February 22, 2009 / 12:22 PM / 10 years ago

UPDATE 1-S.Korea warns against FX speculators-Yonhap

(Recasts with finance minister)

By Yoo Choonsik

SEOUL, Feb 22 (Reuters) - South Korea on Sunday issued a warning against speculative traders as its won currency has tumbled on worries about its ability to secure dollars to pay back maturing foreign debt, Yonhap news agency reported.

“The government will not sit idle when the foreign exchange rate is excessively tilted toward one direction or when there are speculative forces,” Yonhap quoted Finance Minister Yoon Jeung-hyun as saying in Phuket, Thailand.

Yoon was visiting the Thai resort island to co-chair a meeting of finance ministers from 13 east Asian countries — 10 southeast Asian countries and China, Japan and South Korea.

Finance ministry officials in Seoul could not immediately be reached for comment on the strongest indication of a possible dollar-selling intervention aimed at defending its ailing currency since Yoon took office early this month.

There has been no report of intervention by South Korean authorities as the won KRW= fell for nine consecutive sessions to trade near an 11-year low against the dollar set in November last year. [ID:nSEO252703]

The central bank issued a statement on Thursday, in which the Bank of Korea dismissed worries about the country’s foreign debt burden as overblown, saying the maturing debt was small compared with the country’s massive foreign currency reserves.

Analysts said $24.5 billion worth of foreign debt South Korean banks have to pay back or roll over this year was small in value, but warned unstable global markets could make it difficult for South Korean banks to raise sufficient dollars.

Yoon’s reported comment came hours after Yonhap quoted unnamed central bank and finance ministry officials as saying they may use some of the foreign reserves to shore up the tumbling won even if the reserves fall below $200 billion.

“Whether the foreign reserves fall below $200 billion is not the subject of consideration at all in deciding whether to intervene in the foreign exchange market,” Yonhap quoted an unnamed Bank of Korea official as saying.

There has been a perception among traders and analysts that South Korea was holding off from dollar-selling intervention in recent weeks because it did not want foreign reserves to fall below $200 billion.

South Korean foreign reserves fell to a near four-year low of $200.5 billion at the end of last November as a result of dollar-selling intervention for months, before edging up to $201.7 billion by the end of January.

Yonhap said another unnamed official at the Ministry of Strategy and Finance also dismissed market talk that South Korea was not intervening in the foreign exchange market to keep foreign reserves above $200 billion.

“All of the foreign reserves can be used when it’s deemed necessary,” the finance ministry official was quoted as saying.

The Bank of Korea usually carries out intervention in the currency market but the finance ministry has the final say.

The won has lost 17 percent so far this year to a three-month closing low of 1,506 per dollar on Friday, making it the worst performer among major Asian currencies this year, raising concerns about the country’s financial stability as a whole. (Editing by Erica Billingham)

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