By Kang Seung-woo
The Korean financial authorities are busy comforting jittery investors, stressing the nation’s improved financial soundness, as Greece and other eurozone countries foreshadow another global crisis.
Despite their continuous efforts, European investors withdrew 4.8 trillion won in August and 1.7 trillion won midway through September, according to the Financial Supervisory Service (FSS), amid growing concerns over the nation’s liquidity
In contrast, ING Group senior economist Tim Condon said the nation’s strong track record will help Asia’s fourth-largest economy respond wisely to the ongoing crisis.
“I think Korea’s authorities demonstrated institutional resilience to respond with the severe liquidity panic in 2008. In September, October, November and December 2008, there was a panic and the won-dollar rate was 1,600 won and bank funding was a real issue and the Korean government and Bank of Korea responded to that crisis, demonstrating their ability to manage,” the Singapore-based American analyst said in an interview with The Korea Times.
“I think that the economy today is stronger and more resilient to that kind of strain today than in September 2008. I have no doubt that they would be similarly able to manage that kind of crisis if they were to happen in 2011 and 2012. I think a worst case scenario in the Korean banking system is not very likely because of the strong track record.”
Last week, the news that Moody's Investors Service cut its credit ratings on two major French banks ― Credit Agricole SA and Societe Generale SA ― tumbled the nation’s stock and currency markets, posing another possible risk to the country, but he said that there will be no more fallout from the French downgrade.
“We saw the won-dollar rate move up and the KOSPI move down. That is, at this point, what is happening. I think no more (impact from the downgrade). They got downgraded and that’s the end of the story,” he said.
The economist said that Korea has a healthier financial soundness as opposed to the fluctuating global economy.
“The Korean economy is ‘boring,’ and boring means good for investors,” he said.
Furthermore, Condon said that there is low chance for Greece to default on its debts.
“The second bailout package agreed on July 1 was a very important development in the whole eurozone debt crisis. Obviously, it is not happening quickly because politicians need time to approve measures they agreed in their bailout package. However, we expect that they will be approved and it will create the frameworks for orderly resolution of the debt problem. So, we are not going to see another kind of August and September 2008 collapse the global economy,” he said.
Along with Greece, there is rising speculation that the Greek turmoil will spread to Italy and Spain, the eurozone’s third- and fourth-largest economies.
“Our baseline scenario is Greece will be the only one to need debt restructuring. However, our assessment, the odds, that only Greece will need (debt) restructuring, not Ireland and not Portugal is low. So I would say probably 40 percent for either Ireland or Portugal to go and do the same restructuring that Greece is getting,” he said.
“We are much more confident that both Spain and Italy can get through this without debt restructure and they won’t need an IMF, ECB and eurozone (rescue) programs. It is 90 percent that Italy and Spain will be okay.”
Meanwhile, he forecast the Korean economy will grow 4.2 percent, lower than the government’s targeting of 4.5 percent, due to a slow growth.
“I think the government’s official forecast will be revised down because Finance Minister Bahk Jae-wan said that they will look at their forecast again after the second quarter GDP number and the second-quarter growth was below expectation,” he said.
Korea's economic growth slowed to 0.9 percent quarter-on-quarter in the second quarter from 1.3 percent the previous quarter.