Korea least likely to suffer FX crisis in Asia: economist

Korea least likely to suffer FX crisis in Asia: economist. September. 28, 2011 03:28. yunjung@donga.com.

Nomura Securities presented a favorable prospect that Korea is the least likely to suffer a foreign exchange crisis in Asia and will return to growth of 5 percent next year.

Senior economist Kwon Yeong-seon of Nomura Securities told reporters Tuesday, “In light of fundamentals, Korea is least likely to suffer a foreign exchange crisis in Asia.”

“A foreign exchange crisis refers to a situation that a country is forced to borrow funds from the International Monetary Fund, and imposes a significantly contractionary economic policy in return as conditions for the borrowing.”

Kwon added, “The situation now is different from the past. Even if a large crisis erupts in Europe, Korea can use policy measures including currency swaps, interest rate cuts, expansionary fiscal policy, and provision of financial support to smaller companies as it did during the global financial crisis in 2008."

He also predicted that foreign exchange rates will stabilize soon, saying, “The Korean won is the most susceptible (to external impact) along with the Indian rupee among emerging market currencies,” adding, “Price fluctuations will occur temporarily, but when a change occurs on the market, investors will get the perception that the won is undervalued, causing the exchange rate to stabilize.”

Kwon predicted growth of 3.5 percent for Korea this year and 5 percent next year. “Since the Korean economy is highly dependent on exports, it slumps more in a global economic downturn and bounces back more when the economy rebounds.”

For this reason, he said, the Korean economy will post growth lower than the world average this year, but will record a higher growth rate next year centered on domestic consumption and construction investment next year.

Kwon also said the presidential and general elections in next year form the basis for his positive outlook for Korea`s economic growth. Saying the economic cycle saw an upturn in four out of the country`s past five presidential elections except in 1992, he predicted an “election effect” for Korea next year.