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[Yaya]

Sept. 2 (Bloomberg) -- South Korea won't face a repeat of the 1997 currency collapse because local banks and companies have more robust finances, Moody's Investors Service said.

``Korean corporations and banks are much healthier than they were before the 1997 crisis,'' Thomas Byrne, who helps determine Moody's sovereign credit ratings for Asia and the Middle East, said in an e-mail from Singapore. ``Korean exporters have proved to be resilient to global slowdown.''

The won fell to the weakest since 2004 against the dollar even as Vice Finance Minister Kim Dong Soo said today speculation that the country is headed for a financial crisis is ``groundless.'' Korea's currency lost about half of its value in 1997 and the government was forced to turn to the International Monetary Fund for $57 billion to help businesses repay debt.

Moody's in July 2007 raised South Korea's long-term foreign and local currency credit ratings to A2, the company's sixth- highest investment grade. The outlook for the ratings is ``stable,'' Byrne said today.

Korea's currency fell 0.5 percent to 1,121.15 against the dollar as of 12:29 p.m. in Seoul, according to Seoul Money Brokerage Services Ltd. It fell 2.4 percent yesterday after a 7 percent drop in August, the biggest monthly decline since 1998.

`Some Vulnerability'

A surge in South Korea's overseas borrowings and ``heavy dependence of Korean banks on funding from the global capital market posed some degree of vulnerability,'' Byrne said.

External borrowings that mature in a year, almost tripled to $175.65 billion as of June 30 from $65.9 billion at the end of 2005, official figures show. Of the total, $6.7 billion in government bonds held by foreigners is set to mature this month.

The increase in short-term debt was mainly caused by exporters' locking in dollar rates for their overseas earnings, Bank of Korea Deputy Governor Rhee Gwang-Ju said in a July interview. Korean banks, which provided the services, borrowed dollars to limit their risks, he said.

Deputy Finance Minister Shin Je Yoon said today the government has enough money to repay debt due in September.

``We have already acquired money to pay for the government bonds that mature in September so there's no need for an increase in government bond sales for the repayment,'' Shin told reporters. ``We forecast some of the foreign investment that matures will be reinvested.''

The nature of debt is now different, said Lee Yong Joo, an official at the Bank of Korea's foreign-exchange analysis division. Korean banks used money borrowed overseas back in 1996 and 1997 to fund the expansion of chaebol including the Hanbo Group and DongAh Construction Co. that are now defunct, Seoul- based Lee said.

Exaggerated

The government will take necessary measures, so investors ``shouldn't overreact,'' Vice Finance Minister Kim said before chairing an emergency meeting with counterparts from the central bank and the financial regulator today.

``Suspicions about a financial crisis in September in Korea are an over-exaggeration coming from rising concerns in the markets,'' Kim said.

Foreign-exchange reserves fell for a fifth month in August to $243.2 billion, the central bank said today, as policy makers intervened to stem the slide in the won. South Korea has amassed foreign currency since the region's crisis and is now the world's sixth-largest holder of reserves.

``We don't expect the Bank of Korea to put at jeopardy its still-substantial cushion of foreign-exchange reserves and undermine the strength of Korea's external payments positions,'' Moody's Byrne said.

Current-Account Deficit

The current account, which tracks goods, services and investment income, recorded a deficit of $2.45 billion in July, the widest in six months. The trade balance, which swung to a deficit in December for the first time in five years, recorded a shortfall of $3.23 billion in August.

``We are not very concerned about the current-account deficit,'' Byrne said. An expected $10 billion shortfall this year in the current account is ``relatively moderate.''

``However, we see pressures building up on the capital account as well,'' he said. ``Korean companies are making large investments abroad. Foreigners, not all, have lost their appetite for entering or expanding their presence in Korea.''

The $970 billion economy expanded 4.8 percent in the second quarter from a year earlier, the slowest pace since the first three months of 2007, when it grew 4 percent.

http://www.bloomberg.com/apps/news?pid=20601080&sid=a.xkT9waduk8

[marlow]

Are you sure we can trust this source?

[bassexpander]

He didn't throw a line about Dokdo belonging to Korea, did he? If so, I wouldn't trust it!

[Yaya]

Wile E. Coyote Won't Make Mark on South Korea
Column by William Pesek

Sept. 3 (Bloomberg) -- It's hard to think of an economy that has gone from growth to crisis faster than South Korea.

That's the impression one gets scanning the headlines. Vice Finance Minister Kim Dong Soo, for example, yesterday found himself in charge of an emergency meeting on markets. He said concerns about a financial crisis are ``groundless.''

Moody's Investors Service yesterday also said Asia's No. 4 economy won't face a repeat of the 1997 currency collapse. Such chatter has been fueled of late by the won's slide to its weakest level against the U.S. dollar in four years.

Some perspective is needed. The idea that Korea is about to do a Wile E. Coyote is a reach in the worst of times.

The reference here is to one of the world's most famous cartoon characters. The coyote runs off a cliff and keeps on going -- until he looks down and realizes he's running on air and plunges to the ground. That isn't about to happen in Korea. Thailand? Perhaps. Korea? Highly unlikely.

Granted, Korea has more than its share of troubles. Its inflation rate (5.6 percent in August) is higher than gross domestic product (4.8 percent in the second quarter) and the nation's benchmark interest rate (5.25 percent). That's a worry for bond and stock investors as the global credit crisis worsens.

Leadership Worries

Leadership is a concern. President Lee Myung Bak's six- month-old government is pretty beaten up over a decision to renew beef imports from the U.S. It sparked the largest street protests in two decades and forced Lee, a former business leader, to rein in his legislative plans.

Yes, gravity is again striking this formerly high-flying economy -- one that recovered so impressively from the wreckage of the late 1990s. Government officials didn't help things when they tried to prop up the won in July and then stepped back from the market in August. Yet Korea hardly seems about to fall off a cliff, Wile E. Coyote-style.

``Korean corporations and banks are much healthier than they were before the 1997 crisis,'' says Thomas Byrne, who helps determine Moody's sovereign credit ratings for Asia and the Middle East in Singapore. ``Korean exporters have proved to be resilient to a global slowdown.''

Korea's economy is very different from the one whose currency lost about half its value in 1997. It has come a long way since turning to the International Monetary Fund for $57 billion to help businesses repay overseas debt. Korea's $243 billion of currency reserves alone will keep speculators from testing officials in Seoul.

To-Do List

Even if the worst-case scenario played out, say economists such as Kwon Young Sun of Lehman Brothers Holdings Inc. in Hong Kong, Korea has plenty of room for policy responses to prevent a crisis and severe recession. After a somewhat bumpy 2008, an economic recovery is likely in 2009.

Korea hasn't come far enough, of course. The business conglomerates, or chaebol, that tower over the economy still wield too much power. Korea needs to get beyond the developing- economy mindset that sub-5 percent growth is inadequate. It may not be like the U.S. or Germany in terms of economic maturity, but it's also not like Thailand.

Not that Thailand is necessarily about to plumb the depths of 1997. Its economy also has grown up over the last decade. Sadly, Thailand's political system hasn't, and Asia's eighth- largest economy is paying the price. Thailand's chances of moving beyond the turmoil of the past were dashed when Prime Minister Samak Sundaravej declared a state of emergency in Bangkok yesterday after street clashes.

Political Stability

Even with Lee's popularity problems, few observers are pessimistic about political stability in Seoul. Unlike 1997, Kwon says, Korea's external vulnerability is low. The economy also has become more flexible in dealing with shocks. And the banking system is far sounder than it was in the mid-to-late 1990s.

Challenges facing Korea are less about hard issues such as macroeconomic stability, democratic government, credible institutions and infrastructure than about softer ones.

Korea is concerned with what might be called ``OECD issues.'' The 30 members of the Organization for Economic Cooperation and Development generally accept the ideals of representative democracy and free-market economics. Korea is a member, so its economy and financial system should be more international.

It seemed like progress in July when Lee Kun-Hee, former chairman of Samsung Group, was convicted of tax evasion after a trial that prompted the billionaire to end his 20-year reign over Korea's biggest business empire. Shareholder activists were disappointed to see him get only a suspended prison sentence.

Yet investors who are down on Korea may still be in ``pendulum economics'' mode. Observers have long been wary of the tendency of sentiment about Korea to swing wildly from heady optimism to dark pessimism. Over the years, the phenomenon caused more volatility in markets than a nation moving toward developed- economy status should experience.

That may explain why officials felt they had to address crisis chatter in markets. Korea investors still aren't likely to find they have been running on air all this time.

http://www.bloomberg.com/apps/news?pid=20601039&sid=aftBqzqT33q0&refer=columnist_pesek

[supernick]

Oct. 28+ - The value of the Korean won drops as investors sell Korean stocks.

Nov. 5 - The IMF announces a stabilization package of about $40 billion for Indonesia. The United States pledges a standby credit of $3 billion.

Nov. 3-24 - Japanese brokerage firm (Sanyo Securities), largest securities firm (Yamaichi Securities), and 10* largest bank (Hokkaido Takushoku) collapse.

Nov. 21 - South Korea announces that it will seek IMF support.

This is from 1997. Also keep in mind that a senior Korean minister claimed that Korea's finaces and reserves were in good shape in November of 1997.

Things might be different now, but I for one would never trust the words from the Korean government nor from parties who have huge sums of money invested in Korea.

Things are going to get worse. There will be those who will flee though I think things will get better in a year or so, but for the short term, things are going to be bad.