S. Korea May Supply Extra $30 Billion, Yonhap Reports

By Shinhye Kang

Oct. 18 (Bloomberg) -- South Korea may supply a further $30 billion to banks, companies and currency-swap markets to help bolster liquidity, Yonhap News reported, citing government officials it didn't identify.

The government is seeking to add the measure in a relief package that will be announced tomorrow, the Korean-language news agency reported.

The U.S. financial crisis is making it more difficult for companies worldwide to secure dollars as banks hoard cash to meet their future funding needs. South Korea's currency and swap markets are experiencing a dollar shortage as local businesses, which expect the U.S. currency to strengthen against the won, don't want to sell their dollars yet.

``Injecting more dollars will be good news for the whole South Korean financial market as its recent volatility came from a shortage of dollars,'' said Lee Sang Jae, senior economist at Hyundai Securities Co. ``But the measure will not fully solve problems until the U.S. financial market is stabilized.''

Under the proposal, the Bank of Korea may supply more than $10 billion in U.S. currency to the local won-dollar swap market and the state-run Export-Import Bank of Korea may provide $20 billion to banks and small businesses, Yonhap reported. The government had already promised to supply a total of $15 billion to small firms and the swap market.

1997 Bailout

The Bank of Korea said yesterday it will change rules in the foreign-exchange swap market to increase banks' access to funds. The measure helped the won, which fell 9.7 percent on Oct. 16, the most since the International Monetary Fund bailed out the country in December 1997, to rebound. South Korea's won has fallen 30 percent this year, the worst performance among Asia's 10 most-traded currencies.

South Korea may announce other measures, including guaranteeing bank debts and tax breaks for investors, to bolster confidence when the country releases a financial market stabilization package tomorrow. Finance Minister Kang Man Soo will announce it tomorrow at noon in Seoul, the ministry said today, changing the timing from an initial 2 p.m. release.

``We will take preemptive, decisive and sufficient measures,'' Kang told reporters in Gwacheon yesterday after an emergency summit among policy makers. Kang referred to the U.S. steps to inject capital into financial firms, guarantee interbank lending and expand deposit guarantees as measures Korea could consider ``if necessary.''

Bank Guarantees

The government should consider guaranteeing banks' debts, following similar moves in Australia, Europe and Hong Kong, to help lenders overcome difficulties obtaining offshore funding, Kwon Jae Min, a credit analyst at Standard & Poor's in Hong Kong said in an interview yesterday.

The government may also provide tax benefits to long-term share investors to help stem the Kospi index's decline, Vice Finance Minister Kim Dong Soo said on Oct. 16. The Kospi index dropped 2.7 percent yesterday to 1,180.67, the lowest level since October 2005.

Additionally, the country may provide won liquidity by purchasing corporate bonds, the Seoul Economic Daily reported today, citing government officials it didn't identify.

Other Asian countries may join South Korea in seeking measures to restore confidence in plunging financial markets.

Taiwan will announce tomorrow whether it will retain a narrowed limit on stock price movements, the financial regulator said in a press conference.

Price-Decline Limit

A decision to continue enforcing a limit of 3.5 percent on one-day share price declines, or restore the previous 7 percent cap, will be announced at 6 p.m. tomorrow in Taipei, Gordon Chen, chairman of the Financial Supervisory Commission, said at a press conference late last night, rebroadcast today on TV station CTi.

Taiwan doesn't let stock prices move more than 7 percent from the previous day's close. Regulators cut the downward limit in half between Oct. 13 and Oct. 17 to stabilize the market as share prices plunged because of the global financial crisis.

China's securities regulator said yesterday the government will unveil measures to stabilize the country's markets, while exhorting banks to avoid ``excessive'' financial innovation. China's benchmark stock index has plummeted 66 percent this year.

To contact the reporter on this story: Shinhye Kang in Seoul at skang24@bloomberg.net;