Money world

South Korea’s currency fell to its lowest level since the Asian financial crisis a decade ago on fears the region’s fourth-largest economy could buckle in the turmoil tearing through global markets.

President Lee Myung-bak dismissed suggestions this week that the country faced a repeat of the Asian financial crisis that pushed South Korea to the edge of sovereign default and senior government officials have repeatedly tried to reassure investors that the banking system can withstand the credit upheaval.

That message was reiterated on Wednesday by Bahk Byong-won, senior secretary to the president, who said the government believed the won’s fall was a threat to inflation but liquidity at local banks was not a major problem.

“What I hear from them is that it’s not that serious,” Bahk told reporters.

Investors remain unconvinced and analysts said that as the global financial crisis continues to hammer South Korea, the won is likely to slide further.

The won slumped as much as 5 percent on the day to 1,398 per dollar, its lowest level since South Korea was beginning to emerge from the ravages of Asia’s financial meltdown in 1997/98 (payday loan). It later edged back up to 1,376.90/1,377.10.

This week alone the currency has skidded more than 12 percent in value against the dollar as investors fretted over a global credit crisis that has starved the country’s banks of dollars and fueled the worst capital flight from South Korea since the collapse of Asia’s markets a decade ago.

“Further losses cannot be ruled out,” said Patrick Bennett, strategist at Societe Generale in Singapore. “Portfolio flows are coming out of the market and the level of offshore borrowing by the bank sector remains a risk investors are unwilling to accept - despite the still high level of FX reserves.” 

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