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25426
Sun, 10/19/2008 - 14:15
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http://m.oananews.org//node/25426
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News Focus) Doubt still lingers over market stability despite gov't bailout package By Koh Byung-joon
SEOUL, Oct. 19 (Yonhap) -- South Korea's latest market stabilization measures are expected to help ease the liquidity crunch to some extent, but analysts expressed doubt that they're enough to put an end to volatility in the local financial market, as prolonged financial turmoil has already started to take its toll on the slumping local economy.
On Sunday, the government unveiled drastic and sweeping measures to shore up its
banking system by guaranteeing their foreign borrowings and injecting additional
dollars into the financial sector, where critical foreign currency has been
drying up.
The guarantees will be applied immediately from Monday for three years on foreign
debts, to be raised until June 30, 2009, the government said in a press
conference jointly held by Finance Minister Kang Man-soo, Bank of Korea Gov. Lee
Seong-tae and Financial Services Commission Chairman Jun Kwang-woo.
The government also promised to provide an additional $30 billion to banks and
exporters in a bid to ease the liquidity crunch. Plans to provide support for
cash-strapped small companies were also included.
The latest market stabilization moves come as banks and financial institutions
are having difficulty in securing dollars to refinance debts and carry out
business deals amid tightening credit conditions.
The already-tough lending conditions recently took a nasty turn following the
collapse of global investment banks last month, prompting financial institutions
to stay away from lending dollars to each other for fear that the worst is not
yet over.
South Korea's won has been one of the worst-performing currencies among Asian
countries, plunging about 30 percent since the start of this year. Over the past
weeks, fluctuations intensified on spreading concerns over the dollar shortage.
The nation's benchmark stock index also tumbled to a three-year low on Friday.
"When things are getting worse, such a strong action by the government sends a
positive signal to the market," said Lee Sun-yup, an analyst at Goodmorning
Shinhan Securities. "Especially, the additional dollar supply and debt guarantee
will help ease the liquidity squeeze that sent the local currency market into
chaos."
However, those measures will have a "limited" impact, as the root of the current
financial turmoil has yet to be totally addressed, and fears are growing that the
woes could drag the global economy into a recession, other observers said.
Since South Korea depends much on exports, such a recession will translate into a
decline in overseas demand for the nation's major export goods such as handsets,
semiconductors and ships. Exports are the sole growth engine for Asia's
fourth-largest economy as domestic demand remains in the doldrums.
South Korea's government is struggling to boost domestic demand as the outlook
remains bleak amid rising household debt, high inflation, weak job creation and
many other downside risks that weigh on consumption and corporate investment.
Against this backdrop, think tanks at home and abroad are rushing to lower their
2009 growth projections for South Korea to below the 4-percent mark. The
International Monetary Fund recently slashed its 2009 growth outlook for South
Korea to 3.5 percent from an earlier forecast of 4.3 percent.
On Oct. 7, Finance Minister Kang Man-soo said that the global financial turmoil
is beginning to hurt the economy. The finance ministry said on the same day that
global financial woes may cause the country to fall short of its economic growth
target of 4.7 percent.
"What is important is to prevent instability in the financial sector from
spreading further to the real economy," said Jang Jae-cheol, an economist at
Samsung Economic Research Institute. "South Korea needs to take a lesson from the
United States' recent $700 billion bailout package, which included investment and
tax-cut measures (to boost the economy)."
In order to kick-start the slowing consumption, corporate investment and the
broader economy, the Seoul government said that it will continue to push for 26
trillion won in tax cuts proposed earlier and the 273.8 trillion won draft budget
spending plan for 2009.
"We will make efforts to have the tax cut package and the draft budget package
pass the National Assembly and minimize the impact of the turmoil of the
international market on the economy here," the government said in the statement.
kokobj@yna.co.kr
(END)
On Sunday, the government unveiled drastic and sweeping measures to shore up its
banking system by guaranteeing their foreign borrowings and injecting additional
dollars into the financial sector, where critical foreign currency has been
drying up.
The guarantees will be applied immediately from Monday for three years on foreign
debts, to be raised until June 30, 2009, the government said in a press
conference jointly held by Finance Minister Kang Man-soo, Bank of Korea Gov. Lee
Seong-tae and Financial Services Commission Chairman Jun Kwang-woo.
The government also promised to provide an additional $30 billion to banks and
exporters in a bid to ease the liquidity crunch. Plans to provide support for
cash-strapped small companies were also included.
The latest market stabilization moves come as banks and financial institutions
are having difficulty in securing dollars to refinance debts and carry out
business deals amid tightening credit conditions.
The already-tough lending conditions recently took a nasty turn following the
collapse of global investment banks last month, prompting financial institutions
to stay away from lending dollars to each other for fear that the worst is not
yet over.
South Korea's won has been one of the worst-performing currencies among Asian
countries, plunging about 30 percent since the start of this year. Over the past
weeks, fluctuations intensified on spreading concerns over the dollar shortage.
The nation's benchmark stock index also tumbled to a three-year low on Friday.
"When things are getting worse, such a strong action by the government sends a
positive signal to the market," said Lee Sun-yup, an analyst at Goodmorning
Shinhan Securities. "Especially, the additional dollar supply and debt guarantee
will help ease the liquidity squeeze that sent the local currency market into
chaos."
However, those measures will have a "limited" impact, as the root of the current
financial turmoil has yet to be totally addressed, and fears are growing that the
woes could drag the global economy into a recession, other observers said.
Since South Korea depends much on exports, such a recession will translate into a
decline in overseas demand for the nation's major export goods such as handsets,
semiconductors and ships. Exports are the sole growth engine for Asia's
fourth-largest economy as domestic demand remains in the doldrums.
South Korea's government is struggling to boost domestic demand as the outlook
remains bleak amid rising household debt, high inflation, weak job creation and
many other downside risks that weigh on consumption and corporate investment.
Against this backdrop, think tanks at home and abroad are rushing to lower their
2009 growth projections for South Korea to below the 4-percent mark. The
International Monetary Fund recently slashed its 2009 growth outlook for South
Korea to 3.5 percent from an earlier forecast of 4.3 percent.
On Oct. 7, Finance Minister Kang Man-soo said that the global financial turmoil
is beginning to hurt the economy. The finance ministry said on the same day that
global financial woes may cause the country to fall short of its economic growth
target of 4.7 percent.
"What is important is to prevent instability in the financial sector from
spreading further to the real economy," said Jang Jae-cheol, an economist at
Samsung Economic Research Institute. "South Korea needs to take a lesson from the
United States' recent $700 billion bailout package, which included investment and
tax-cut measures (to boost the economy)."
In order to kick-start the slowing consumption, corporate investment and the
broader economy, the Seoul government said that it will continue to push for 26
trillion won in tax cuts proposed earlier and the 273.8 trillion won draft budget
spending plan for 2009.
"We will make efforts to have the tax cut package and the draft budget package
pass the National Assembly and minimize the impact of the turmoil of the
international market on the economy here," the government said in the statement.
kokobj@yna.co.kr
(END)
