South Korea Stuck in `Intensive-Care,' Swaps Show: Chart of Day

By Kim Kyoungwha

Nov. 14 (Bloomberg) -- South Korea's financial medicine isn't working, as banks are starved of dollars even after government stimulus plans and the provision of $30 billion from the Federal Reserve, cross-currency swaps show.

The CHART OF THE DAY shows the one-year rate to swap won loans for dollars plunged to a record minus 0.4 percent, only the 11th time below zero this decade. The rate, a gauge of the availability of dollar funding, averaged 3.3 percent this year before Lehman Brothers Holdings Inc. collapsed.

``The market's still in the intensive-care unit after a good dose of measures made its heart beat again,'' said Choi Seok Won, Seoul-based head of fixed income research with Samsung Securities Co., South Korea's biggest brokerage. ``The swap market's drop is a reflection of concern that the money isn't enough to help ensure smooth rollovers of debt.''

South Korean policy makers yesterday said they will provide an additional $16 billion to help exporters, after slashing interest rates at an unprecedented pace and announcing an $11 billion spending plan in the past month. Fitch Ratings lowered its credit ratings outlook for the country this week to negative from stable, citing concern currency reserves may drop during the biggest crisis since the nation needed an International Monetary Fund bailout in 1997.

In a cross-currency swap, investors pay or receive a variable interest rate in one currency in exchange for a fixed rate in another currency. In Korea, local banks typically pay a fixed rate in won in exchange for a floating rate in dollars.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net;