South Korea announced a series of drastic measures intended to halt a run on its currency. From Bloomberg:
South Korea will guarantee as much as $100 billion in bank debts and supply lenders with dollars to stabilize the financial markets.
The government will also provide tax benefits for long-term equity and bond investors, while the Bank of Korea will buy repurchasing agreements and government bonds to boost won liquidity in the domestic markets, the heads of the nation’s finance ministry, central bank and financial regulator said today in a joint statement from Seoul. Policy makers had held an emergency meeting on Oct. 17 to hammer out the plan.
South Korea is struggling with Asia’s worst-performing currency, a shortage of U.S. dollars and a stock market that has lost 38 percent this year. The guarantee on bank debts comes after Standard & Poor’s said last week it may cut the credit ratings of the nation’s largest lenders, which triggered the worst plunge in the won since the International Monetary Fund bailed the nation out in December 1997.
“They have to do that because the market was pushing them by attacking the Korean won,” said V. Anantha-Nageswaran, chief investment officer for Asia Pacific at Bank Julius Baer (Singapore) Ltd., part of Switzerland’s biggest independent money manager for the wealthy. “They know what the stakes are. The currency could completely careen out of proportion.”
The government and state-run lenders including Korea Development Bank will guarantee the external debt taken up by Korean banks from Oct. 20 to June 30 next year, according to today’s statement. The guarantee is valid for three years.