S. Korea will not dump U.S. bonds despite credit downgrade

SEOUL, Aug. 8 (Yonhap) -- South Korea will not make any significant changes to the amount of its investment in U.S. bonds, a senior government official said Monday, calling them "still the most flexible and stable" foreign assets.
The remarks came shortly after the Group of 20 (G-20) leading economies, including South Korea, issued a joint statement, vowing "all necessary initiatives" to support the world's financial stability.
The statement, drafted by G-20 chair France, came on the heels of a decision by Standard and Poor's Ratings Services (S&P) to cut its credit rating of U.S. government bonds to "AA-plus" from a sterling "AAA." Finance ministers and central bank governors of G-20 countries held an emergency teleconference over the weekend to discuss the S&P's move.
The South Korean official, speaking on condition of anonymity, said there should not be a rush to sell U.S. bonds. He noted South Korea, Japan and China, all members of the G-20 framework that signed and jointly issued Monday's statement, currently own nearly half of all global foreign currency liquidity.
"Globally, there are about US$9.6 trillion in foreign currency reserves and South Korea, China and Japan currently have nearly half of the amount or some $4.5 trillion. And they still believe only U.S. bonds offer enough stability and flexibility to invest such a large amount of assets," the official said.
The Seoul official said the G-20 ministers also discussed the growing financial crisis in Europe, though their statement did not include any country- or region-specific measures.
"The best statement would have been one that includes what the countries will do specifically (for Europe and the United States)," he said. "But I still believe it is very meaningful that G-20 countries, which include many European countries that are facing a difficult situation and key newly emerging countries, agreed to work together closely."
Still, the first-ever downgrade of the U.S. credit rating is sending ripples through global financial markets. In South Korea, the benchmark Korea Composite Stock Price Index (KOSPI) tumbled 3.82 percent to a 10-month low of 1,869.45, with its currency sinking 15.1 won against the U.S. dollar.
yonngong@yna.co.kr