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Global Collateral Damage

Dollar hoarding and currency speculation are so rampant that citizens were asked to stop
Dollar hoarding and currency speculation are so rampant that citizens were asked to stop "greedily pursuing private interests." (By Ahn Young-joon -- Associated Press)

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By Blaine Harden
Washington Post Foreign Service
Friday, October 10, 2008

SEOUL, Oct. 10 -- With its toxic securities and its insistence on open markets, the United States has a lot of nerve and a lot to answer for.

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That's what South Korean Finance Minister Kang Man-soo said as he prepared to leave for a weekend meeting in Washington of finance officials searching for ways to calm the global financial crisis.

"The United States almost forced the rest of the world to open up their financial sectors," Kang said in an interview. "It has been telling the world that its derivatives are an advanced technique created by some genius." Derivatives are a type of financial instrument.

Along with scores of other countries, South Korea has become the roadkill of such genius, which created derivatives as well as mortgage-backed securities.

As problems with U.S. subprime mortgages metastasized this year into a worldwide stock market meltdown, currency and stocks in this high-tech, export-driven country have lost about a third of their value. In early trading Friday, the country's benchmark Kospi stock index fell as much as 8 percent, and is down more than 36 percent this year.

Prospects for growth in Asia's fourth-largest economy have suddenly dimmed. Consumer spending has turned sluggish. Panicky foreign investors have pulled half their holdings out of Seoul's stock market. Credit for small and medium-sized businesses is drying up.

Dollar hoarding and currency speculation are so rampant that the country's president, Lee Myung-bak, pleaded this week with citizens to act patriotically and "refrain from greedily pursuing private interests." Other officials have implored local lenders to sell off foreign assets and bring dollars home for the good of their country.

In the interview, Kang made it clear that he and many Koreans are upset by the financial example set by the United States, which is South Korea's most important ally and its capitalist role model. "Derivatives and hedge funds are like casino gambling," he said. "A lot of Koreans are asking, how can the United States be so weak?"

When he arrives in Washington for the meeting organized by the International Monetary Fund, Kang said, he will urge foreign ministers from the Group of Seven industrial nations to "bring emerging markets into consideration as they make plans for a solution."

"When there is a problem, only the G-7 gets together to resolve it," Kang said. "I find this kind of behavior to be inconsiderate."

In conjunction with the G-7 talks, U.S. officials say there will be a "special meeting'' of finance officials from the Group of 20, which combines developed and emerging economies and includes South Korea. "We're reflecting a reality of the global economy," Treasury Undersecretary David McCormick told reporters this week.

The reality that infuriates South Korea's finance ministry and its central bank is that the country's economic fundamentals are relatively strong, especially in comparison with those of the United States.


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