South Korea 1st Quarter Short Term Debt Falls

SEOUL--South Korea's short-term external debt fell to the lowest level in more than six years in the first quarter, helped by the depreciation of the won and exporters' reduced credit loans.

The country's short-term overseas debt fell to $122.2 billion in the first three months of the year, down $4.5 billion from the previous quarter, the Bank of Korea said Wednesday. The amount of the short-term debt was the smallest since $113.7 billion at the end of the fourth quarter of 2006.

"Despite increased overseas borrowing by banks, short-term debt declined due to smaller trade-related credit by companies. The country's total liabilities also fell, helped by the won's weakness," the BOK said in a statement.

The value of the won fell 3.7% against the dollar in the first quarter.

Short-term external debt is the Achilles heel of South Korea's financial system, and the government is keen to keep it at a manageable level. The growth of such debt was one of the main reasons behind the rapid exit of foreign capital that Korea faced at several points when the global financial crisis began five years ago.

The ratio of total short-term debt against the country's foreign exchange reserves fell to 37.3% at the end of the first quarter from the previous quarter's 38.8%.

The percentage of short-term debt to total overseas debt declined to 29.8% from 30.7%, falling below the 30% range for the first time since 1997-98 Asian financial crisis.

Fearing the recurrence of the sudden, destabilizing outflows seen in 2008, the authorities have taken a series of steps to slow the pace of inflows. Since 2010, the government has implemented measures such as a cap on banks' foreign-exchange forward contract positions, a tax on foreign investment in local bonds, and a levy on banks' offshore debt.

With increased foreign buying of local securities, the finance ministry has said the government is studying further options to guard against risk posed by rapid foreign capital flows.

"Foreign funds for local bond purchases keep flowing in as a result of the recent global quantitative easing steps. Banks' overseas borrowing is also increasing. We're closely monitoring the situation for any hints of abrupt fund outflows," the finance ministry said in a separate statement.

The central bank's data showed long-term debt rose $1.3 billion to $288.0 billion, bringing South Korea's total external liabilities to $410.3 billion at the end of the first quarter.

The country's total foreign credit rose to $544.5 billion at the end of the first quarter, up $8.6 billion from the fourth quarter of 2012, leaving it with net credit of $134.2 billion.

Write to In-Soo Nam at in-soo.nam@wsj.com

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(END) Dow Jones Newswires

May 21, 2013 20:55 ET (00:55 GMT)

Copyright (c) 2013 Dow Jones & Company, Inc.

Source: http://www.euroinvestor.com/news/2013/05/22/south-korea-1st-quarter-short-term-debt-falls/12343884

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