Tuesday, October 21, 2008

S. Korea plans more measures

SEOUL - SOUTH Korea said on Monday it is planning measures to prop up the construction sector, after announcing a US$130 billion (S$191 billion) package to stabilise financial markets.

The government believes the fiscal measures announced on Sunday are sufficient, preemptive and decisive, said Deputy Minister of Strategy and Finance for International Affairs Shin Je-Yoon.

'And in order to help the real economy, the government plans to announce measures on Wednesday to support the construction sector and (at a future date announce) additional means to help small and medium-sized enterprises,' he told foreign correspondents.

The financial package was earlier welcomed by the International Monetary Fund, saying it should help foster confidence.

A statement by managing director Dominique Strauss-Kahn said Seoul's decision to guarantee up to US$100 billion in foreign borrowing by its banks will ease pressure in the local dollar funding market.

'While global financial conditions will likely remain unsettled for some time, the government's policy package should support confidence in the Korean financial system and return attention to Korea's solid macroeconomic fundamentals, including its sizeable foreign reserves,' the statement said.

Apart from the guarantee, the government also announced it will supply US$30 billion from foreign reserves as soon as possible to local banks and exporters to ease a dollar shortage which has been driving down the won.

Despite foreign reserves of almost US$240 billion, South Korea was seen as vulnerable to the current global turmoil because of a surge in short-term foreign borrowing by its banks over the past year as US interest rates fell.

The global credit crunch was complicating efforts to roll over those loans, causing a scramble for dollars and a plunge in the won's value.

Some US$80 billion in foreign currency borrowing is due to mature by next June.

The won rose against the dollar following Sunday's announcement. It closed at 1,315 won to the US unit, up 19 from Friday's close.

Shares ended 2.3 per cent higher on Monday as gains in Asian markets offset doubts over the effectiveness of the stabilisation measures.

The central bank chief said the economy is expected to grow slower next year amid difficulties at home and abroad, and the bank plans a monetary policy to prevent it from sharply weakening.

'There is a possibility that the growth of the South Korean economy will considerably slow down in 2009, but the economy is not expected to contract,' Lee Seong-Tae, governor of the Bank of Korea, told lawmakers during a parliamentary audit. -- AFP

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