South Korean President Lee Myung-bak called for calm yesterday as the won suffered its biggest daily loss for a decade, saying the nation need not fear a repeat of the 1997 to 1998 Asian Financial Crisis.
The current situation “is wholly different from the foreign exchange crisis of 1997,” he told a Cabinet meeting.
“Excessive optimism is dangerous but we don’t have to be mired in pessimism and a sense of crisis,” he said.
The local currency closed at 1,328.1 to the dollar, down 59.1 won from Monday’s close and the lowest level since April 12, 2002. The daily loss was the biggest since August 1998 when it fell by 70 won.
The currency has fallen 29 percent against the dollar so far this year, fuelling already high inflation.
“The won’s steep fall came as market participants panicked on concerns that financial market turmoil which started in the United States is spreading into Europe and other countries,” Jeon Seung-ji, an analyst at Samsung Futures, told Yonhap news agency.
The won plunged to 1,350 at one point but clawed back on dollar-selling by the authorities.
The forex market is suffering from a dollar shortage as banks and companies rush to the greenback on concerns of a global financial crisis.
The KOSPI benchmark stock index closed 0.5 percent higher on bargain-hunting by local funds.
“The government is now striving to expand its foreign exchange holdings and liquidity, while the corporate sector is making its own restructuring effort,” Lee said. “Above all, the most important thing is for the government to give confidence to the people.”
Lee and other top financial officials agreed that concerns over the risks posed by the possible redemption of the nation’s offshore debt are overdone, Deputy Finance Minister for Foreign Affairs Shin Je-yoon said.
“We admit that conditions are difficult, but considering the nature of the offshore debt, we can certainly handle the burden,” Shin said.
The meeting also decided to investigate whether markets have been manipulated.
“The trading volume is very thin these days, but [the dollar and won are] fluctuating heavily,” Shin said. “We smell something and we think it’s necessary to analyze.”
He said supply and demand will likely improve markedly once the current account swings to surplus. Authorities have spent almost US$25 billion since March trying to support the won, Yonhap reported.
The spending has cut foreign reserves to US$239.7 billion, still the world’s sixth-largest.
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