Korean Job Discussion Forums

[wylies99]

01-08-2009 21:28
http://www.koreatimes.co.kr/www/news/nation/2009/01/123_37566.html

Korea Pushes for Unlimited Currency Swap Deal With US
By Lee Hyo-sik
Staff Reporter

The Korean government is looking to expand its $30 billion currency swap arrangement with the United States to further ease a dollar shortage here and stabilize the domestic foreign exchange market and borrow dollars freely from the U.S. to immunize itself from a possible future currency crisis similar to the 1997-98 Asian financial market debacle.

However, it will be difficult for the government to achieve the goal with the U.S. maintaining an unbounded swap pact with just the European Central Bank, Britain, Japan and Switzerland, which use other key international currencies ― the euro, pound and yen.

Deputy Strategy and Finance Minister Shin Je-yoon told The Korea Times Thursday that the government is examining ways of persuading the U.S. administration to scrap a ceiling on the bilateral currency swap agreement.

``The U.S. already did us a big favor by signing the unprecedented $30 billion swap deal with Korea in October. But we would like to expand the arrangement to help the nation better deal with the ongoing global credit crunch. It will also further boost economic ties between the two countries,'' Shin said.

But he admitted that it will be difficult to ask the U.S. to accept the proposition, citing the country deals with other nations and the ongoing transition of the U.S. administration adding that the unbounded swap pact with the U.S. is a long-term goal, not something that Korea can achieve in the near future.

Currently, the U.S. has signed currency swap arrangements with Korea, Australia, Sweden, Brazil, Mexico and Singapore worth $30 billion each. It also has $15 billion swap agreements with Denmark, Norway and New Zealand.

Many anticipate that if Korea signs an unbounded swap deal with the U.S., the nation would never again face a currency crisis. It will also make it easier for local banks and businesses to raise funds overseas at cheaper costs and help improve Korea's international credibility.

In October last year, the $30 billion swap deal with the U.S. greatly aided Korea, which had been grappling with a dollar shortage since the summer as foreign investors dumped local stocks and bonds and took dollars out of the country in the wake of the global credit squeeze.

It became more difficult for domestic lenders and companies to borrow dollars from abroad as financial firms around the world rushed to secure cash rather than extend credit, drying up the nation's dollar supply and sending the won-dollar rate to its highest level since the 1997-98 Asian financial crisis.

Additionally, Korea's current account balance has worsened on surging prices of oil and other imported commodities, while its outbound shipments have declined sharply as a result of falling overseas demand for Korean-made goods.

The expansion of the nation's currency swap arrangements with Japan and China worth $30 billion each in early December significantly boosted investor confidence in the local currency and financial market.

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[wylies99]

[Bigfeet]

What's in it for the US?

[skconqueror]

[sojourner1]

[wylies99]

Hey, the Koreans want it, but what will they give up to get it?

Why didn't Korea want a "currency swap" when the Won was at 900?

[Guri Guy]

Sounds like typical Korean negotiations. They are always looking for the "win situation". In other words, what is best for South Korea. A "win-win situation" seems to be an alien concept unfortunately.

[wylies99]

The USA is keeping the Korean economy afloat.
http://www.bloomberg.com/apps/news?pid=20601086&sid=a5T83kKxUFv0&refer=latin_america

[sojusucks]

Koreans burn the American, Japanese, etc. flags and then expect America to reimburse their ailing economy. What an ally. I don't want them to be allies with my home country. That's for sure.

[moosehead]

meanwhile the banks here treat us all like crap - yeah - good way to influence your international trading partners

[asylum seeker]

[NoExplode]

[wylies99]

[wylies99]

For the benefit of Asylum Seeker, and others who slept in economics class, here is the full article explaining that the $30 billion line of credit given by the US to South Korea is keeping the South Korean government afloat since the South Korean government faces a sea of debt, and without the $30 billion line of credit, the South Korean government could be facing a default situation.
The South Korean government is now asking for access to unlimited US money.


Pimco Says Brazil, Korea, Mexico Debt �Compelling� (Update3)
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http://www.bloomberg.com/apps/news?pid=20601086&sid=a5T83kKxUFv0&refer=latin_america

By David Yong

Jan. 8 (Bloomberg) -- Bonds sold by Brazil, South Korea, Mexico and Singapore will beat other emerging markets as they avoid a �domino effect� of defaults, according to Pacific Investment Management Co.

Debt sold by countries with large enough financial reserves to stimulate economic growth and access to support from the Federal Reserve�s $120 billion of currency swap lines will outperform, the world�s largest emerging-market bond investor said in a report.

Investors pulled $18 billion from emerging-market bond funds last year as Ecuador�s default last month accelerated losses, according to data compiled by EPFR Global. Brazil�s bonds due 2040, which fell as much as 25 percent last year, gained 30 percent since mid-October. Brazil, Turkey, Colombia and the Philippines raised $4.5 billion selling dollar- denominated bonds this week alone.

�Default probabilities for countries like Brazil, Korea, Mexico and Singapore remain very low,� Curtis Mewbourne, a managing director and co-head of emerging-market investments, wrote in a note published on Pimco�s Web site. �Current spreads for their debt represent a compelling risk-return opportunity.�

Pimco is most bullish on countries that have the resources or can borrow to stimulate their economies as exports slump, according to Mewbourne. He highlighted China�s $585 billion stimulus package and Russia�s $186 billion program.

Default Risk

Ecuador�s bonds plunged 73 percent in 2008 and Argentina�s lost 58 percent. Emerging-market local-currency debt rallied a record 8.2 percent in December in U.S. dollar terms, according to Merrill Lynch & Co.�s LDM Plus Index of local-currency sovereign notes.

Pimco�s $2.4 billion Emerging Markets Bond Fund lost 14 percent last year, Bloomberg data show.

The Fed announced currency swaps in October of $30 billion each for the central banks of Brazil, Mexico, South Korea and Singapore. The arrangements, due to expire in April, reduce the likelihood of capital outflows that marked the Asian financial crises of 1997, Mewbourne wrote.

Pimco, based in Newport Beach, California, said access to finance will be significantly reduced for Ecuador, Argentina and Venezuela because of their unconventional policies.

Ecuador reneged on a $30 million coupon payment on Dec. 15, while keeping $5 billion of foreign-exchange reserves. Ecuador�s credit rating was cut to �selective default� by Standard & Poor�s.

Currency Weakness

Argentina in November approved plans to nationalize about $26 billion held by 10 private pensions in a move to shore up government finances.

The cost to hedge against a default by Argentina for five years rose to 3,713 basis points yesterday from 1,800 basis points three months ago, according to CMA Datavision prices in New York. The cost of contracts on Venezuela�s debt jumped to 2,918 from 1,292.

Credit-default swaps pay the buyer face value in exchange for the underlying securities if a borrower fails to adhere to its debt agreements. A basis point is equivalent to a cost of $1,000 a year to protect $10 million of debt.

Investors should expect a �wide range of different outcomes� in emerging markets, Mewbourne wrote.

As policy makers in developing countries follow the U.S., Japan and Europe in cutting interest rates to boost their economies, the currencies will face �downward pressure,� Mewbourne said.

Bond Sales

China, South Korea, Turkey, the Czech Republic and Colombia have cut borrowing costs to counter slumping demand, a response previously reserved for the developed world, Mewbourne said. �We see the scope for even lower policy rates.�

Pimco has tempered its �secular enthusiasm for a generalized strengthening of emerging currencies,� Mewbourne wrote. He didn�t provide any specific currency forecasts.

The Philippines sold $1.5 billion of 10-year notes yesterday to yield 8.5 percent, or six percentage points more than Treasuries, while Turkey sold $1 billion of eight-year bonds to yield 5.01 percentage points above Treasuries. Brazil and Colombia each sold $1 billion of debt this week. Mexico sold $2 billion in bonds on Dec. 18.

Chile, Malaysia, South Korea and Indonesia may also tap the global sovereign debt market later in 2009, according to Brown Brothers Harriman & Co. in New York.

-- With reporting by Michael Patterson and Laura Cochrane in London. Editors: Sandy Hendry, Gavin Serkin

To contact the reporter on this story: David Yong in Singapore at [email protected].

Last Updated: January 8, 2009 08:26 EST