Government tiptoes around 3 red flags in S. Korea’s economy in pitch to investors

Posted on : 2022-10-13 17:05 KST Modified on : 2022-10-13 17:06 KST
Foreign investors see three major concerns: current account deficit, external soundness and debt
Choo Kyung-ho, South Korea’s deputy prime minister and minister of economy and finance, speaks at an even on the country’s economy in New York on Oct. 11. (courtesy of MOEF)
Choo Kyung-ho, South Korea’s deputy prime minister and minister of economy and finance, speaks at an even on the country’s economy in New York on Oct. 11. (courtesy of MOEF)

The South Korean government has been tweaking its “economic sales” approach amid growing fears of crisis with high prices and high exchange and interest rates.

In its briefing of foreign institutions investing in South Korean stocks and bonds, it has attempted to reassure investors that the likelihood of a South Korean economic crisis is “low.”

On Tuesday, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho delivered a briefing on the South Korean economy in New York City. The investment pitch was presented to 20 executives from some of Wall Street’s key investment companies, including Goldman Sachs, Lazard, Brookfield, BlackRock, Blackstone, Citi and Carlyle.

The briefing was much smaller than a previous one that had over 100 attendees, and it focused more on answering investors’ questions than on government promotional efforts. Lasting for nearly two hours, it devoted over an hour and a half of that time to Q&A.

One of the presenters was Kim Seong-wook, an assistant vice minister for international affairs at the Ministry of Economy and Finance (MOEF), who focused on sharing Seoul’s position in response to overseas investors’ concerns. The MOEF addressed three questions currently being posed to the South Korean economy in terms of the current account deficit, external soundness, and debt.

The administration has dismissed analyses associating the recent current account and trade deficit situation with weakened competitiveness for the South Korean economy.

The trade deficit, which is calculated by subtracting import value from export value, reached a cumulative US$28.9 billion between January and September of this year amid a stagnant global economy and soaring energy prices. But the government predicted this would be offset by a surplus of US$30 billion–40 billion this year in the current account balance, which represents the amount of money flowing overseas subtracted from the amount of money coming into South Korea — a category that also includes the service account.

As a basis for this, it cited South Korea having the world’s fourth-highest current account surplus, with China and Germany among those ranking ahead of it. It also pointed to predictions by Goldman Sachs and other global investment banks that this surplus will increase next year.

The government further stressed the positive signs in terms of external soundness. Comparing the current situation with the one around the time of the 1997 Asian financial crisis and 2008 global financial crisis, when the won’s value was uniquely weak, it noted that the exchange rates for other major economies such as Japan and Europe’s have all been rising sharply (indicating a weaker currency value) amid the effects of a super-strong dollar.

It also explained that the risk of defaulting on its national debt is low thanks to South Korea’s ample means of buffering against shocks, with the world’s eighth-largest foreign exchange reserves and overseas assets as of late August.

Offering a self-assessment of South Korea’s economic situation, the MOEF said, “External liabilities are at a manageable level, and our debt repayment capabilities are stable.” In particular, it noted that short-term foreign liabilities (less than one year) amounted to 27.8% of all debt procured from overseas as of this — compared with 51.7% in 2008 — while the rise in household debt had dropped off noticeably.

In describing the South Korean economy to overseas investors, the government characterized it by its “perseverance and resilience.”

“South Korea is among the strongest and will bounce back quickly when it comes to recovery periods in the global economy,” it predicted — effectively sending the message that investors can expect high returns after the economic situation bottoms out and begins rising again.

According to the MOEF, the overseas investors at the briefing asked questions about the South Korean government’s plans for responding to high exchange and interest rates, along with its views about what represents an appropriate won-to-dollar exchange rate.

Choo avoided giving specifics about the exchange rate level, saying only that the government would “respect foreign exchange market supply and demand, but implement market stabilization measures if an excessive herding situation arises.”

By Park Jong-o, staff reporter

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