Officials say over-reacting to euro crisis isn’t wise

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Officials say over-reacting to euro crisis isn’t wise

Despite market gyrations triggered by concerns about Greece’s possible exit from the euro zone Wednesday, the Korean economy has not been affected yet because of its solid fundamentals, said a government policymaker.

Vice Finance Minister Shin Je-yoon said the Korean economy has not been seriously hit by the euro zone crisis and the tumult in global financial markets at an economic review meeting yesterday.

“Korea has sufficient foreign exchange reserves and sees no problem in acquiring liquidity, and the government has the ability to deal with unforeseen developments,” Shin said.

Shin underscored that there was no need to overreact.

“Although the current woes are expected to continue in the global financial market, the Korean government will remain calm to take careful measures,” Shin said.

However, officials from the Bank of Korea and the Financial Services Commission, who joined yesterday’s meeting, acknowledged that the stock market and foreign exchange rates had been affected by the concerns over Greece. But “not at a serious level,” they said.

Despite a rise in the country’s credit default swap (CDS) premium from 121 in April to 143 as of May 16, the local market is facing fewer risks than it did last year, the officials explained.

The CDS premium is a commission fee for financial derivative products. It rises when a country or institution’s credit risks increase.

The vice minister said Korea has the ability to secure foreign capital in the long run.

“Domestic financial institutions have secured sufficient foreign capital in their coffers,” Shin said.

As for the latest selling spree by foreign investors, Shin said the foreign capital flow has been smooth. Korean treasury bonds are considered “safe” in the market, he said.

He also said the government has been taking preemptive measures in case of another possible financial crisis by signing currency swap deals with China and Japan.

However, since the euro zone crisis is not a short-term issue, there is a high possibility the local financial market will see wide fluctuations, Shin warned.

“The government will continue close monitoring the political and economic situations in Europe and review its contingency plan to deal with unexpected situations,” he said.

Seoul’s main bourse Korea Composite Stock Price Index (Kospi) had a small rebound yesterday, following a 3.08 percent fall on Wednesday.

The market rose by 4.71 points from the previous day, closing at 1,845.24.
By Song Su-hyun [ssh@joongang.co.kr]

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