Seoul approves package to stabilize financial sector
The South Korean government agreed Sunday on a package of more than 130 billion dollars to stabilize the country's financial sector, dpa reported.
The package offers a combination of credit guarantees and the infusion of fresh capital to boost liquidity in the banking and export sector, in line with worldwide coordinated efforts to stabilize finance markets, the Finance Ministry said.
"The Korean government will take similar measures to avoid placing domestic banks at a comparative disadvantage in terms of overseas funding and to ally fears in the financial market," Finance Minister Kang Man Soo said.
Among other aspects, the government is to guarantee up to 100 billion dollars' worth of three-year foreign loans taken on by banks up till the end of June 2009.
Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), said he welcomed the measures announced by the Korean government.
"In particular, the announced guarantee of banks' external liabilities will bring Korea's policies closer in line with advanced countries, including some in the region, and help ease pressures in the local dollar funding market," an IMF statement said.
"While global financial conditions will likely remain unsettled for some time, the government's policy package should support confidence in the Korean financial system and return attention to Korea's solid macroeconomic fundamentals, including its sizable foreign reserves," Strauss-Kahn said.
The Finance Ministry insisted that despite the current credit crisis, South Korea's real economy and its financial sector were in "solid" condition.
Besides the loan guarantees, the country's central bank is to provide additional liquidity of some 30 billion dollars to banks and exporters, the money coming from South Korea's currency reserves which as of the end of September stood at 240 billion dollars.
In addition, the government also announced it would expand the working capital of the Industrial Bank of Korea by a further 1 trillion won (750 million dollars) to shore up lending to small and medium-sized companies.
The stability programme is subject to approval by the South Korean parliament.