South Korea's economy will maintain its fast recovery and the US unwinding of its stimulus measures even adds to the optimism because it suggests exports will grow, the South Korean finance minister told Reuters on Friday. A spike in the amount of long-term external debt was not a source of concern but was "natural" in line with the expanding size of the Korean economy and was instead a sign of improving investor confidence in South Korea, he said.
"On the one hand the QE tapering could hint at the recovery of the US and the global economy, meaning that Korea could see a rise of demand for exports," Finance Minister Hyun Oh-seok said in an interview on the sidelines of the International Monetary Fund and World Bank annual meetings. On the other hand, he said, the US tapering from its quantitative easing, or QE stimulus packages, could lead to rising market interest rates first in the United States and then in other countries. He did not see it as a threat to economic growth.
South Korea's economy, the fourth-largest in Asia, is on course for growth of about 4 percent this year from 3 percent last year and was supported in part by solid employment against a backdrop of still weak exports. "In February alone it has seen an increase in job positions of 830,000 (compared with a year earlier)," said Hyun, who is also South Korea's deputy prime minister. South Korea saw both job market participation and employment rates grow in each of the past 10 months over the year earlier.
Hyun played down a spike in long-term foreign debt, which has more than tripled in less than a decade, saying it was a sign of improving confidence in South Korea given that the bulk of the debt was held by central banks around the world. "We believe (the rising long-term foreign debt) clearly hints at the rise in demand for Korean long-term bonds and at the same time that implies the fiscal soundness of Korea and the stability of the Korean financial market," he said.
Alarmed by a big foreign capital flight in 2008 over concerns about its heavy short-term debt, South Korea has imposed a series of measures aimed at curbing such debt. It has brought down short-term foreign debt to less than 9 percent of annual GDP in 2013 from as much as 17 percent in 2009. He said heightened political and economic tensions over the crisis between Russia and Ukraine could affect energy-deficient South Korea by increasing global energy prices, but Hyun played down the risk of the Russian economy crashing. Hyun said South Korea was expanding bilateral currency swaps with other countries to strengthen defence against global financial shocks. He said building up foreign currency reserves was inevitable, if costly, for small, open economies.
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