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The government¡¯s foreign exchange stabilization fund, which is used to defend the won from volatile fluctuations against the U.S. dollar, has accrued losses of W26 trillion (US$1=W1,269). The reason was massive losses from investing in derivatives products in the attempt to defend the won, compounded by foreign exchange losses due to fluctuation. The forex stabilization fund draws its resources by issuing stabilization bonds, so losses incurred must be filled using taxpayers¡¯ money.
In a report submitted to the National Assembly on Monday, the Ministry of Strategy and Finance said losses by the forex stabilization fund stood at W26.37 trillion as of the end of 2007. This means it will be impossible to repay W26 trillion out of the fund¡¯s entire debt even if it sells off all its dollar holdings and other assets.
In 2001, the forex stabilization fund¡¯s losses stood at just W663.3 billion. But massive losses from investments in non-deliverable forward (NDF) and other derivative products sent accumulated losses up to W15.40 trillion in 2004, W18.85 trillion in 2005 and to W26.03 trillion in 2006. In 2004, losses from derivative products alone amounted to W4.5 trillion. A Finance Ministry official said foreign exchange losses were also incurred due to the weak dollar that continued until last year, and additional losses occurred in the process of investing in U.S. Treasury bonds, where interest rates were lower than the interest rate Korea had to pay in raising the money.
It¡¯s getting more expensive to pay the interest on the forex stabilization bonds that have been issued. Interest payments on forex stabilization bonds totaled W1.5436 trillion in 2003, rising to W3.4688 trillion in 2006 and to W4.272 trillion in 2007. This has led to a vicious cycle of having to issue more forex stabilization bonds in order to raise money to pay the interest.
The National Assembly¡¯s budget office issued reports in April and June this year showing that losses by the forex stabilization fund equaled half the money (W53 trillion) taxpayers had to shoulder to deal with the Asian financial crisis. The office pointed out that government intervention in the foreign exchange market by issuing forex stabilization bonds will drastically raise Korea¡¯s national debt and act as a major burden on fiscal policies.
In response, a Finance Ministry official said Korean exporters would have suffered huge losses if the government had not dealt with foreign exchange speculators during 2003 and 2005. ¡°Government intervention this time around is designed to prevent the financial crisis from impacting the real economy,¡± he said. ¡°Accumulated losses at the forex stabilization fund are going to drop this year due to the won¡¯s weakness against the dollar.¡±
(englishnews@chosun.com )
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