By Kim Jae-won
Korea may be able to weather the current financial turmoil sparked by the U.S. credit downgrade effectively due to improved ability in risk management, the nation’s finance minister and a senior financial regulator said Wednesday.
“No one can deny that our risk management skills have developed so much,” said Finance and Strategy Minister Bahk Jae-won at a weekly meeting of senior economic policymakers.
Bahk said Korea has taken consistent steps to reduce the exposure of its financial and foreign reserve sectors thanks to its experiences and lessons learned from the Asian financial breakdown in the late 1990s and the global financial crisis caused by the collapse of Lehman Brothers three years ago.
Korea’s foreign exchange reserves hit a record high with $311 billion in July, up $6.55 billion from the previous month, and the Bank of Korea bought 25 tons of gold bullion worth $1.24 billion in June and July to brace for emergent economic situations.
The 56-year-old minister also said that 335,000 new jobs were created in July compared to the previous year and exports and other economic indicators were all showing positive signs.
Financial Services Commission Vice Chairman Shin Je-yoon echoed Bahk’s remarks.
“Korea’s ability to cope with trouble has substantially improved after the country went through two financial crises,” Shin told an emergency meeting of financial regulators, citing the country’s ample foreign exchange reserve and a decline in short-term foreign borrowing.
Korea’s portion of short-term foreign loans whose maturity is less than a year to the whole overseas borrowing reached 38.4 percent in March, down 13.5 percentage points from September 2008, according to the BOK.
The nation’s ratio of foreign loans to gross domestic product also marked 35.5 percent in December showing stability compared to major economies, such as the U.K., France and the U.S., which reported 415.5 percent, 198.8 percent and 98.6 percent, respectively.
Shin expects the ongoing financial turbulence to last for a long time because it originally came from the real economy.
“The crisis will continue to weigh down on the global economy and financial markets because it stems from a structural problem in the real estate sector,” said Shin, who previously was in charge of the international financial bureau of the finance ministry.
The 53-year-old bureaucrat welcomed the Fed’s move to keep the U.S. benchmark short-term rate interest near zero saying it will play a positive role for the Korean economy. The Federal Open Market Committee (FOMC) said on Tuesday it plans to sustain the current low interest rate to mid-2013.
Korea’s stock market responded positively to the FOMC’s decision as its main index KOSPI surpassed 1,800 as of Wednesday afternoon.