Conference Call Rebuts Foreign Fears Over Korean Economy

“Frederic Neumann from HSBC Hong Kong….”

When an economist via a speakerphone introduced himself at 10:50 a.m. Friday in a conference room of the Financial Services Commission in central Seoul, silence reigned for a while.

The commission held its first conference call for global investment banks. The questioner was from the British banking giant HSBC, which has been at the center of controversy after the British weekly The Economist cited Korea as the world’s third most vulnerable country to the financial crisis. The magazine said it based its report on the data obtained through the bank.

Lee Jeong-ho, head of the foreign news department at the commission, rummaged through papers that contained expected questions. HSBC, however, did not send questionnaires in advance, thus officials had no idea what he would ask.

Commission Vice Chairman Lee Chang-yong bluntly said, “Keep going.”

Since the global financial crisis began unfolding in September last year, certain global investment banks and foreign media have released negative outlooks for the Korean economy. Seoul, however, has reacted passively and failed to present fundamental solutions to rebut such groundless reports.

The conference call was the first major attempt by Korea to clear up misunderstanding of the Korean economy by the world’s major investment banks. Economists from CitiGroup, Credit Lyonnais Securities Asia, Credit Suisse, Goldman Sachs, HSBC, JPMorgan, Merrill Lynch, Morgan Stanley, Standard Chartered Bank and UBS participated.

Once the meeting started, Lee asked the economists to ask questions, and they wasted no time in making sensitive inquiries.

“Korean banks have made huge loans to small and mid-size companies. If they get fresh loans, will this invite moral hazard?” asked the head of research at Credit Lyonnais.

Lee answered, “It’s a delicate question,” admitting the Korean government’s policy dilemma. “What the Korean government aims to do is to reduce the pace of a decline in lending, not to increase loans to small and mid-size companies.”

Neumann of HSBC asked if Korean banks loaned too much to individual households, indicating that bad household debts can lead to a crisis as the subprime mortgage did in the United States.

To this, Lee said, “The household delinquency rate here in Korea is under one percent. The subprime mortgage defaults rate in the United States, is more than 20 percent.”

Neumann had no further questions.

legman@donga.com