South Korea guarantees foreign loans

by amyjudd | October 18, 2008 at 08:14 pm

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$110 billion evaporates in market bloodbath

South Korea will guarantee foreign loans to help stabilise financial markets.

The government is expecting about $100 billion to be borrowed in the deal.

Another $750 million will be released into the Industrial Bank of Korea so it can then lend to small businesses.

It enjoys major export success in a number of manufacturing industries, but especially shipbuilding, car-making, and electronics.

However, analysts say the country has appeared particularly vulnerable to the global credit crisis because its banks lacked sufficient dollars to service maturing foreign debt.

In a statement, the government said it would guarantee for three years all external debt taken on by South Korean banks before 30 June 2009 in order "to avoid placing domestic banks at a comparative disadvantage in terms of overseas funding and to allay fears in the financial market".

Along with the Bank of Korea, it will also provide an additional $30bn of dollar liquidity to the banks by utilising foreign exchange reserves.

South Korea has the third largest economy in Asia and 13th in the world.