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[garykasparov]

http://www.koreatimes.co.kr/www/news/biz/2007/10/123_11616.html

By Lee Hyo-sik
Staff Reporter

The government is projected to incur over 31 trillion won ($34 billion) in accumulated losses by next year in its efforts to stabilize the local currency because of rising interest payments on foreign exchange stabilization bonds and foreign exchange losses due to the weak dollar.

The finance and economy subcommittee of the National Assembly said Tuesday that the Ministry of Finance and Economy reported the cumulative costs to slow the won's gain against the dollar amounted to 26 trillion won as of the end of 2006, up from 17.8 trillion won a year earlier.

The government has sustained the loss through its operation of a foreign exchange stabilization fund, a kind of money pool raised by issuing currency stabilization bonds.

The ministry has been issuing the foreign exchange stabilization bonds to steady the value of the won against major foreign currencies in both the local and overseas markets to help exporters maintain their price competitiveness. In most cases, the government buys dollars with the funds to help slow the won's gain against the greenback.

The outstanding balance of the bonds is forecast to reach 99.4 trillion won by the end of next year as the government has set aside a further 9.8 trillion won to issue foreign exchange stabilization bonds next year. The finance and economy subcommittee expects interest payments on bonds for currency operations to reach 4.8 trillion won next year, up 17.6 percent from this year.

With increasing interest payments and foreign exchange losses, the government is projected to incur losses of 2.7 trillion won this year and 2.3 trillion won next year, respectively, pushing up the cumulative debt from the bonds to 31 trillion won by 2008 from last year's 26 trillion won. The projection is made under the assumption that the won is traded at an average of 920 won next year.

However, the loss could grow even larger on the won's continued strength against the dollar and falling U.S. interest rates, the subcommittee said. The weak dollar and low U.S. interest rates reduce the value of foreign currency stabilization bonds as they are issued in dollars.

On Oct.1, the won closed at 913.7 won against the dollar, its highest level in 10 years since Oct. 2, 1997 when it closed at 913.5.

The won is projected to gain further against the dollar going forward on expectations that more interest rate cuts by the U.S. Federal Reserve will weaken the value of the greenback on global currency markets.

The Fed's rate cut to 4.75 percent from 5.25 percent last month, designed to prop up the U.S. economy, has accelerated the dollar's weakness against the won and other currencies.

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[Ya-ta Boy]

It must be harder than heck to maintain a weak Won against an increasingly weak dollar. Frustrating too.

[Juregen]

"Beg thy Neighbor"

Great!

You would think people learn from past mistakes.

[htrain]

They still have nothing on Japan. Yen is by far the world's most manipulated currency.

[jajdude]

That headline confused me. And it should say "show" ...