More Capital than Debt
Korea has become a net international asset country for the first time in history. According to the Bank of Korea’s tentative International Investment Position for September released on Nov. 20, Korea recorded a record-high overseas investment of US$1.0515 trillion as of the end of September, increasing the amount by US$10.2 billion from three months ago.
During the same period, foreigners’ investment in Korea decreased by US$23.1 billion to US$1.0288 trillion. The net international investment balance, which is calculated by subtracting the investment by foreigners from Korea’s overseas investments, added up to US$22.7 billion to become positive for the first time since 1994, when the first net international investment balance data had been made available.
At the end of June this year, the net deficit was US$10.5 billion, which means Korea was a net foreign debtor country. International assets and foreign debts are concepts covering stocks, derivatives, equity investment, etc. Therefore, these are wider than foreign credits and liabilities.
Korea has been a net creditor country since the year 2000. Still, it was in the red when investments including stocks were taken into account. The deficit was addressed this time, though with overseas investment exceeding foreign investment. The shift is about a year earlier than the central bank’s estimate.
The faster-than-expected conversion is because foreign investment Korea declined due to factors such as the depreciation of the won, while Koreans, including stock market investors, increased their overseas investments.
Net foreign credit reached the new high of US$224.9 billion, too. External debts decreased by US$13.1 billion to US$429.1 billion during the three-month period, but foreign credit increased by US$6.2 billion to US$654 billion.
The ratio of short-term debt declined as well, with banks repaying their loans. The total short-term debts maturing within a year fell by US$5.7 billion to US$126.1 billion, while the ratio declined from 29.8 percent to 29.4 percent. The ratio was at 27.7 percent at the end of last year, 29.1 percent at the end of the first quarter of 2014, and 29.8 percent in late June.
The ratio is one of the three indices showing the governmental foreign payment capabilities along with the current account balance and foreign exchange reserves. Those with a maturity of less than a year are considered as funds flowing out immediately after any increase in financial market volatility.