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Amid worries about stagflation and weak government leadership in the wake of the anti-U.S. beef candlelight vigils, there are signs of foreign investors giving low evaluations to the South Korean economy and of the country's credit standing falling. The spread on the government's foreign exchange stabilization bond -- an indicator that gauges the government's debt repayment capacity -- has been rising rapidly. Wall Street and other international financial experts have begun voicing concerns about the South Korean economy.
¡ß Spreads rise faster than in China
The spread on the South Korean government's FOREX stabilization bond, which will mature in 2013, stood at 1.73 percent as of Tuesday, up 0.43 percentage point from late last year. The increase rate was higher than the 0.27 percentage point rate increase of the Chinese government's FOREX stabilization bond spread during the same period.
South Korea's FOREX stabilization bond spread was 1.30 percent late last year. It rose to 1.85 percent on March 17 due to worries about the economic slowdown in the U.S., but fell to 1.48 percent on May 2. It has, however, been on the rise since then. The Korea Center for International Finance said, "Due to predictions that the U.S. economy will further slow down, spreads are on the rise around the world. But the increase rate in South Korea is higher than China's due to gloomier economic forecasts here."
¡ß Low evaluations by foreign investors
Foreign investors, including those on Wall Street, are making pessimistic forecasts about the South Korean economy. In an interview with the Chosun Ilbo on Tuesday, John Praveen, chief investment strategist at Prudential International Investments Advisers, predicted that in the second half of the year South Korea's exports will become sluggish and its overall economic growth will slow greatly. He added that a growing number of foreign investors are selling off stocks and leaving South Korea due to the anti-U.S. beef protests and a looming general strike.
Sohn Sung-won, a professor of economics and finance at California State University who is known for accurate economic forecasts, also predicted that South Korea's economic growth will hover below 3 percent in the second half. Ken Goldstein, a senior economist at the Conference Board, a private think tank, said that in the wake of the beef protests, foreign businesses dealing with South Korea are feeling they should be extra cautious so as not to fall victim to politically-charged rallies initiated by misinformation.
Andreas Neuber, the CEO of UBS Hana Asset Management in Seoul, said it is still too early to say that South Korea is facing an economic crisis, but if candlelight vigils continue the government's policy implementation will slow down and the nation's image will suffer.
Meanwhile, the Wall Street Journal on Monday reported, "It's unclear how much longer the (anti-U.S. beef) movement will sustain momentum, as sentiment rises that the protests may be distracting the government from addressing major economic problems."
(englishnews@chosun.com )
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