(EDITORIAL from the Korea Times on Dec. 23) - `Forex shortage is over`

It is certainly welcome news that South Korea has fared relatively well to tide
over the acute shortage of U.S. dollars for the last three months in the
aftermath of the global credit crisis. On Monday, the Ministry of Strategy and
Finance tentatively concluded that the foreign currency shortage has been brought
under control. "At least we've rode out the foreign liquidity problem," a
ministry official said. He added the crisis was over taking into account market
indicators, saying there was little possibility of such a liquidity crunch
happening again next year.
The ministry's conclusion is based on the Korean won's solid rebound against the
greenback, a reversal of a current account deficit and foreign portfolio
investors' changed position to begin buying local stocks. Policymakers claimed
that the government's preemptive measures have produced successful results in
stabilizing the Seoul currency market. The government and the central Bank of
Korea (BOK) have injected US$30 billion of liquidity into banks since September
when the Wall Street meltdown began to spread to other countries around the
world.
Many businesses had suffered from the lack of foreign exchange. The liquidity
shortage reached its peak on Nov. 21 when the local currency tumbled to 1,525
against the U.S. dollar. But one month later, the won gained 15 percent as the
shortage significantly eased. The government and financial institutions can now
borrow from abroad on better terms. Foreign investors had gone on a selling spree
on the Korean stock market until November. But they have continued to buy local
stocks in bargain hunting for three weeks this month.
In this situation, government officials and businesspeople can breathe a sigh of
relief. But it is still too early to declare that the crisis is completely over
because the world is still going through the persisting credit turbulence that is
slipping into the real economy, raising fears about deflation and recession. In
this regard, the worst has yet to come.
Therefore, all economic players are required to join efforts to minimize the
fallout of the worldwide financial firestorms and their knock-on effects on the
economy. The government needs to better manage the international balance of
payments. The current account turned into the black in October with a $4.9
billion surplus. It is also expected to enjoy about $1 billion in November and
December.
Policymakers are also required to ease the shortage of local currency liquidity.
Financial authorities have provided about 20 trillion won in liquidity to banks
over the last three months. But, they are still reluctant to extend loans to
individuals and corporations, especially cash-strapped medium- and small-sized
firms. The BOK's key interest rate was lowered to a record low of 3 percent. But
the expansionary monetary policy has virtually backfired without helping
borrowers enjoy benefits.
Economic growth is feared to rapidly slow next year because of falling exports
and dwindling domestic demand. Thus, it is important to further stabilize the
financial sector as well as take bolder measures to maintain growth momentum.
First of all, the nation should push radical restructuring of banks and
businesses in order to survive difficult times ahead.
(END)