By William Sim
Oct. 30 (Bloomberg) -- South Korea's current-account deficit narrowed in September from a record, which may help ease pressure on the won, Asia's worst-performing currency this year.
The shortfall shrank to $1.22 billion from $4.7 billion in August, the Bank of Korea said in Seoul today. The current account is the broadest measure of trade, tracking goods, services and investment income.
The Federal Reserve agreed earlier to provide $30 billion to the Bank of Korea, part of its efforts to unfreeze money markets in emerging economies for the first time. South Korea's stocks and the won tumbled last week, prompting concern the country may face a currency crisis a decade after the International Monetary Fund organized a $57 billion bailout to help repay overseas debt.
``The trend looks good as we expect a small current account surplus in October,'' said Seo Chul Soo, a fixed-income analyst at Daewoo Securities Co. in Seoul. ``It's good news for the local financial markets, especially the currency market.''
The central bank slashed interest rates by a record 75 basis points in an emergency move on Oct. 27 after the stock index tumbled last week by the most since at least 1987. The government pledged up to guarantee bank debts up to $100 billion to aid Korean lenders struggling to access foreign funds.
South Korea has posted current-account shortfalls every month but one in 2008 as oil prices and the won's tumble drove up the cost of imported goods.
`Stabilize the Currency'
A deficit means there are more dollars flowing out of the country than those coming in, reducing U.S. dollar supplies in the local currency market and weakening the value of the won.
``The Bank of Korea will continue to strive for financial- market stability through cooperation with other central banks,'' Governor Lee Seong Tae told reporters today. The swap line with the Fed ``will expand our foreign-exchange reserves and help stabilize the currency.''
The Bank of Korea plans to use U.S. currency from the deal to provide dollar liquidity to local banks via competitive bidding. The Fed also agreed to provide $30 billion each to the central banks of Brazil, Mexico and Singapore.
Emerging-market investors have created ``massive demand for dollars and a reduction of liquidity in other currencies'' by going back to investing in the U.S. currency, said David Spegel, head of emerging-market strategy at ING Financial Bank NV in New York.
`Restore Liquidity'
The Fed swap lines ``are designed to help restore liquidity so that a vicious negative spiral doesn't occur,'' Spegel said.
South Korea's stock index has dropped 49 percent this year and the won has lost 35 percent of its value against the dollar as overseas investors dump emerging-market assets.
The deficit on traded goods shrank to $759 million last month from $2.8 billion in August, today's report showed.
Total exports on a customs-cleared basis, which excludes ships, increased 28.2 percent in September from a year earlier, compared with an 18.2 percent gain in August. Imports jumped 45.8 percent.
The shortfall on the services account, which measures the international flow of travel, transport costs and royalties, narrowed to $1.24 billion from $2 billion. The travel deficit shrank to $386 million, the smallest in more than four years, as the weaker won and slowing economy discouraged trips.
The economy grew at the slowest pace in more than four years last quarter, sparking concern that the nation is headed for its first recession in a decade.
South Korea's income account, which tracks the flow of interest payments, investment income and wages, posted a surplus of $792 million last month.
Governor Lee said this month the current account may turn to surplus starting October. South Korea may have a current- account surplus of about $4 billion over the fourth quarter, Yonhap News agency reported yesterday, citing an unidentified official at the Bank of Korea.
To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net
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