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Risks From S Korea's Surge In External Debt Manageable - IMF
Fri, Jun 20 2008, 07:29 GMT
http://www.djnewswires.com/eu


Risks From S Korea's Surge In External Debt Manageable - IMF

SEOUL -(Dow Jones)- The International Monetary Fund said Friday that the risks arising from a surge in South Korea's external debt by almost 14 times are manageable, but said the government should monitor the situation closely as a reversal in flows could occur.

"South Korea's fundamentals have improved dramatically," Meral Karasulu, IMF Resident Representative in South Korea, said in a statement. "(South) Korea has built up substantial international foreign-currency reserves, which can act as a buffer against shocks."

South Korea's overseas debt reached a preliminary $412.5 billion at the end of the first quarter from $30.3 billion at the end of last year, mainly due to exporters hedging their foreign-currency risks and overseas equity investments by domestic investors.

Apossible reversal of such flows could cause instability in the local financial system when the country is about to become a net debtor in the near term.

The country also holds $427.4 billion of outstanding overseas bonds, compared with $417.7 billion at the end of December.

Despite the increase, however, Karasalu said "the outstanding amounts of external debt are still not unusually large when compared to the country's export earnings or international reserves, or when compared to other countries in the region."

Given the country's sound fundamentals, South Korea's sovereign rating is "solid" and its external debt remains in line with countries with similar credit ratings, she said.

In May, Standard & Poor's Ratings Services warned that South Korea's sovereign ratings could be hurt if its external net borrowing continues to post a structural expansion.

South Korea's foreign-exchange reserves were $258.2 billion at the end of May, compared with $262.22 billion at the end of last year.

-By Jung-Ah Lee, Dow Jones Newswires; 822-732-2165;jung-ah.lee@dowjones.com

(END) Dow Jones Newswires

June 20, 2008 03:29 ET (07:29 GMT)


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