South Korea, Japan Discuss Ways to Stabilize Markets

By Seyoon Kim

Nov. 6 (Bloomberg) -- Officials from South Korea and Japan are meeting in Seoul to discuss ways to strengthen regional economic cooperation and stabilize financial markets, the South Korean finance ministry said.

Finance Minister Kang Man Soo is meeting with Toyoo Gyohten, former currency-policy chief at Japan's Ministry of Finance, who came to Seoul to deliver a letter from Japanese Prime Minister Taro Aso, the ministry said in a statement. Yoshiji Nogami, a former Japanese vice foreign minister, is also attending.

South Korea, Japan and China are fleshing out an agreement that would pool together $80 billion to support Asian economies vulnerable to financial-market turmoil. South Korea itself has already received separate assistance from the U.S., with the Federal Reserve last week agreeing to provide $30 billion to the Bank of Korea, helping to ease a shortage of U.S. dollars facing companies and lenders in Asia's fourth-largest economy.

``Japan and China hold larger foreign-exchange reserves and post current-account surpluses,'' said Cho Jong Hwan, senior researcher at Korea Institute for International Economic Policy in Seoul. ``That probably makes Korea more in need of a currency swap just in case, even after the swap deal with the U.S.''

South Korea's won gained 6.8 percent against the dollar since Oct. 29, the day before the currency swap was announced. The currency earlier last month plunged to a decade low and has still lost 30 percent this year.

`Work Closely'

Japan and South Korea ``should work closely'' as part of global efforts to overcome the financial turmoil, Kang will say at today's meeting, according to the prepared statement. The officials will discuss the role of South Korea, China and Japan in helping to stabilize Asian economies and markets, it said.

Heads of state from the three Asian nations are scheduled to meet Dec. 14 in Fukuoka, Japan.

South Korean President Lee Myung Bak met with Aso last month in Beijing, where he sought to speed up the creation of the $80 billion fund to protect the region's currencies. Japan, China and South Korea would provide about 80 percent of the money, though they have yet to agree on the breakdown.

China wants to decide the size of the contribution in accordance with the size of each country's foreign-exchange reserves and Japan wants to use the value of gross domestic product, Kang said last month. South Korea's suggestion is to divide the portion for three countries equally, Kang said.

The remaining 20 percent of the fund will be provided by the 10 members of the Association of Southeast Asian Nations.

To contact the reporter on this story: Seyoon Kim in Seoul at Skim7@bloomberg.net