Gov't to allocate 500 bln won to help exporters

By Lee Joon-seung

SEOUL, Oct. 9 (Yonhap) -- The government said Thursday that it will allocate 500 billion won (US$364.1 million) to help small-time exporters cope with the current global financial crisis.

Finance Minister Kang Man-soo told a gathering of CEOs from small- and medium-
sized enterprises (SMEs) that Seoul is committed to preventing external
developments like unfavorable foreign exchange rates and liquidity shortages from
forcing healthy businesses to go belly-up. He said extra support of 200 billion
won will be offered as foreign currency loans.
The fresh funds are expected to increase to 7.5 billion won the size of financial
support that can be provided by state-run Export-Import Bank of Korea to
companies.
He said that in addition to extra funds, the government plans to increase the
size of account receivables insurance by 300 billion won to 3.3 trillion won, to
facilitate business-to-business transactions.
"All support is aimed at preventing exporters that are otherwise doing well from
going bankrupt due to losses incurred by the unexpected turn in the won-dollar
exchange rate and drying up of liquidity," he told lawmakers.
He stressed that the government will use its foreign reserves in the unlikely
event that local banks face a default situation, so there is little concern for
the business community.
On the issue of so-called knock-in, knock-out (KIKO) hedging that is hurting many
exporters, the country's top economic policymaker said measures are being taken
to reduce fallouts.
He said in the case of companies already being traded on the bourse, losses
caused by the derivative will not be used to delist it from the stock market.
KIKO, introduced late last year, was designed to reduce risks caused by a rise in
the Korean won versus the dollar, but has since become a serious liability to
SMEs that have bought the derivative since the local currency has plummeted in
value against the greenback.
Kang, meanwhile, reiterated that South Korea was not heading towards the kind of
crisis that paralyzed the economy in 1997-98.
"Unlike the past, foreign reserve holdings exceed outstanding debt while
companies are burdened with far less liabilities," he told businessmen.
In the 1997, the average debt-equity ration was 400 percent for listed companies,
but this has fallen to 90 percent at present.
"In terms of debt, local companies are far more healthy than U.S. and Japanese
firms," the official said.
He then emphasized that large conglomerates who have been cited for holding onto
their dollars, should take the lead to ease market concerns.
"Some companies seem to be holding onto their dollars in the hope that it will
appreciate further against the won, yet this course of action could result in
loses," he claimed.
The government said that because the sharp appreciation of the dollar is
triggered by unfounded concerns, it may move sharply in the other direction,
especially if South Korea posts a trade surplus in October.
Related to the government's requests to conglomerates to convert their dollar
holdings into the local currency, market insiders said that Samsung Electronics
Co. took steps to sell off its foreign currency holdings.
They said the sell-off was substantial and helped bring down foreign exchange
rates that reached close to 1,500 won at one point to the dollar to 1,379.50 won
at the end of trading. This is a dip of 15.50 won from the day before.
The company is a global leader in semiconductor and liquid crystal displays, with
most of its products being sold abroad resulting in large inflows of foreign
currency.
A Samsung source said that sell-off was part of ordinary operating procedure for
the company, but added that it is willing to do its part to help stabilize the
foreign exchange market.