South Korea confident it can beat financial storm

AP News
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Posted: Aug 15, 2011 5:30 AM
South Korea confident it can beat financial storm

When it comes to weathering economic storms, South Koreans can rightly claim more familiarity than most with the harrowing experience of seeing hard-won prosperity evaporate.

Ever since the East Asian economic crisis spread to its shores in late 1997, government officials, media and ordinary citizens have kept up a nervous vigilance against any hint of turmoil.

The Asian crisis, which started in Thailand and spread to Indonesia before reaching South Korea, left a deep scar on the country. Seoul had to seek a humiliating international bailout and impose wrenching reforms to its economy and companies, which had become bloated by reckless overborrowing.

Last week, when fears spiked of a global financial meltdown after the first ever downgrade of the U.S. sovereign credit rating, the government sprang into action to calm nerves.

It was reminiscent of 2008, when talk of an impending foreign exchange and banking crisis rattled the country even before the collapse of Lehman Brothers Holdings caused global liquidity to dry up and export markets to collapse.

Then, South Korean officials were adamant that their country was far more resilient than in 1997. And they were proven right. Though markets tanked and the currency, the won, fell sharply, the overall effect was less severe and the economy roared back.

This time, top economic officials have again mobilized, holding emergency meetings, issuing statements and trying to reassure investors and citizens alike that the external situation, while uncertain, will not bring Asia's fourth-largest economy to its knees. President Lee Myung-bak, a former CEO, made an unscheduled visit to the Ministry of Strategy and Finance to discuss the turmoil.

"Korea's economy has great potential to weather this global storm," Choi Jong-ku, deputy finance minister for international affairs, told reporters in a display of unity with top officials from the central bank and the country's two financial regulators beside him.

Choi cited the diversity of South Korea's exports _ with more than 70 percent destined for emerging markets against only about 22 percent to the currently shaky United States and Europe _ as one factor bolstering the outlook.

Less debt since the 2008 crisis, the world's seventh-largest foreign reserve holdings and record high current account surpluses would also help tide the country over, Choi said.

Indeed, experience in overcoming previous meltdowns has given South Koreans increasing self-assurance they can ride out the next storm _ whatever it may be.

Lee Joo-hun, who teaches at a media and design institute, says the latest market dips and unease, while certainly worth watching, are not enough to truly rattle a people that have been through worse.

"That kind of experience gives us Koreans a kind of special confidence to get over this kind of mini-crisis," he said while spending time Sunday with a friend at a Seoul coffee shop. The Asian crisis, in particular, "gave our economic system a kind of immunity to resist crisis coming from foreign countries."

The 1997-98 trauma _ known in South Korea as the "IMF crisis" after the nearly $60 billion international bailout the country sought from the International Monetary Fund and others to get back on its feet _ was particularly searing.

The experience humbled a country proud of its stunning economic progress from the ruins of the 1950-53 Korean War. It came just a year after South Korea reached a development milestone by joining the Organization for Economic Cooperation and Development, a Paris-based club of industrialized nations.

"We had this external shock and with this external shock we did our homework, which is very painful," said Sakong Il, a former finance minister and presidential adviser. That experience "became a strength in dealing with the last financial crisis and current financial crisis," said Sakong, who currently heads the Korea International Trade Association.

In the end, South Korea recovered quickly from the 1997-98 upheaval, using only about half of the total international aid package and even paying off the last of the debt ahead of schedule.

Some argue a crisis mentality among South Koreans long predates the Asian financial meltdown.

"The Korean psyche has been affected by crisis ever since the Korean War," said Donald Kirk, a Seoul-based author who wrote a book on South Korea's experience during 1997-98.

"They've always gone through these periods of deep concern about their economy and they've always had almost exaggerated fits of fear about where the economy is going," said Kirk, who wonders if now the pendulum has swung the other way and the country has grown overconfident.

Certainly, while South Korea has been a keen student of crisis, it still has vulnerabilities to global turmoil given its high, though diversified, export exposure and tendency to run up short-term debt, said Bill Belchere, chief global economist at Mirae Asset Securities in Hong Kong.

"They've learned from every mistake," Belchere said. "They just continue to make mistakes, just like the rest of the world. But they learn from them."