Korea’s short term external debt in proportion to overall overseas borrowing fell to the lowest level in a decade, the Bank of Korea said Tuesday, in the latest sign that the country’s credit soundness is improving.
External debt maturing in less than one year came in at $136.1 billion at the end of December last year, down $3.6 billion from data compiled for the July-September period.
The figure in relation to total external debt is 34.2 percent, down 3.7 percentage points from three months earlier, accounting for the smallest portion since 2001 when it was 33.2 percent.
“It arguably is the most sustainable level of debt owed to creditors abroad we saw in a long time,” a Finance Ministry official said.
The short-term external borrowing in relation to foreign exchange reserves also is the lowest in more than five years, meaning the country is in low risk of facing sudden capital outflows with debt maturing soon at a manageable level.
The total amount of external debt came in at $398.4 billion last year, up $39 billion from the end of 2010, the fastest growth since 2007.
The total owed to creditors abroad accounted for 35.9 percent of GDP last year, up from 35.4 percent in 2010.
“While overall external debt has grown, policymakers’ efforts to reduce short-term borrowing have started to bite. Now they (the government) need to watch out for fast growth of external debt,” said Lim Hee-jung, a research fellow at Hyundai Research Institute.
The ministry notes that the Korean bonds have grown to be a popular investment option among foreign investors in the aftermath of the 2008-9 financial crisis. The Swiss National Bank has approached Seoul’s Finance Ministry to mull purchase of Korean treasuries, a ministry official confirmed.
“There are a few central banks interested in buying Korean treasuries among the advanced countries,” the official said.
SNB currently holds 3.03 billion Swiss francs ($3.31 billion) of Korean debt securities as of 2010, little changed from 2009.
While receiving bids from more creditors abroad is a sign that the country’s credit soundness is improving, Seoul has traditionally been concerned about a rapid increase of such debt as it has also witnessed fast exit of foreign capital from the bond market.
Heavy exposure to short-term debt maturing in less than one year has been a weakness in the country’s capital market.
Finance Minister Bahk Jae-wan said last month that the ministry would work closely with central banks abroad to keep their investments at a manageable level.
Another official at the Finance Ministry said, “We will continue to monitor capital movements in the bond market and study options to ensure rapid foreign capital movements don’t harm the market.”
By Cynthia J. Kim (
cynthiak@heraldcorp.com)
