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There are warning signs of a synchronous financial crisis that could affect about a dozen countries, including the Baltic states, Vietnam, India, the Philippines, Indonesia and Argentina. These nations are seen as on the verge of slipping into a foreign currency crisis, with their economic indices worse than Korea's when it was socked by the financial crisis of 1997.
Most of these nations have achieved economic growth with easy access to loans amid a global economic boom, the result of excessive liquidity. Now they must borrow to repay their debts, but money resources have dried up as the global financial market suffers the repercussions of the U.S. subprime mortgage crisis. To make matters worse their current account deficits are growing due to soaring raw materials prices, hurting their economic fundamentals. Many are emerging economies and major importers of Korean products. If a simultaneous financial meltdown becomes reality, Korea's exports would be dealt a severe blow. Pundits say that such a crisis would also disrupt the global financial market and trigger an exodus of foreign capital from Korea.
¡ß Emerging European economies groaning under debts
The three Baltic states -- Latvia, Estonia and Lithuania -- are showing disastrous economic indices. They posted 7~10 percent growth based on money borrowed from overseas, and now their overseas debts are equivalent to their gross domestic product. However, they are bound hand and foot by unfavorable factors like high oil prices and credit crunches. Their account deficits amounted to some 20 percent of GDP last year due to surging oil prices, and they also saw consumer prices go up 17 percent in April. Immediately before the 1997 financial crisis, Korea experienced a 4 percent jump in consumer prices while its current account deficit amounted to 4 percent of GDP.
Bulgaria, Bosnia and Serbia also posted current account deficits tantamount to 20 percent of GDP last year, and their total foreign debts amount to more than 50 percent of GDP. Thailand and Indonesia had foreign debts amounting to some 50 percent of GDP when they were hit by the financial crisis a decade ago. The World Bank and international credit ratings agencies downgraded the sovereign credit ratings of Eastern European countries earlier this year, warning of a financial crisis in the region.
¡ß Asian and South American countries also in danger
Vietnam is suffering inflation of 25.2 percent as of May, and with soaring raw materials prices its goods account deficit quadrupled to US$14.4 billion between January and April this year from $3.8 billion during the same period last year. The foreign debts of Indonesia and the Philippines are 238.6 percent and 168 percent of their foreign reserves, respectively. Those figures exceed Vietnam's foreign debt to foreign reserves ratio, which stands at 90.9 percent. If the Vietnamese economy tanks, Indonesia and the Philippines will likely follow. India is also groaning under a pile of debt. India's total debts amount to 78 percent of its GDP; it is spending 30 percent of government revenue just to pay interest.
The Financial Times recently raised the possibility of a default in Argentina. The South American country's foreign debt has reached 56 percent of GDP, compared to 54 percent of GDP when the country defaulted in 2001. Prices are skyrocketing -- the Argentine government said that consumer prices have risen 9 percent on average over the past three years while private think tanks put the annual inflation rate at 20~30 percent. The anxious middle class is withdrawing deposits from banks and buying up U.S. dollars, causing a bank run. Credit ratings firm Standard and Poor's revised its outlook on Argentina from "B+" to negative in April.
¡ß Impacts on Korea
Korea will not be safe from the impacts of a financial crisis in emerging economies in Eastern Europe, Asia and South America. The Korean economy is managing to survive sluggish domestic consumption thanks to a continuous growth in exports to these regions.
In April, exports to Central and South America grew 41 percent year on year. Korea's exports to Southeast Asia and Europe jumped 25 percent and 23 percent, respectively, while shipments to the U.S. and Japan increased 10 percent and 18 percent during the same period.
Oh Jung-suk, a senior researcher at the Korea Center for International Finance, said that Korea will suffer an outflow of foreign capital as well as falling exports if the global economy is hit by simultaneous financial crises from the countries in question, and he called for preemptive measures. An official at the Ministry of Knowledge Economy said that the government is keeping a close eye as situations develop in worrisome countries.
(englishnews@chosun.com )
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