S.K. short-term overseas debt surges

The Bank of Korea

Loans with less than 1 year of maturity make up 71 percent of nation's annual budget

South Korea's short-term overseas debt exceeded US$100 billion as of the end of September.

According to the Bank of Korea, South Korea's total overseas debt amounted to $249.6 billion at the end of the third quarter. Among this, short-term debts stood at $108.4 billion.

Considering the exchange rate reached 945.2 won per dollar at the end of September, this short-term debt makes up 71 percent of South Korea's annual budget of 144.8 trillion won.

Short-term overseas debt refers to borrowings from abroad by the nation's government, businesses, and households with a maturity period of less than a year.

The nation's short-term foreign debt has been on the rise this year. During the first nine months, this debt rose to $42.6 billion, up 350 percent from the same period a year earlier.

The ratio of short-term overseas debt to the central bank's foreign reserves rose to 47.5 percent in the third quarter of this year, from 31.3 percent in 2005, 28.3 percent in 2004. The figure is still far below the government's declared stability threshold of 60 percent, but experts have still expressed concerns over the faster-than-expected growth rate.

"A financial crisis similar to the one that occured in 1997 is unlikely to reoccur because of the large supply of foreign currency reserves in Korea. But it is still undesirable to see the ratio of short-term overseas debt to foreign currency reserves rise so much in such a short term," a market researcher said.

As of the end of September, the nation's foreign currency reserves stood at $228.2 billion, eight times higher than in November 1997, when the corresponding figure was $24.4 billion. At that time, short-term foreign debt stood at around $92.2 billion.

Such a snowball effect seen in short-term foreign debt is mainly attributed to local commercial banks which rushed to increase foreign borrowing.

At the end of last year, the balance for short-term overseas borrowing by local commercial banks stood merely at $51.5 billion, but it was up by $32.9 billion during the first nine months of this year.

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