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Gov’t to Guarantee Foreign Currency Loans for 3 Years

Posted October. 20, 2008 08:44,   


The government announced yesterday that it will guarantee foreign currency loans of domestic banks between today and June 30 next year for three years.

Investors who subscribe to equity-type regular saving funds by late next year and hold them for more than three years will see five to 20-percent cut in their taxable income.

Strategy and Finance Minister Kang Man-soo, Bank of Korea Governor Lee Seong-tae and Financial Services Commission Chairman Jun Kwang-woo after a meeting announced the measure to stabilize financial uncertainty in Seoul.

The government will guarantee foreign dollar loans up to 100 billion dollars and impose up to a one-percent commission on the debt amount.

Tax incentives will go to funds held for more than three years from Sunday to the end of next year to prevent investors from withdrawing their money from funds.

Holders of equity-type regular saving funds will also get tax breaks of five to 20 percent on their taxable income and be exempt from tax on stock dividends income for three years. Fund investors can also enjoy tax benefits when they agree to hold their funds for more than three years.

Holders of funds in which more than 60 percent are invested into domestic corporate bonds will be tax exempt on stock dividends for three years unless the amount exceeds 30 million won a person.

Also, the government will provide 20 billion dollars of foreign exchange stabilization fund to commercial banks via the Export-Import Bank of Korea. Of the amount, the bank will spend five billion dollars on bill of exchange rediscount and use the remaining 15 billion dollars to provide foreign currency to banks needing dollars without security via bidding.

The Bank of Korea will provide 10 billion dollars to the won-dollar swap market via an open bidding system.

With the injection of the foreign exchange stabilization fund of 10 billion won into the won-dollar swap market last month and additional support of five billion dollars by the Export-Import Bank of Korea Oct. 6, state foreign currency support amounts to 145 billion dollars. The figure is equivalent to 60.5 percent of the country’s foreign currency reserves of 239.67 billion dollars late last month.

Minister Kang said, “As other major economies have begun guaranteeing dollars borrowed by their banks, the government’s decision was made to save domestic banks from financial difficulty. The use of foreign exchange reserves can be minimized only when domestic banks can secure dollars without difficulty.”

The ceiling on deposit guarantees will also be raised and more state support will go to financial institutions, if necessary.

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