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By Kim Kyoungwha

Nov. 3 (Bloomberg) -- South Korea's won rose, extending the biggest weekly gain in a decade, as the government unveiled a 14 trillion won ($11 billion) stimulus plan to prevent the economy from slipping into a recession. Bonds fell.

The currency strengthened as the Kospi stock index soared as much as 4.1 percent after President Lee Myung Bak pledged to achieve an economic growth rate of more than 4 percent next year with the help of policies to stimulate consumer demand as exports slow. The government will raise the ceiling for foreign- exchange funds used to stabilize the currency market to 20.6 trillion won next year, the finance ministry said.

``Demand for the won firmed up as the government announced a stimulus package,'' said Ko Yun Jin, a currency dealer in Seoul with Kookmin Bank, the nation's biggest lender. ``Investors and traders are soothed by reassurances and determination from policy makers that they will stabilize the financial markets.''

The won jumped 2.3 percent to 1,262 per dollar at the 3 p.m. close in Seoul, according to Seoul Money Brokerage Services Ltd. It traded between 1,257 and 1,313 today. The currency soared 10 percent last week, the most since January 1998.

The government will spend 3.4 trillion won to help smaller companies and farmers, and provide 1.3 trillion won to boost the labor market and aid low-income earners, the finance ministry said today in Gwacheon. It will extend tax breaks for companies investing in factories by one year.

The biggest rout in Asian currencies since the crisis in 1997 is tempting investors to buy in the region that still enjoys the world's fastest economic growth and $4 trillion of reserves.

Asian Currency Picks

Franklin Templeton Investments, which manages about $500 billion, favors the Malaysian ringgit and China's yuan. Sydbank A/S, Denmark's third-largest bank, is buying the South Korean won, Indonesian rupiah and Indian rupee. Goldman Sachs Group Inc. said last week that the won, Asia's worst-performer this year after falling 28 percent against the dollar, may gain 12 percent the next six months.

``Now is the time that we have to take good care of the real economy,'' President Lee said. ``We can't blame the world economy. To achieve our 4 percent-level growth, companies should do their utmost, but considering worsening exports, we should implement policies to revive domestic demand.''

Exports, which make up more than half of South Korea's gross domestic product, rose 10 percent from a year earlier in October, the smallest increase in more than a year, the government reported today. The economy expanded 0.6 percent in the third quarter from the second, the slowest pace in four years, official figures show.

`Still Negative'

``I see a 50 percent chance of a technical recession,'' meaning two straight quarters of negative growth, said Dariusz Kowalczyk, a strategist with CFC Seymour Ltd. in Hong Kong. ``I'm still negative on the won and still expect it to fall to 1,600 by year-end.''

Korea's local-currency bonds fell for a second day as the government's auction of three-year notes drew less demand than the previous sale.

It sold 1.88 trillion won of the securities at an average yield of 4.6 percent, the ministry said. Investors submitted total bids of 2.08 trillion won, or 1.07 times the 1.95 trillion won of debt offered, the ministry said on its Web site. An Oct. 6 auction attracted bids for 1.2 times.

The yield on the 5.5 percent note due June 2011 climbed 22 basis points, or 0.22 percentage point, to 4.66 percent. The price of the security fell 0.54, or 54 won per 10,000 won face amount, to 104.23.

To contact the reporters on this story: Kim Kyoungwha in Beijing at kkim19@bloomberg.net.

Last Updated: November 3, 2008 01:23 EST

http://www.bloomberg.com/?b=0&Intro=intro3

South Koreans Lose Faith in President’s Business Skills

Jo Bo-hee/Yonhap, via Associated Press

President Lee Myung-bak, right, with Finance Minister Kang Man-soo this summer.

SEOUL, South Korea — Many South Koreans have taken to blaming LeeMan Brothers for their nation’s economic woes.

No, they do not mean the failed American investment bank Lehman Brothers. Rather, they are making a play on the names of South Korea’s president, Lee Myung-bak, and his finance minister, Kang Man-soo, whom many here criticize as handling the recent market turmoil inconsistently.

Dubbed the C.E.O. President, Mr. Lee swept into office in February promising to use his business acumen as a former construction company executive to revive the nation’s economy. Instead, he stumbled from the start, and now finds himself fighting to regain credibility as South Korea, buffeted by the global financial turbulence, careens unsteadily toward a recession.

On Thursday, his government seemed to get a much-needed boost when the United States Federal Reserve agreed to open credit lines worth up to $30 billion to South Korea to alleviate a shortage of foreign currency that has hobbled its banks.

Still, critics say Mr. Lee and his cabinet responded slowly to the crisis, which has struck South Korea and other emerging market nations with a vengeance. The country’s stock market and its currency, the won, have been down more than 30 percent this year, though they gained some ground on Thursday. Critics also say Mr. Lee’s government sent confusing and even contradictory signals at a time when communication was crucial for restoring confidence.

But supporters say much of that criticism is unfair, given that the crisis originated in the United States. They also say that Mr. Lee is starting to find his stride, coming up with tax cuts and public money to stem the crisis.

Backers and opponents alike agree that Mr. Lee still has a battle ahead to win back the faith of South Korea’s often fickle public, which turned against him soon after he took office because of a trade deal resuming American beef imports. “He is still struggling to live down the beef fiasco,” said Jasper Kim, a professor of international relations at Ewha Women’s University in Seoul. “The public’s loss of faith has hung over him during this financial crisis.”

Mr. Lee still appears to have a long way to go in regaining that trust. An Oct. 20 opinion poll showed 24 percent of Koreans supporting Mr. Lee, and 31 percent approving of his handling of the economic crisis. That is up from an approval rating of 15 percent in June, when Seoul streets were filled with huge candlelight vigils against the American beef deal. The margin of sampling error was plus or minus five percentage points.

“People had high expectations of Lee Myung-bak with his image as being the economic president,” said Yoon Hee-woong, a researcher at the Korea Society Opinion Institute, which conducted the polls. “People got disappointed because they have yet to see the government perform.”

After first playing down the threat, Mr. Lee changed his tune, saying last week that the financial crisis was worse than the crash of 1998, when the won plummeted. He has also taken measures aimed at shoring up the banking system and the broader economy, including cutting taxes, approving $4 billion in spending to stimulate construction and pledging $130 billion to ease banks’ foreign currency shortages.

On Monday he made a rare address to the National Assembly, warning South Koreans to “pull together their strength and wisdom again,” a reference to the nation’s recovery from 1998.

“President Lee was slow to realize the seriousness of the crisis,” said Kim Jung-sik, an economics professor at Yonsei University in Seoul. “But he realizes it now.”

Still, the perception remains that Mr. Lee and his ministers have been inconsistent on important economic issues and particularly on currency policy. The finance minister, Mr. Kang, initially backed a weak won to bolster exports. However, when that led to politically unpopular price increases for imported oil and other commodities, the government intervened to jack up the currency. When financial markets started tumbling last month, the government appeared to change again, not intervening to halt the won’s fall.

Critics say Mr. Lee’s administration has also appeared inconsistent on another crucial issue, foreign reserves. The administration has said that South Korea holds enough dollars to repay all its loans from overseas, but has also urged companies and individuals to help the nation by exchanging their dollars for won.

“One day, he says we’re O.K. The next day, he says we are in trouble,” said Lee Geun, a professor of international studies at Seoul National University. “His flip-flopping has been very confusing.”

Analysts say Mr. Lee badly needs to appear effective during the current crisis, after the setbacks on his major economic initiatives so far. The slowing economy makes it unlikely that he can deliver on campaign pledges of achieving 7 percent growth and a doubling of average annual incomes to $40,000. Mr. Lee, a former chief executive of Hyundai Construction, has also shelved for now his pet project of building a 336-mile canal across South Korea.

“Lee Myung-bak has not had a single big policy success so far,” said Dr. Lee of Seoul National University. “He needs something to show.”

AFX UK Focus) 2008-10-29 03:18

S.Korea KNOC denies oil reserves offer to refiners

Article layout: raw

SEOUL, Oct 29 (Reuters) - State-run Korea National Oil Corp (KNOC) said Wednesday it had weighed up loaning crude reserves to local refiners to cushion the impact of global financial crisis, but had not made an actual offer.

"The idea of releasing reserves was considered on a practical level to ease the global financial shock," KNOC said in a statement responding to an earlier Reuters report.

"But it was dismissed with the fall in crude oil prices and KNOC has not made any such offer to refiners and does not feel any necessity to do so."

Documents obtained by Reuters on Tuesday showed that KNOC had offered to loan local refiners as much as a tenth of its reserves to soften the impact of a deepening global financial crisis, and help narrow its yawning current account deficit and support the tumbling won.

The d0cument, sent to local refiners, offered around 9.6 million barrels of its crude reserves.

South Korea's energy ministry said late on Tuesday the government had nothing to do with the internal d0cument made by KNOC and it has not considered using strategic reserves to soften the impact of a deepening global financial crisis.

The world's major industrialised nations built up over 1.5 billion barrels in emergency crude oil reserves after the Arab oil embargo of the 1970s in order to improve their energy security, but most restrict their use to severe supply disruptions such as the 2005 hurricanes in the U.S. Gulf.

But with global financial markets in a tailspin and credit markets all but frozen, world governments have leapt to the aid of imperilled economies and domestic banks. South Korea has been hit harder than many in Asia as its currency dives.

"Member countries are allowed to use or release oil on individual decisions if it is on top of the 90-day reserve required by IEA," Nobuo Tanaka, Executive Director of the International Energy Agency, an advisor to 28 industrialised countries, said in response to the Reuters report.

South Korea's state crude reserves could last around 140 days.

(Reporting by Angela Moon; Editing by Keiron Henderson) .

http://www.iii.co.uk/news/?type=afxnews&articleid=6977632&subject=companies&action=article

S.Korea offers crude reserves to ease strain

Tue Oct 28, 2008 6:57am EDT

SEOUL (Reuters) - South Korea has offered to loan local refiners as much as a tenth of its crude oil reserves in the latest effort to soften the impact of a deepening global financial crisis.

Refiners would be able to defer costly crude imports for a month if they take up the offer of discounted oil, helping Seoul to make good its promise to narrow its yawning current account deficit and support the tumbling won currency.

But analysts said the loan -- an unusual move among nations that normally keep their reserves intact in case of a severe disruption in supply -- would provide short-term relief at best.

Seoul has offered to loan refiners 9.6 million barrels of crude from its government reserves at $70 a barrel, but using a deeply discounted won conversion rate that makes the oil cheaper than current spot rates, a d0cument from the state-owned Korea National Oil Corp (KNOC) obtained by Reuters showed.

A source close to the matter said the offer was made to attempt to improve South Korea's trade account data, as oil is one of the country's biggest import items.

South Korea has said its balance of payments would turn positive from October and help stabilize the financial market.

One refiner will take up the offer while a second one will not, the source said.

The crude sale would be valued at about $671 million, a small but meaningful sum compared to its $8.4 billion current account deficit in the first eight months of this year on a seasonally adjusted basis.

South Korea is the world's fifth-largest crude buyer, and crude accounts for a quarter of total imports.

"The government knows that they need solid figures in current account to boost the won's value," said Kim Jae-eun, analyst at Hana Daetoo Securities.

"This may work in the immediate future, but the (crude) would eventually have to be made up in coming months," she added.

State-run KNOC declined to comment on the d0cument.

RESERVED RESERVES

The world's major industrialized nations built up over 1.5 billion barrels in emergency crude oil reserves after the Arab oil embargo of the 1970s in order to improve their energy security, but most restrict their use to severe supply disruptions such as the 2005 hurricanes in the U.S. Gulf.

But with global financial markets in a tailspin and credit markets all but frozen, world governments have leapt to the aid of imperiled economies and domestic banks. South Korea has been hit harder than many in Asia as its currency dives.

The market turmoil has also complicated day to day trading operations for many energy and commodity companies, with South Korean refiners squeezed both by tighter credit and falling won-based fuel sales versus dollar-based crude oil costs.

KNOC offered 4.9 million barrels to SK Energy (096770.KS: Quote, Profile, Research, Stock Buzz), 3.06 million barrels to GS Caltex and 1.65 million to Hyundai Oilbank, the d0cument showed.

Second-biggest refiner GS Caltex has agreed to buy the state crude, although it was not clear how much it would buy, another industry source close to the matter said.

The source said SK Energy, the country's top refiner, did not take the offer as it has secured sufficient supply until December. It was not immediately available whether Hyundai had taken up the offer, and third-largest S-Oil (010950.KS: Quote, Profile, Research, Stock Buzz) was not offered as the refiner only takes term volumes.

The crude is supposed to be repaid within 30 days, the d0cument stated. South Korea holds about 100 million barrels in its state oil reserves under its obligation as a member of the International Energy Agency (IEA).

The South Korean won, one of the world's worst-performing currencies this year, has tumbled nearly a third in just three months to a more than 10-year low, hit by worsening trade data and massive stock sales by foreign investors.

Although KNOC's asking price was higher than the current market price of high-$50s a barrel for benchmark Dubai crude, it was made at a favorable foreign exchange rate of 1,200 won per dollar, versus Tuesday's closing rate of 1,467.7.

Excluding other factors such as shipping costs and interest charges applied to finance import deals, the state offer would give refiners a savings of about around 4,000 won ($2.69) per barrel, according to Reuters calculations on the data.

South Korea, heavily dependent on foreign reserves, secures 60 percent of its monthly crude oil imports -- an average of 73 million barrels per month -- in term volumes, while the rest is secured from the spot market, according to a KNOC data.

(Reporting by Angela Moon; Editing by Jonathan Leff)

http://www.reuters.com/article/GCA-Oil/idUSTRE49R23O20081028?pageNumber=1&virtualBrandChannel=0

통화스와프...최대 수혜자는?

정부의 말처럼 한국은행과 미 연방준비제도이사회(FRB)가 30일 300억 달러 규모의 통화 스와프 계약을 체결한 것은 `가능성 제로(0%)'에서 일궈낸 개가다.

왜? FRB는 통화스왑을 받았주었나

스왑진실은 달러위본제가 무너지고 있다는 뜻이다. 달러 하락하면 미국채를 받아줘야 할나라가 있어야 하는데 미국의 리스크를 우방에게 같이 나누자는 뜻도 포함 되는 것이다

300억 달러 스왑은 우리 경제에 산소호흡기를 달았지만 생산성 유발하지 못하고 그날로 포식하면 또한 독이든 성배를 마시는것과 같다

한은은 FRB 자금을 외환시장 개입용으로 사용해서는 안 된다. 돈에 꼬리표가 달린 것이 아니지만 FRB는 이 문제에 깊은 관심을 보였으며, 우리 정부는 이 자금을 환율 조작 등 시장 개입용으로 사용하지 않겠다는 다짐을 해 준 것으로 알려졌다.

http://news.chosun.com/site/data/html_dir/2008/10/31/2008103100109.html

Asian Stocks, Currencies Gain on Rates, Resources; Korea Jumps

http://www.bloomberg.com/apps/news?pid=20601087&sid=ahyhNoElaxHc&refer=worldwide

South Korea's Stocks, Won Gain After Fed Swap Deal

http://www.bloomberg.com/apps/news?pid=20601087&sid=aizXFYU5WXGA&refer=worldwide

South Korea Gets Dollars From Fed; Current-Account Gap Narrows

http://www.bloomberg.com/apps/news?pid=20601087&sid=aOlwzjjJCrDk&refer=worldwide

Fed Opens Swaps With South Korea, Brazil, Mexico, Singapore

By Steve Matthews and William Sim

Oct. 30 (Bloomberg) -- The Federal Reserve agreed to provide $30 billion each to the central banks of Brazil, Mexico, South Korea and Singapore, expanding its effort to unfreeze money markets to emerging nations for the first time.

The Fed set up ``liquidity swap facilities with the central banks of these four large systemically important economies'' effective until April 30, the central bank said yesterday in a statement. The arrangements aim ``to mitigate the spread of difficulties in obtaining U.S. dollar funding.''

Fed Chairman Ben S. Bernanke is trying to prevent the global credit crisis from upending the financial markets and economies of developing countries, where currencies have plunged and government bond premiums have soared. The Fed yesterday cut its benchmark interest rate, followed by Hong Kong and Taiwan today.

``We can't leave these other important countries out in the cold,'' said Edwin Truman, a senior fellow at the Peterson Institute for International Economics in Washington and former chief of the Fed's international-finance division. ``A global recession is being caused by the effects of seizing up of the financial system around the world.''

South Korea's Kospi Index jumped, adding 3.8 percent at 9:39 a.m. in Seoul. The MSCI Emerging Markets Index added 4.6 percent yesterday, the highest in a week.

The Fed announcement coincided with a decision by the International Monetary Fund to almost double borrowing limits for emerging market countries while waiving demands for economic austerity measures.

The Fed and IMF actions ``show international resolve to support strong performing emerging-market economies adversely impacted by the current financial market turbulence,'' U.S. Treasury Secretary Henry Paulson said in a statement.

`Massive Demand'

Emerging-market investors have created ``massive demand for dollars and a reduction of liquidity in other currencies'' by going back to investing in the U.S. currency, said David Spegel, head of emerging-market strategy at ING Financial Bank NV in New York.

The Fed swap lines ``are designed to help restore liquidity so that a vicious negative spiral doesn't occur,'' he said.

The yield premium on emerging-market dollar bonds over U.S. Treasuries narrowed yesterday by 61 basis points, or 0.61 percentage point, to 7.21 percentage points, according to JPMorgan Chase & Co.'s EMBI+ index. The spread has jumped 5.72 percentage points from a record low of 1.49 percentage points in June 2007, and reached its widest since 2002 earlier this month.

``The Fed is there to support large emerging markets that have done their homework over the past several years like South Korea, Brazil, Singapore and Mexico,'' said Alonso Cervera, a Latin America economist with Credit Suisse Group in New York. ``These are large, relevant emerging countries that have followed responsible fiscal and monetary policies for the past several years and now are going through tough times.''

The Fed also created this week a $15 billion swap line with its New Zealand counterpart and removed limits this month on four existing swap lines, including one with the European Central Bank. The Fed set up a $10 billion arrangement with Australia's central bank last month and then tripled it to $30 billion.

`Hoped-For Result'

``The hoped-for result is that we don't see the global financial crisis worsen still more,'' said Lyle Gramley, a former Federal Reserve governor who is now senior economic adviser at Stanford Group Co. ``The Fed is making dollars available to the central banks of these countries who are trying to meet the needs of their banking systems.''

The Bank of Korea cut interest rates by a record amount on Oct. 27 and the government pledged to guarantee local banks' debts to help lenders struggling to access foreign funds. Stocks and the won tumbled last week, prompting concern the country may face a currency crisis a decade after the IMF organized a $57 billion bailout to help repay overseas debt.

The swap line with the Fed ``will expand our foreign- exchange reserves and help stabilize the currency market,'' Bank of Korea Governor Lee Seong Tae told reporters in Seoul today. ``We'll also try to cooperate with other central banks to stabilize global and local financial markets.''

To contact the reporter on this story: Craig Torres in Washington at ctorres3@bloomberg.net; William Sim in Seoul at wsim2@bloomberg.net