Published : 2010-03-30 12:44
Updated : 2010-03-30 12:44
Dubai World`s request to delay debt payments is unlikely to have a significant effect on local financial markets, Financial Services Commission Vice Chairman Kwon Hyouk-se said yesterday.
Dubai World, a state-run holding company, requested a six-month repayment moratorium on debts of around $60 billion, crushing investor confidence in the region and at other major markets.
Speaking at an emergency meeting called to gauge the impact of developments at Dubai World on the local economy, he said that the scale of the situation is unlike previous events that triggered the global economic crisis.
"The view within and outside the country is that there is no possibility that the situation will lead to a global crisis as did Lehman Brothers` bankruptcy," Kwon said.
Kwon said that since European banks have dealings in the areas, there could be some indirect consequences for the local market, but as Abu Dhabi`s government is trying to resolve the problem early on, there will be a limited effect on the world economy. Kwon added that the situation is unlikely to deteriorate to an extent where European institutions will try to cover losses by extracting funds from other markets.
"Korea`s exposure is small, and we think that the effects will be limited compared to other countries. However, as economic recovery remains unstable and full recovery has not yet occurred, we are monitoring the situation closely and preparing systematic responses."
According to sources, local construction firms and financial institutions have about $32 million tied up in Dubai World.
The figure for United Arab Emirates in general, including Dubai, is $221 million. All external credit stood at $52.8 billion at the end of September.
With the situation standing as it is, the local stock market appeared unfazed with the benchmark KOSPI falling only 0.77 percent on Thursday.
Although there were signs that there could be significant indirect effects, including the KOSPI taking a 4.69 percent dive on Friday - dragged down by a fall in European markets - the general consensus is that the developments concerning Dubai World will have relatively little effect on Korea.
"The amount invested in Dubai is relatively small, so the situation cannot be compared to that of Lehman Brothers," a Ministry of Strategy and Finance official was quoted as saying by Yonhap News. The official also said that as there has been talk of such developments for some time, the situation has a positive aspect in that things can move on rather than having the situation laying dormant.
Korean economic researchers also say that while the situation will cause uncertainties in the market and lead to investors liquidating assets as they try to secure short-term liquidity, funds will flow back into financial markets as the situation calms.
However, the FSC said that it will continue to monitor local and overseas markets, and analyze trends in market risk to prepare for any eventuality. In addition, the FSC also plans to strengthen collaborative monitoring efforts with foreign financial institutions.