The Korea Herald


Korean businesses bracing for escalating uncertainties

By Korea Herald

Published : Dec. 25, 2011 - 18:17

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Korea is girding itself for a series of external uncertainties surrounding its economy that are expected to reach their peak in the first quarter of next year, officials said Sunday.

Amid a global economic slowdown, the bulk of sovereign debts issued by five highly indebted eurozone countries will mature during the January-March period, the most serious risk factor that could rattle financial markets across the globe.

Washington’s additional sanctions on Iran for the latter’s suspected nuclear arms program are projected to escalate global uncertainties further, while North Korea’s new leadership will likely emerge as a fresh geopolitical risk.

According to the finance ministry and the Korea Center for International Finance, 207.5 billion euro ($270 billion) worth of government debts floated by Italy, Greece, Spain, Portugal and Ireland are scheduled to mature during the first quarter.

The figure, which includes interest, is about 13 times larger than the amount of their sovereign debts that are due in the current quarter.

Government officials expressed worries that the expected maturity of large amounts of eurozone debts could come as a destabilizing factor for financial markets.

“If the eurozone’s response fails to gain confidence from investors, it could cause international financial markets to fluctuate frequently, having a negative impact on the domestic financial markets,” a finance ministry official said.

In addition, large European banks should raise their capital adequacy ratio to 9 percent by June next year under an agreement reached at a summit of European leaders in October.

The requirement is widely expected to prompt big European lenders to ramp up their efforts to deleverage, which could make it tougher for South Korean banks to borrow from overseas.

“Financial instability is feared to escalate due to the eurozone debt crisis,” said Lee Han-kyu, a researcher at the state-run Korea Development Institute. “The coming quarter is expected to be the most difficult time for the South Korean economy.”

Also escalating global uncertainties is Washington’s increased pressure on Iran due to its suspected nuclear weapons program, which may lead to a surge in crude prices or a halt in imports of crude from the Middle Eastern country, officials said. 

(Yonhap News)