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S Korea's foreign reserves fall amid credit crunch

(Agencies)
Updated: 2008-11-04 14:24

SEOUL, South Korea -- South Korea's foreign currency reserves tumbled in October, the Bank of Korea said Tuesday, as authorities dipped into the pool of cash to battle the effects of the global credit crisis.

Foreign currency bank clerks work at the head office of Korea Exchange Bank in downtown Seoul, South Korea, Monday, Nov. 3, 2008. South Korean President Lee Myung-bak said Monday that a currency swap agreement with the United States last week has greatly reduced fears South Korea could suffer a foreign exchange crisis. The government also unveiled new spending aimed at boosting the nation's slumping economy. [Agencies]

The reserves totaled $212.25 billion at the end of October, down from $239.67 billion at the end of September, the central bank said in a statement.

Yonhap news agency said it was the biggest monthly decline since the 1997-98 Asian economic crisis. Central bank officials could not immediately be reached for confirmation.

The drop came as the central bank expanded liquidity to the South Korean financial system to help calm the effects of the world credit crunch, the Bank of Korea said in the statement.

South Korean banks and companies have been scrambling to acquire dollars to meet foreign debt obligations as formerly easily obtained short-term rollover loans have become harder to negotiate.

South Korean authorities, including President Lee Myung-bak, have touted the country's currency reserves as its best weapon in battling the financial turmoil.

As of the end of September the reserves were the world's sixth largest. The central bank statement did not provide a ranking for October.

The 11.4 percent decline comes as the Bank of Korea and the US Federal Reserve announced last week a deal for South Korea to get access to up to $30 billion if needed via a currency swap agreement.

The Fed also reached similar agreements with the central banks of Brazil, Mexico and Singapore in a bid to help ease dollar shortages.

Lee, the South Korean president, said Monday that the currency swap deal with the US has greatly reduced fears South Korea could suffer a foreign exchange crisis due to the global financial turmoil.

The South Korean won has stabilized since that deal was announced. It traded at 1,284.50 to the dollar at about midday Tuesday, down 1.8 percent from Monday's close.