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Regulator says it’s still time to be wary

Slump, not inflation, is main concern  PLAY AUDIO

June 20,2009
Chin Dong-soo, FSC Chairman
Korea’s top financial regulator said yesterday now is not the time for Korea to pop champagne or begin focusing on exit strategies from the latest economic meltdown, despite growing optimism that Asia’s fourth-largest economy has passed its nadir.

Korea’s Financial Services Commission Chairman Chin Dong-soo also indicated that the government, which worked hard until earlier this year to increase loans for small and midsized firms, would from now on focus more on managing risks on those loans.

“If you ask me if we should shift our policy focus to exit strategies and to curb looming inflation, I would say no for now,” Chin said during the 2009 Korean Economic Forum, organized by the JoongAng Daily and held in central Seoul yesterday.

A recent batch of economic data at home and abroad has indicated global economies may have bottomed out and are now facing an upward path. Job and manufacturing data that showed upticks unseen for months have fueled speculation that now may be the time for central bankers to think about raising benchmark rates to preemptively curb inflation.

But during his keynote speech, Chin said that hasty conclusions that the crisis is past will “only cause us to miss timely policy measures” and would “greatly hinder the recovery process.”

“From a policy standpoint, we shall stick to our current crisis management track and carefully look toward formulating mid- to long-term solutions,” he said.

Chin also said regulators will tighten lending practices for local small and midsized companies to contain possible default risks.

He said there is a concern that the rapid increase in lending for such smaller enterprises “may backfire on the economy.”

Lending for small and midsized companies - which have total assets less than 500 billion won ($394.2 million) and annual sales between 5 to 30 billion won - has grown at a faster pace through late last year and earlier this year than before.

Some 18 major local lenders, which reduced loans for such small businesses by 1.3 trillion won last December, have lent about 3 trillion won each month through May after the government offered extensive loan guarantees for the cash-strapped small companies.

“We shall address this problem by adopting more flexibility regarding the level of financial support for SMEs [small and medium enterprises]. We will also ramp up risk management on our credit guarantees.”

He also said the government would continue intense corporate restructuring for ailing companies, despite concerns that the government may lose its appetite for painful financial triage as the economy recovers.

“The focus of these restructuring efforts will be on building a firm economic foundation to pave the way for a smooth recovery,” said Chin.


By Jung Ha-won [hawon@joongang.co.kr]


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