Posted by: Ihlwan Moon on October 15, 2008
President Lee Myung Bak’s administration has repeatedly stressed that its priority is reinvigorating the South Korean economy. Yet Korea’s policymakers don’t seem to be in a hurry to stop the current global credit crunch weighing on the economy. Credit rating firm Standard & Poor’s has noted that the mandarins are behind the curve in coping with the global financial meltdown.
On Oct. 15, S&P placed Korea’s seven banks, including the three largest banks – Kookmin Bank, Woori Bank and Shinhan Bank, on its watch list with negative implications, citing a more than 50% chance that the credit crunch could threaten Korean banks’ foreign currency funding. S&P says it believes the Korean government has the capacity and willingness to extend extraordinary support to moderate foreign currency funding risks at Korean banks. But it noted that Seoul has offered no extensive relief package to local banks while many other countries came up with comprehensive financial support schemes in recent days.
Sure, Korea is much stronger than it was during the Asian financial crisis a decade ago when the country was pushed to the brink of bankruptcy. Its foreign exchange reserve of nearly $240 billion is the world’s sixth largest, and Korean companies’ average debt-equity ratio has dropped to 93% from 425% in 1997. But the country’s vulnerability to outside financial shocks has been well demonstrated by the wildly fluctuating value of its currency – which hit a 10-year low last week.