the country in the wake of the global credit squeeze. Korea also signed currency trade agreements with Japan and China worth $30 billion each in early December.
The nation has tapped $16.35 billion from the swap line with the U.S. so far.
The ministry official confirmed that Mongolia has asked the Seoul government to sign a $100 million swap deal.
If reached, the Asian country, located north of China, could borrow up to $100 million from Korea.
``We are closely studying Mongolia's proposal. Several Southeast Asian nations, including Indonesia, have approached us for similar arrangements.
But our stance is that Asian economies should first tap the envisioned ``Asian Monetary Fund'' to be capitalized at $120 billion,'' he said, indicating that the government is unwilling to sign the deals with Asian nations on an individual basis.
In contrast, China and Japan have been active in signing the deals with countries in recent months to expand their influence in the Asia Pacific region with their ample foreign exchange reserves.
In February, South Korea, Japan, China and the 10 members of ASEAN agreed to expand their joint foreign exchange fund to $120 billion from an initial $80 billion to further strengthen regional cooperation and better cope with the ongoing global financial market turmoil.
Under the Chiang Mai Initiative (CMI) adopted in 2000, the ASEAN+3 nations agreed to set up the Asian Monetary Fund to prevent a recurrence of the financial crisis in the Asian region. The system is aimed at helping crisis-hit countries use a common pool of currency reserves to overcome a financial disaster.
However, a private analyst told The Korea Times that the government is indifferent to financial needs of cash-strapped developing economies, adding it may only be interested in what it can get from advanced nations.
``Policymakers also fear a possible public backlash if they allow poorer nations to borrow dollars from our foreign exchange reserves. They also remain reluctant to sign the currency swap deal because if it does with one country, then more nations could come and ask for the same,'' he said.