By Na Jeong-ju
Staff Reporter
The Lee Myung-bak administration shifted into emergency mode Tuesday to protect domestic firms and consumers from the global financial turmoil as the economy faces a steep downturn on weakening export demand and rising uncertainty on financial markets worldwide.
Cheong Wa Dae has adopted contingency plans to minimize the fallout of the financial market meltdowns in the United States and Europe, while authorities are set to use more dollar reserves to stem the Korean currency's steep fall.
``We've mapped out different action plans depending on how the situation will unfold. We hope the world will see a turnaround, but the situation could get worse,'' a Cheong Wa Dae spokesman said. ``We are also prepared for the worst-case scenario.''
President Lee played down concerns that the country may suffer a financial crisis similar to the one it experienced a decade ago. At that time, South Korea borrowed emergency funds from the International Monetary Fund (IMF) and other global organizations, sold assets to foreign investors, and used taxpayers' money to bail out troubled firms.
``We are now in different situation from 1997,'' Lee said during a weekly Cabinet meeting at the presidential office. ``We are fully prepared for problems and firms are setting up their own risk management systems. Excessive optimism is dangerous, but we don't have to be too pessimistic.''
Prime Minister Han Seung-soo convened a meeting of top economic policymakers in the afternoon to discuss the ongoing troubles on the financial market. Participants included Strategy and Finance Minister Kang Man-soo; Bank of Korea Governor Lee Seong-tae; Bahk Byong-won, senior presidential secretary for economic affairs; Financial Services Commission Chairman Jeon Kwang-woo; and Park Jae-wan, senior presidential secretary for policy planning.
The policymakers agreed that South Korea has enough dollars to handle liquidity problems given the country's currency reserves and the outstanding external debt, according to Cheong Wa Dae.
``Problems are not as grave as some people think, but market participants tend to react too nervously. They need to calm down,'' a presidential aide quoted Prime Minister Han as saying.
In recent weeks, the won has lost ground fast against the U.S. dollar, plunging to 1,324 won per greenback Tuesday, its weakest level in 10 years and eight months. Analysts forecast the won will fall further to possibly breach the 1,400 mark, as the global credit crisis dampens exports and a slumping stock market accelerates capital outflow.
The won's sharp fall came amid growing concerns over the nation's shrinking foreign exchange reserves and the negative outlook for economic growth.
``The meeting of finance ministers of the Group of Seven countries and the IMF general meeting will be held from this week to set up countermeasures to the global financial problems. South Korea will closely cooperate with the countries to deal with the crisis,'' the presidential spokesman said.
Lee said Monday that he will propose a tripartite summit with Japan and China on the sidelines of the Asia-Europe Meeting from Oct. 24 to 25 in Beijing to discuss concerted regional countermeasures to the global financial crisis.
Lee made a separate proposal last week that the finance ministers of his country, China and Japan meet to discuss closer financial policy coordination.