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Korea’s sovereign debt cost declined in Dec.

The cost of issuing Korea’s sovereign debt declined in December as market jitters eased over geopolitical tensions prompted by North Korea’s latest provocations, data showed Wednesday.

The spread on dollar-denominated currency stabilization bonds dropped to 90 basis points last month, down from 114 basis points reported in November, according to the data provided by the Finance Ministry.

The decrease is attributed to eased market anxiety caused by the North’s shelling of Yeonpyeong Island in November, which killed four Koreans, raising worries over a possible war, analysts said.

The spread reflects the cost of issuing sovereign debt in global debt markets. The lower it is, the cheaper it becomes to sell bonds.

For Korean debt, the figure once soared to 400 basis points in 2008 when the nation was in the grip of the global financial crisis.

The debt crisis in Europe renewed market jitters last year, sending the spread on Korean debt higher again. Since July, however, it had remained stable until November when the North’s provocation occurred.

Finance Minister Yoon Jeung-hyun said on Wednesday that Korea needs to strengthen its economic fundamentals to prepare for fiercer competition in the post-crisis era.

“We have laid the solid groundwork for a new leap forward by overcoming the crisis, achieving over 6 percent growth and successfully hosting the G20 summit talks last year,” the nation’s top economic policymakers said at a meeting with other key policymakers.

“Now it is time for us to shore up (our economy) as we will have to face fierce competition in which we have to compete in the post-crisis era using our own fundamentals.”

To that end, Yoon said that the nation should ramp up efforts to resolve underlying problems in its economy and society, and should go beyond its old-aged development paradigm to seek a more matured and efficient principle.

He reaffirmed the government’s commitment to economic objectives for this year, saying that his policy focus should be on achieving 5 percent growth and stabilizing price hikes at around 3 percent, while creating jobs and enhancing the nation’s overall growth potential.

The Bank of Korea will debate raising borrowing costs for the third time since the global financial crisis on Thursday.

Analysts are split on whether the central bank will add to increases of 0.25 percentage point in July and November from a record-low 2 percent.

The benchmark rate has lagged behind the pace of inflation for a record 14 straight months, skewing incentives toward spending and prompting the central bank to say it’s alert to the risk of imbalances from “accommodative policy.”

President Lee Myung-bak aims to contain consumer-price growth at 3 percent this year, a level exceeded in each of the last four months of 2010.

(From news reports)
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