By William Sim and Nipa Piboontanasawat
Dec. 12 (Bloomberg) -- South Korea agreed on bilateral currency swap accords with Japan and China in an effort to ensure financial stability in Asia.
South Korea and Japan will increase an existing won-yen arrangement to $20 billion from $3 billion in place since May 2005, according to statements by the central banks of both countries today. China and South Korea will sign an accord worth 38 trillion won ($28 billion), the People's Bank of China said.
South Korean President Lee Myung Bak has pursued the swap arrangements to secure access to funds and prevent a repeat of the 1997 currency crisis that caused a run on the won and required a $57 billion bailout from the International Monetary Fund. The won rose 7.5 percent against the dollar this week, completing the best weekly gain since the end of October, partly in anticipation of today's announcements.
“This is a big achievement for South Korea to help stabilize its currency and maintain its external credibility,” said Chun Chong Woo, an economist at Standard Chartered First Bank Korea Ltd. in Seoul. “Still, it won't have much impact on the markets today because it was already anticipated.”
South Korea's Kospi stock index has risen 14 percent since a $30 billion swap line was agreed with the U.S. Federal Reserve on Oct. 30, suggesting that the arrangement reassured investors that South Korea would be able to service its debt. Before then the index had lost almost half its value this year.
The won has gained almost 4 percent versus the dollar since the U.S. deal. The South Korea's currency fell 1 percent to 1,372.5 per dollar as of 3 p.m. close in Seoul.
Japan, China
The agreement with Japan will only be effective until the end of April next year, the Bank of Japan said. South Korea already has an agreement that give it access to $10 billion from the Bank of Japan in dollars in times of crisis.
The accord with China gives South Korea access to 38 trillion won worth of yuan at any time for the next three years. A previous deal with China under which the Korean central bank can get as much as $4 billion worth of yuan or U.S. dollars during times of crisis still stands.
South Korea's foreign-exchange reserves fell for an eighth month to the lowest level in almost four years in November. Fitch Ratings last month cut its outlook for the nation's credit rating to negative from stable, signaling that shrinking reserves may pose a threat to the economy's stability.
“Korea has already experienced what it can be like when it runs out of reserves and how bad the downside can be for the economy,” said Robert Subbaraman, chief economist at Nomura International Ltd. in Hong Kong. “Korea has been quite proactive in trying to secure greater cooperation in the region.”
Summit Meeting
President Lee meets Japan's Prime Minister Taro Aso and China's Premier Wen Jiabao in Fukuoka, Japan, tomorrow to discuss the global financial crisis.
The central banks of China, South Korea and Japan this week announced an agreement to meet in 2009, starting regular consultations to ensure currency stability in Asia.
Finance ministers from 13 Asian nations, including South Korea, Japan and China, agreed in May to create a pool of at least $80 billion in foreign-exchange reserves to be tapped to protect their currencies.
“This cooperation is kind of a regional self-rescue,” said Ding Zhijie, deputy dean of finance at Beijing's University of International Business and Economics.
To contact the reporter on this story: Seyoon Kim in Seoul at Skim7@bloomberg.net
Posts
No comments:
Post a Comment