Record external debt tops $413 billion

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Record external debt tops $413 billion

Korea’s external debt hit a record high in 2012 on foreign investors’ buying spree of local bonds, but its short-term foreign debt fell to a six-year low, the central bank said yesterday.

The country’s external debt totaled $413.4 billion as of the end of December, up $14.7 billion from a year earlier, according to the Bank of Korea.

It marked the first time that the country’s yearly foreign debt surpassed the $400 billion mark.

But in the fourth quarter, Korea’s foreign debt declined by $6 billion from a quarterly record high of $419.4 billion in the third quarter as banks repaid short-term foreign borrowing amid tighter rules on bank’s foreign exchange derivatives.

“Powerful monetary easing by advanced economies led more foreign investors to increase purchases of Korea’s treasuries and monetary stabilization bonds last year,” Kim Young-hun, the head of the BOK’s international investment position team, told reporters. Last year, foreign investors snapped up Korean bonds as they were seen as attractive amid aggressive monetary easing moves by major economies and a spate of credit rating upgrades for Korea.

Despite the rising trend of the external debt, Korea saw its short-term debt decline to a six-year low in 2012, indicating that the structure of its foreign debt improved.

Korea’s short-term foreign debt fell $10.7 billion on-year to $126.7 billion in 2012.

It marked the smallest short-term debt since $113.7 billion in 2006.

Accordingly, the ratio of the short-term debt against the foreign reserves came in at 38.7 percent as of end-December, down 6.1 percentage points from the previous year.

It marked the lowest ratio since 31.3 percent at the end of 2005.

The rate of the short-term debt against Korea’s total debt reached 30.6 percent as of end-2012, down from 34.5 percent from the previous year and the lowest since 29.7 percent in 1999. Korea’s high short-term foreign debt used to be a major headache whenever a financial crisis cropped up, as the surge in foreign debt left local banks vulnerable to external shocks.

Korea’s net external credit reached $122.5 billion as of the end of last year, up $24.5 billion from the previous year, it noted.

The 2012 reading marked the largest amount in six years. Yonhap

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