Gov't all out to contain Brexit fallout

Vice Strategy and Finance Minister Choi Sang-mok, second from right, participates in an emergency macroeconomic and financial meeting held in downtown Seoul, Friday, to discuss measures for lessening the shock of the Brexit on Korea’s economy and financial market. / Korea Times photo by Shim Hyun-chul

By Nam Hyun-woo

The Korean government said it will mobilize all possible means to limit the possible negative impact on the domestic financial market caused by the U.K. decision to leave the EU.

The Ministry of Strategy and Finance, the Financial Services Commission (FSC), the Financial Supervisory Service (FSS) and the Bank of Korea (BOK) came to the decision in emergency meetings to discuss the impact of Brexit.

“The government will focus on monitoring the movements of major currencies, foreign exchange markets and foreign capital,” said Vice Finance Minister Choi Sang-mok. “As the foreign exchange market’s volatility increases, the government will activate measures including smoothing operations in a timely manner.”

At the meeting, however, officials were optimistic about the uncharted impact of the Brexit, saying “limited impact will be poised on the real economy, given Korea has relatively few economic ties with the U.K.”

Finance Minister Yoo Il-ho, who is in China to attend an annual meeting of the Asian Infrastructure and Investment Bank, voiced similar optimism.

“Though there are possibilities over volatilities, the country’s current account balance and foreign exchange reserve show that the government has enough policy tools to cope with the Brexit,” Yoo told reporters.

Despite their optimism, the benchmark KOSPI heavily fluctuated throughout Friday. It opened up at 2,001. 55 but plunged to 1892.75 during the day and ended at 1,925.24, down 3.09 percent. The Korea Exchange activated a circuit breaker on the KOSDAQ market for five minutes starting at 12:50 p.m.

The main index had a fluctuation range of 108.8 points during the day, the widest gap since Aug. 9, 2011. Also, Friday’s market cap of KOSPI and KOSDAQ stood at 1,420.32 trillion won, down 47.44 trillion from a previous session. A whopping 37.52 trillion won has vanished from KOSPI and 9.91 trillion won has disappeared from KOSDAQ. This is the biggest plunge since Nov. 10, 2011, when some 57.21 trillion won vanished.

Following the meeting, the FSC and FSS organized a team to cope with the fallout of the Brexit. According to the two regulators, the team will launch a round-the-clock monitoring system to “activate preemptive measures to stabilize local markets.”

“The FSC will monitor foreign exchange liquidity of domestic banks and foreign capital market, as well as tracking other risks,” the FSC said.

The FSS held a meeting with officials from eight commercial banks, asking them to control their foreign exchange liquidity. The BOK also decided to monitor the money flow for 24 hours.

“The government will strengthen policy coordination with other ministries to keep the financial turmoil from spreading to the real economy,” Vice Minister Choi said during the meeting.