Financial Organizations Secondary Products, Tighter Supervision over Foreign Investment Risk

The administration called a meeting of financial ministers on December 24 on the behest of Jin Nyum, Deputy Prime Minister and Minister of Finance and Economy on Argentina`s recent announcement of a moratorium on payment of foreign debt. The administration decided to tighten supervision over foreign exchange risks for financial organizations in order to decrease the negative impact that Argentina`s moratorium would have on the Korean economy.

A Ministry of Finance and Economy source said, "Argentina`s moratorium was expected, so the impact that it will have on the world economy is limited. However, in order to prevent bad investments in the Argentinean market like Dae Han Investment, we have decided to tighten supervisory control over investment products and manage foreign investment risks."

The report submitted by the Korea Center for International Finance (KCIF, President, Kim Chang-Lok) at the meeting indicated that product exchange between Korea and Central American countries is meager and the amount of investments in Argentina by Korean financial organizations is small, making a significant impact on Korea unlikely.

The KCIF stressed, "Due to anxiety in the global financial market, differentiation between nations in emerging markets appear likely. We will have to accelerate our structural reforms, promote a strategy of differentiation with other nations, and keep close watch over Argentina and Central America."

Meanwhile, financial assessment organization Standard & Poors predicted that Argentina`s moratorium will have almost no effect on other countries, differentiation between nations in emerging markets will become sharper, and capital will flow toward countries with healthy economy conditions such as Korea and Taiwan.

Chan-Sun Hong hcs@donga.com