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Seoul to strengthen coordination with G20 to curb risks

Vice finance minister dismisses possibility of massive capital outflow

Korea’s financial authorities plan to strengthen coordination and communication with the Group of 20 countries in an effort to minimize market volatility from the U.S. policy to retrieve its state funds.

“We are set to seek closer interchanges with major countries’ governments and central banks via chances like the G20 finance ministers’ gathering, slated for July,” Vice Finance Minister Choo Kyung-ho said in an extraordinary meeting of monetary policymakers and regulators on Sunday.

Choo, however, downplayed the feasibility that Korea will undergo a massive capital outflow. He stressed that “Korea’s economic fundamentals are relatively solid, compared to ordinary emerging countries in Asia.”

Sharing views with some economists in agencies such as Moody’s Investors Service, the vice minister predicted that the expected tighter monetary policy in the U.S. could ultimately be a favorable factor for the Korean economy in terms of increasing exports.

Optimists say the U.S. tighter monetary policy suggests the coming economic recovery in the U.S., which may lead to possible export growth for Korea on a mid- and long-term basis.

During the meeting, officials at the Bank of Korea and the Financial Supervisory Service reiterated that they would closely look into the foreign exchange market.

The Korean won lost ground sharply to the U.S. dollar on Thursday and Friday, falling to an 11-month low against the greenback.

As an active state PR, government officials have decided to actively publicize details for fundamentals of the Korean economy during their scheduled meetings with the three major credit rating firms, starting next week.

For its annual assessment, a delegation from U.K.-based Fitch Ratings will visit the Finance Ministry and other key agencies including the Bank of Korea, the Financial Services Commission and the Korea Development Institute from June 25 to 27.

Evaluators from Moody’s and Standard & Poor’s are also scheduled to also visit Korea in late August.

Despite the government-led effort to curb worries, some economists are issuing the possibility that foreign investors will capitalize on a large portion of bonds.

A research fellow of the Korea Institute of Finance estimated that bonds amounting to about 34 trillion won ($30 billion), or 34 percent, of the total 98 trillion won worth of bonds held by foreigners are susceptible to frequent capital flows.

He said foreigners used to have the tendency of averting uncertainties in their trading of local bonds.

By Kim Yon-se (kys@heraldcorp.com)
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