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South Korea to Give Banks $100 Billion In Loan Guarantees
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South Korea's problems with raising dollars grew steadily more alarming this year, even as its exports boomed. Exports are up 28 percent this year, according to the finance ministry.
The problem has been finding enough dollars to pay for the soaring cost of imported oil, coal and food, as well as to service foreign-currency loans.
Making matters worse, some of South Korea's major exporters began hoarding their dollar earnings, keeping the money to buy supplies for their factories and speculating that the value of the currency would rise. Thousands of citizens followed suit, hoarding dollars at home and watching the currency's value soar against the won.
As the global credit crunch tightened in late summer, South Korean banks could not obtain dollars from major international banks that have operations in Seoul. These banks were struggling as well amid the credit crisis in the United States and Europe.
The South Korean economy has been growing at a relatively brisk rate of about 4.5 percent the past five years. But forecasters say a global recession and a slowdown in exports will be a major brake on growth in the next year.
Household debt in South Korea, at 153 percent of disposable income, is considerably higher than elsewhere in Asia. About a fifth of the average Korean's paycheck goes toward interest on debt. Some analysts say a recession, with rising unemployment and a fall in income, could burst South Korea's debt bubble, as occurred during the 1997 Asian financial crisis.
The government said Sunday that the country's "real economy and its financial sector are sound." But the decision to guarantee bank loans and invigorate businesses with easier credit suggests otherwise.
"These measures will help soothe anxiety of the financial market," the government statement said.
In another response to the global financial crisis, the Dutch government will invest $13.4 billion in the banking and insurance company ING Group to boost its capital position, the Associated Press reported Sunday.
The government's stake would be about 8.5 percent, but the investment is temporary. The government will name two members to ING's supervisory board.
