Is the Current Short-term Foreign Debt Condition Safe?It appears that the recent efforts made in the past few years to reduce the foreign debt has reversed itself of late, signalling a future increase in the nation's foreign debt. For example, the current proportion of short-term foreign debt amounted to 30.3 percent of all foreign debt as of the end of March this year. It is shocking to find out that the foreign debt ratio reached a similar level at the end of March in 1998, right before the foreign exchange crisis. Even though the government claims that there is no problem at all with the current debt situation, we can not help but be concerned about the government's foreign exchange policy, because of our vivid recollection of the nightmare which took place during the foreign exchange crisis.
According to the government, total foreign debt increased by $6.8 billion this year to $143.2 billion as of the end of March. The government insisted that import credits and short-term borrowings by financial institutions are unavoidable due to the recovery in our economy. Moreover, the government emphasized that the ratio of foreign exchange holdings to short-term foreign debt, which shows the ability to pay off the foreign debts, is currently at a stable level of 51.9 percent.
However, it seems naive of the government to refer to the current condition as a "stable situation" when one considers the recent condition of foreign exchange demand and supply as well as the increasing rate of short-term foreign debt. The foreign debt at the end of March 2000 was $43.4 billion, $5.3 billion higher than 1999 and $12.7 billion above 1998's level. Also, the balance of trade has reversed itself and threatens to turn into a deficit next year. Therefore, foreign exchange holdings might be used up in order to cover up the losses. The trade surplus in 1998 amounted to $40.6 billion, but rapidly decreased to a mere $12 billion this year. Although it is not serious to consider possibility of repeated foreign exchange crisis because amount of our foreign loan is $14 billion higher than the amount of foreign debt, it is still problematic. A large proportion of foreign loans can not be collected due to the losses or on-going investments worldwide. However, it is extremely important to be aware that foreign investments in the domestic stock market can be withdrawn easily and rapidly when there is a small sign of trouble.
Therefore, the government must manage its foreign exchange policy actively, especially since only two and a half years ago the nation had to depend on the IMF to pay off our short-term debts. It is especially important to regulate short-term foreign transactions known as "hot money" that can flee the country quickly, causing immense harm to domestic markets. Moreover, it is important to reconsider plans to liberalize foreign exchange transactions as well as economic policy concentrated on growth.
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