South Korea’s FX reserves at near 4-yr low

09-Dec-2008 Intellasia | Reuters | 7:01 AM Print This Post

South Korea’s foreign exchange reserves in November dropped to their lowest level in almost four-years.

The central bank and finance ministry are predicting further pressure on the reserves as foreign investors sell of emerging markets and as the country’s trade position weakens in the face of the global financial crisis.

Following are key facts about South Korea’s foreign reserves.

RESERVES POSITION:

-Foreign reserves fell by US$11.7 billion to US$200.5 billion in November, the eighth consecutive monthly drop, after a record decline of US$27.4 billion in October.

-Reserves have now fallen US$63.7 billion since hitting a record high of US$264.2 billion in March 2008, and are on course for their first yearly drop since 1997, when they declined by US$12.8 billion.

CURRENCY BACK UP:

-The Bank of Korea signed a US$30 billion currency swap arrangement with the US Federal Reserve in late October and tapped the credit line on December 2 to inject US$4 billion into local banks.

-The BOK has dollar currency swap facilities with its Asian neighbours: US$13 billion with Japan, US$4 billion with China, US$2 billion each with the Philippines and Indonesia, US$1.5 billion with Malaysia and US$1 billion with Thailand.

-The government has been in talks with Japan and China to expand the size of the dollar credit lines. The leaders of the three nations will hold a summit in Fukuoka, Japan on December 13 to discuss further ways to tackle the global financial crisis.

-East Asian nations agreed on October 24 to form an US$80 billion multilateral swap scheme by mid-2009 designed as a shield against the sort of currency turmoil experienced in the Asian financial crisis a decade ago.

SUPPORTING RESERVES:

-The State-run National Pension Service sold US$1.1 billion of its US Treasury bills to the BOK on November 28 at the request of the central bank amid fears that the nation’s foreign reserves may have dropped below US$200 billion.

-The pension fund also transferred US$5 billion in US Treasuries to the central bank and US$2.1 billion worth to the finance ministry in October.

-The central bank said on October 15 that it planned to buy US$10 billion of US treasury bonds by the end of this year from the NPS to bolster its declining reserves.

PRESSURES ON RESERVES

-For the first 10 months of the year, the capital account swung to a US$35 billion deficit from a year-earlier US$6.5 billion surplus.

-The current account also swung to a deficit over the same period, to US$7.66 billion from a US$7.72 billion surplus.

-The finance ministry has projected a current account surplus of about US$5 billion in 2009, swinging from an expected deficit this year of around US$10 billion.

-The government and central bank have pledged US$55 billion to boost liquidity, out of which they had injected US$31.9 billion as of November 30.

-The government has provided a state guarantee of up to US$100 billion for foreign loans borrowed by local banks, as well as a state guarantee for foreign currency deposits at local banks of up to 50 million won per account.

OTHER FACTORS:

-As of end-October, foreign currency deposits in Korea amounted to US$24.3 billion, including US$2.3 billion in deposits by individuals.

-South Korea became a net debtor at the end of September for the first time in 8 years as foreign investors dumped local shares and local banks borrowed heavily overseas.

-The nation’s foreign debt rose by US$6.29 billion to US$227.1 billion at the end of the third quarter.

-The ratio of the current external debt to foreign exchange reserves jumped to 94.8% at the end-September from 85.6% at end-June, suggesting tight dollar liquidity conditions.

-The banking sector’s foreign debt increased to US$221.9 billion in the third quarter from the previous quarter’s US$211.6 billion, 52.2% of the nation’s entire external debt.

-Foreign investors have sold off a net 36.8 trillion won in local shares so far this year.

-The growing current account deficit, a foreign sell-off in local financial markets, and a deepening squeeze in dollar funding have all combined to send the won plunging by more than 35% so far this year. In November it fell to its lowest level since the 1997-98 Asian financial crisis.

* In the Asian financial crisis -South Korea began receiving a US$19.5 billion International Monetary Fund bailout in December, 1997, after its foreign currency reserves fell by US$6.1 billion alone in November 1997, around a fifth of the total.

 


Category: Korea

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