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“The international financial markets are showing signs of uneasiness due to concerns over the United States Federal Reserve’s anticipated tapering of its quantitative easing, lingering instability in emerging markets and [political tension] in Syria,” said Kim Yong-beom, a director-general at the FSC at a regular briefing. “As for the Korean financial market, however, despite global uncertainties, it’s quite stable and different from other emerging markets.”
The FSC had some hard data to back up its optimism.
The so-called five economically fragile countries - India, Indonesia, Turkey, South Africa and Brazil - all have current account deficits while Korea has a surplus.
Also, recent data shows that the percentage of government debt to total gross domestic product is relatively low for Korea at 34.8 percent. In the five fragile countries, the rate is higher, for example, 66.8 percent for India and 68.5 percent for Brazil.
Economic conditions for some emerging countries deteriorated after the 2008 global financial crisis and the lengthy recession in major countries like the U.S. and European Union.
The FSC noted that emerging markets with weak fundamentals have seen chronic current account deficits since 2011 and growth rates have been low.
India’s economic growth rate in the second quarter of this year was 4.4 percent on-year, the lowest since the first quarter of 2009.
Its current account deficit hit a record high of $91.7 billion in 2012. Also, their currency values have been weakening against the U.S. dollar since May when Fed Chairman Ben Bernanke hinted for the first time of cutting its bond-purchasing program.
Korea on the other hand has maintained a current account surplus for 18 straight months, and the percentage of foreign reserves to its GDP is around 30 percent, higher than emerging countries’ 10 percent level.
Foreign investors are also still expanding their investments in the stock and bond markets.
“Until uncertainty over U.S. tapering is relieved, [investors] will keep withdrawing their investments from emerging countries, but it isn’t likely that this will lead to an overall spread of the crisis,” Kim said.
But Korea could suffer if global uncertainties linger on.
“Emerging countries are major export markets for Korea and if exports to them slows down then it could affect Korea’s real economy,” Kim said.
In the meantime, the FSC also made clear yesterday that the competitiveness rankings announced by the World Economic Forum on Wednesday are based mainly on a survey and that the outcome was basically a matter of opinion.
The WEF report showed that Korea’s global competitiveness for this year was 25th, down from 19th place last year.
Korea’s competitiveness ranking for its financial market dropped from last year’s 71st place to 81 among 148 countries.
By Lee Eun-joo [angie@joongang.co.kr]
