South Korea’s parliament approved a plan yesterday to extend state guarantees worth up to US$100 billion on foreign borrowing by local banks, in a move intended to stabilize turbulent financial markets.
The National Assembly voted 218-10 in favor of the plan, with 10 abstentions.
The plan, which was announced on Sunday last week, provides a three-year government guarantee for interbank foreign currency loans taken out by 18 local banks between Oct. 20 this year and the end of June next year.
FALLING RATES
Despite foreign reserves of almost US$240 billion, South Korea was seen as vulnerable to the global turmoil because of a surge in short-term foreign borrowing by its banks in the past year as US interest rates fell.
Some US$80 billion in foreign currency borrowing is due to mature by next June.
The global credit crunch was complicating efforts to roll over those loans, causing a scramble for US dollars and a plunge in the won’s value.
NECESSARY
Financial authorities say the guarantees are necessary to avoid placing domestic banks at a comparative disadvantage in terms of overseas funding and to calm fears in the financial markets.
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