South Korea is prepared to support its currency and add to a bank recapitalization fund should the economic slump worsen, Finance Minister Yoon Jeung Hyun said. The won and stocks gained, Bloomberg reported.
The government will act if financial markets "fail or if the market does not function properly," Yoon, 62, said in an interview yesterday in Phuket, Thailand. "In such situations, the government needs to show a very decisive stance."
South Korea's economy is headed for its first recession in a decade as demand from Europe, the U.S. and China for cars, semiconductors and consumer electronics dries up. The won has tumbled 37 percent in the past year, the worst performance in the region, and shares have plunged on concern that local banks are facing a funding crisis as loan defaults increase and offshore borrowing costs surge amid the worldwide credit freeze.
"Government intervention can't solve the problem," said Chun Chong Woo, an economist at SC First Bank Korea Ltd. in Seoul. "The currency will likely start to strengthen from April after reaching a peak next month if things don't get worse in Europe. Otherwise, we'll continue to see a dollar shortage."
Korea's won, which weakened beyond 1,500 per dollar for the first time in three months on Feb. 20, today rose 0.4 percent to 1,525 as of 10:00 a.m. in Seoul. South Korea may use foreign- exchange reserves to stem the currency's slump, Yonhap News reported yesterday, citing government and central bank officials it didn't identify.