South Korea’s Foreign-Exchange Reserves Fall to $200.5 Billion

By William Sim

Dec. 3 (Bloomberg) -- South Korea’s foreign-exchange reserves declined in November to the lowest level in almost four years as authorities supplied dollars to help banks struggling to obtain funds overseas.

Reserves fell to $200.5 billion, the least since January 2005, from $212.3 billion in October, the Bank of Korea said in Seoul today. That marked the eighth straight drop. The central bank and government have also used reserves to try to stem the Korean won’s 38 percent slump against the dollar this year.

Fitch Ratings last month cut its outlook for the nation’s credit rating to negative from stable, signaling that shrinking foreign-currency reserves could pose a threat to the economy’s stability. The central bank said today South Korea has enough reserves to maintain its international credibility and would be able to meet any external-payment requirements in an emergency.

Reserves may decrease further in coming months, South Korea’s finance ministry said today in a separate statement released in Gwacheon, adding authorities are ready to act to “smooth” drastic moves in the won to “stabilize” the market.

Authorities are striving to cope with the biggest challenge South Korea has faced since it needed an International Monetary Fund bailout in 1997. The government has pumped funds into the financial system as the won’s plunge, coupled with the global credit-market freeze, makes it harder for the local companies to refinance or repay overseas debt.

Currency Supplies

South Korea has supplied $31.9 billion to local lenders from its foreign reserves over the past two months from a planned provision of $55 billion.

“Reserves may post additional falls as the government and the Bank of Korea provide foreign-currency liquidity,” the finance ministry said. “But from December, there will be more room in managing foreign-exchange reserves as money from the Korea-U.S. currency swap is being supplied.”

South Korea secured a $30 billion currency swap with the Federal Reserve on Oct. 30 to help ease the shortage of dollars locally. It’s also seeking to expand existing swap agreements with China and Japan, the region’s two biggest economies, as the global financial crisis persists.

South Korea ranks sixth among the world’s largest holders of foreign exchange, behind China, Japan, Russia, India and Taiwan, according to central bank data.

A stronger U.S. currency also trimmed the value of assets in euros and pounds when converted into dollars, the Bank of Korea said today.

To contact the reporter on this story: William Sim in Seoul at wsim2@bloomberg.net.