‘No Danger of Second Financial Crisis’ Gov't Blamed for Financial Jitters Credit Raters, IMF Dismiss Korean Crisis Fears Malicious Rumors: From U.S. Beef to Financial Markets U.S. Dollar Shows Signs of Recovery Weak Won Begins to Tell in People’s Pockets Per-Capita GNI Likely to Drop Below $20,000 This Year Korea ‘Already a Net Debtor Nation’ Can the Government Win the Forex Game? Warnings Sounded Over Financial Instability Rumors of September Crisis Rattle Markets September Crisis Jitters Subside September Crisis Scenario Laid to Rest

As of the end of August, Korea’s foreign currency reserves stood at $243.2 billion. It is hard to imagine that the country’s economy would be unable to handle $6.7 billion worth of bonds held by foreign investors that mature in September. From the start, fears of a financial crisis were no more than groundless rumors.

The reason why Korea’s financial markets reeled on their impact was because Korea’s economic fundamentals -- which are reflected in growth, consumer prices, employment and international balance of payments -- had weakened significantly. The situation had worsened due to the government’s poor crisis management skills and the fact that it has lost credibility in the financial markets due to policies that vacillate between growth and taming inflation.

It was during May and June that the “September crisis” rumor began to spread centering around the bond market. Confronted with the rumors, the government simply repeated that they were “unfounded” but did not take any active steps to quell market jitters. The government just sat and watched as the KOSPI dropped to the 1,400 level and the won tumbled by W77 against the dollar in August alone. It wasn’t until this month, when the situation began to escalate, that the government convened emergency meetings to take belated measures. We were about to see a replay of the damage caused by the mad cow disease frenzy. The government appears to have learned nothing from the beef panic that swept through Korea earlier this year.

It is a mystery who exactly is in charge of financial policy in the Lee Myung-bak administration. Government reorganization has ceded financial policy control to the Financial Services Commission, but international finance and foreign exchange policies are in the hands of the Ministry of Strategy and Finance. It remains unclear who will take charge when the foreign exchange and stock markets roil in conjunction as they did this time. A bigger problem than the groundless rumors is the government’s crisis management ability, which remains helpless against such groundless rumors.