The Wall Street Journal reported on August 28 (local time) that Korea has turned out to be the sole winner in the recent economic crisis in emerging markets, the only one not suffering from fund drain. It said that Korea’s efforts to strengthen its economic fundamentals through the 1997 Asian financial crisis and the global financial turmoil in 2008 are bearing fruit in the end.
According to the report, the Korean won gained against the US dollar during the past year, while the value of most emerging countries’ currencies fell by 15% or more. “It seems that the countries’ economic fundamentals are dividing them into two groups, that is, winners and losers,” said JP Morgan’s Luis Oganes, who is in charge of Latin American market research.
“Korea has refined itself through the 1997 Asian financial meltdown,” the WSJ continued, adding, “The government, in particular, has put great efforts to better control the inflow and outflow of hot money and better monitor the short-term debts, which was the most vulnerable spot in Korea’s financial systems.”
Korea’s ratio of short-term debt to foreign reserves as of the end of the second quarter of this year was 36.6%, way down from close to 80% recorded in 2008. The amount of the debt decreased from approximately US$190 billion to US$120 billion during the same period. This is opposite the trends in India and Indonesia, where the size of short-term foreign bonds doubled. Since the Fed mentioned the end of quantitative easing, foreign funds have rushed out of the two countries to cause a quick decrease in stock prices and currency values.
“Korea learned a valuable lesson in 2008,” said HSBC Holdings strategist Ju Wang. He went on, “Korea is the only country in Asia that succeeded in de-leveraging without re-leveraging.” Neal Capecci, head of the fixed asset division of Manulife Asset Management, echoed by saying, “Korea has economic fundamentals strong enough to withstand the difficulties as of late and its bond market is moving like those of advanced economies.”