S.Korea Joins Taiwan's and Indonesia's Move

Seoul (News Today) - South Korea will soon announce plans for a levy on foreign borrowing by its banks in another attempt to curb potentially destabilising capital inflows, officials told Dow Jones Newswires Wednesday. Some details have still to be agreed but initially the government plans to impose the levy on short- and long-term foreign debt, finance ministry officials told Dow Jones.

They said banks would probably have to pay the levy in foreign currency rather than won, and the plan to seek legislative approval for the move could be announced as early as Sunday. Last month the government announced it would restore a tax on foreigners buying Seoul government bonds, warning that excessive capital flows could destabilise the economy and push the local currency even higher.

Taiwan and Indonesia have also taken steps to curb a flood of capital into emerging markets from low-interest regimes in the United States and elsewhere. This has pushed up currencies and damaged export competitiveness.

The Federal Reserve’s decision to pour an additional 600 billion dollars into the US economy through “quantitative easing” has heightened concerns. Seoul authorities are also considering further limits on foreign-exchange forward positions held by banks.

The finance ministry, in its 2011 outlook released Tuesday, said authorities “will be cautious not to let abundant liquidity and foreign capital inflows pose unrest to price stability and asset markets”.

Seoul fears that “hot money” coming into the country could exit just as swiftly — as it did during the 1997-1998 East Asian financial crisis and the 2008 global crisis, despite South Korea’s strong economic fundamentals.

Source : kompas

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