(Updates with Shin comment in the fifth paragraph.)
Oct. 19 (Bloomberg) -- South Korea and Japan announced they will increase a currency-swap accord to $70 billion amid uncertainty over Europe’s fiscal woes and the global economy.
“It’s important to enhance financial and currency cooperation to preemptively stabilize the financial markets amid escalating global economic uncertainties,” South Korean President Lee Myung Bak said at a press conference in Seoul today after meeting his Japanese counterpart, Prime Minister Yoshihiko Noda. The measures include a one-year, $30 billion dollar swap line and a won-yen agreement of the same amount, according to a statement released today by the Bank of Korea and Finance Ministry.
The agreement, which expands a previous $13 billion credit line, offers the nations protection from funding shocks as Europe’s sovereign-debt crisis deepens and demand in South Korea and Japan’s largest export markets slow. The won extended gains after the announcement, rising 1.5 percent to 1,128.70 per dollar as of 2:37 p.m. in Seoul, approaching the strongest close since mid-September.
“Korea has no foreign-exchange liquidity problems, but the credit line can be a big help in case of a crunch,” said Jeong Young Sik, a research fellow at Samsung Economic Research Institute in Seoul.
Some $10 billion of the funds made available through the regional foreign-reserve currency pool known as the Chiang Mai Initiative, the statement said. South Korea doesn’t have any plans to tap the credit line now, Vice Finance Minister Shin Je Yoon told reporters in Seoul today, adding that the deal may help stabilize the foreign-exchange market.
South Korea and Japan agreed to resume talks on free-trade agreements “as soon as possible,” Lee said. His country is outpacing Japan in opening up its economy, a process that was boosted when the U.S. Congress passed a free-trade agreement with South Korea this month. South Korea is also making more progress in increasing exports to China, Asia’s biggest economy.
--With assistance from Toru Fujioka and Sachiko Sakamaki in Tokyo. Editors: Lily Nonomiya, Paul Panckhurst
To contact the reporters on this story: Eunkyung Seo in Seoul at firstname.lastname@example.org; William Sim in Seoul at email@example.com
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