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| Minister of Economy and Finance Choo Kyung-ho speaks during an event held at the annual congress of the Asian Development Bank (ADB) in Manila, the Philippines, Thursday. Courtesy of the Ministry of Economy and Finance |
Finance minister says financial crisis unlikely to take place in Korea
By Anna J. Park
Minister of Economy and Finance Choo Kyung-ho reiterated that he thinks that the possibility of the Korean economy having a major financial crisis is very low.
During a meeting with reporters at the annual congress of Asian Development Bank (ADB) in the Philippines, Choo said that the current phase of soaring key interest rates cannot carry on in the long term."Although no one can be sure about the future moves of the U.S. dollar and global interest rates, I think the current situation is not one where soaring interest rates can go on for a long period of time," Choo said.
The finance minister explained that he thinks the interest rate could go up for a certain period of time, but in the end, the interest rate is subject to fluctuation according to the interaction between the economy and interest rates to create certain policies by governments."
China has the world's largest foreign reserves, yet these reserves only account for about 18 percent of its economy. Considering that Korea maintains ample foreign reserves of about 25 percent of the country's GDP, I think it's very unlikely for Korea to have a major financial crisis," he said. However, a number of market experts have criticized the government's stance on the matter.
Market experts seem to be divided on whether to agree with finance minister's stance on the economy. Some market experts agree with his diagnosis of the current economic situation.
"As a top official in charge of the national economy, I think Choo has no other choice but to say that the current economic situation is not serious, so as to reassure the market," Jun Sung-in, an economics professor at Hongik University, told The Korea Times, Friday. "And I do agree that the current situation hasn't yet been comparable to that of 2007 or 2008," Jun added.
However, some other market experts criticize the minister for taking a "lax stance." Kim Dae-jong, a business professor at Sejong Univeristy, who is also a long-time foreign exchange reserve expert, said Choo's comparison with China in regards to the size of foreign reserves is absurd.
"China's yuan and Japan's yen are both international key currencies. Countries with key currencies do not suffer from foreign exchange crises, unlike Korea. That's why Korea shouldn't be complacent about its foreign reserve size, comparing it with that of China," Kim explained during a phone interview with The Korea Times, Friday.
"While about four percent of global transactions are paid in Chinese yuan, less than 0.1 percent of global transactions are paid in Korean won. Given that about 42 percent of Korea's external debt consists of short-term bonds with maturities shorter than five years, it is recommended to have about $930 billion as the country's foreign reserves, (which is more than double Korea's foreign reserve size)," Kim added.
Kim said that the soaring won-dollar exchange rate itself is a warning sign of a financial crisis, urging the government to bolster the foreign reserve by signing currency swap deals with the U.S. and Japan.
"It's almost unbelievable to see top government officials with experiences of previous two major financial crises still maintain such a complacent and lax view on the possibility of another financial crisis," Kim criticized.
Meanwhile, the won-dollar exchange rate ended at 1,430.2 won per dollar at Friday's closing on the Seoul foreign exchange market, a 8.7-won decrease from the previous trading session.
Main benchmark KOSPI index ended at 2,155.49, which is a 0.71-percent fall from the previous session. The index once reached the year low point of 2,134.77 during the session on Friday.
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