By Kim Tong-hyung
Korea’s short-term external debt declined sharply in the third quarter, suggesting that regulatory efforts to fight massive capital outflow are working as prescribed, the Bank of Korea (BOK) said Tuesday.
Financial authorities here have been employing a series of measures to reduce short-term debt and prevent foreign capital flight amid the intensifying of the eurozone sovereign debt crisis.
They tightened the limits on currency-forward positions starting in July and introduced a levy on non-deposit foreign currency liabilities held by domestic and foreign banks starting in August, tagging short-term debt with higher charges.
Korea’s short-term debt fell to $138.5 billion during the three months to September, down $15.4 billion from the preceding quarter, as branches of foreign banks here repaid overseas borrowing.
This represented the first decline in three quarters and the biggest quarterly fall since a decline of $39.7 billion in the fourth quarter of 2008, when investors withdrew funds from Korea amid the turmoil created by the Lehman Brothers collapse.
The country’s external debt was measured at $394.3 billion as of the end of September, down $4.9 billion from a record $399.2 billion in June. The reduction in short-term debt was coupled with an increase in long-term borrowing, which increased $10.5 billion during the third quarter to $255.8 billion.
``Korea’s external debt declined as banks in foreign countries withdrew their investments amid the heightened uncertainty created by the eurozone crisis. The value of investment by foreigners declined as well due to the sliding value of the Korean won,’’ said Cho Yong-seung, an official from the BOK’s international investment research team.
``The strengthened restrictions on currency-forward positions and levies on foreign currency liabilities have also influenced foreign banks to repay short-term borrowing and take on more long-term debt instead.’’
Foreign-currency borrowing by local branches of foreign banks reached $64.6 billion as of the end of September, down from $76.3 billion three months earlier, the BOK said.
Korea’s net external credit reached $97.7 billion at the end of September, up $10.6 billion from June. Foreign investment in Korea fell in the third quarter with investors bailing on Korean stocks. The sliding value of the Korean won, which fell 8.6 percent against the U.S. dollar during the third quarter, also undercut the value of foreign investors’ shareholdings.
Outstanding foreign investment, including securities, stood at $822.5 billion as of the end of September, down $79.9 billion from the previous quarter, according to the BOK.