Last Friday, foreign currency payment guarantees for domestic banks of the Korean government was hardly a possibility. Many European countries started providing payment guarantees and it seems not so effective. The payment guarantees mean the worst moral hazard. In the case of the US, it has been facing moral hazard since they started throwing public capital in. However, our situation is not that bad. If a bank run starts, this payment guarantees will be from 100 percent of public tax. If we track back to the origin of this incident, it started from credit rating of S&P about Korea last week. They said that mobility of 7 Korean banks has not been stable. Therefore the report said that there would be the possibility that they downgrade our credit rating two months later if there is no 100 percent payment guarantee for banks. This is a threat. If we don’t do any actions to protect foreigners’ savings, we don’t get anything. Is it a right attitude that a private company threats a nation? In other words, while the government was strong to deal with Moodys, it surrendered to power of S&P.

[The Korean government is not threatened by S&P]

The government would like to announce that we didn’t decide to provide foreign currency payment guarantees because Standard & Poor’s threatened to downgrade the credit rating as ‘koggirison’ said.

First, the reason why the government decided to provide foreign currency payment guarantees about bank debts is in order to overcome the economic crisis as mutual assistance in international society. Major countries, such as the US, Europe and Australia, have been through this process in order to protect financial institutions of their own countries. It was necessary for the government to swiftly react this way in order not to take disadvantages.

Second, compared to financial institutions of the US and Europe, our financial institutions are not submerged due to investment losses. Therefore, it is not going to happen that banks can’t perform debts and therefore the government has to pay instead. In the end, it will not be covered by public tax.

Third, the rumor that the government surrendered to the threat of the S&P and Moodys is baseless. Considering the current economic situations, the government made a decision in order to protect national benefits.

The government will do the best, so that economic crisis that started from America will influence our economy as least as possible. Ill-intentioned reports and reference from foreign news and investment banks can be related to profits for their own sakes. Therefore we would like to ask netizens to make prudent judgments.

Ministry of Strategy and Finance

The 100 billion dollar payment guarantees prove the mismanagement of banks and the last card of the government… Things that they don’t have to do and things that they do conversely are repeating on and on… It seems that we’re dancing on the palms of foreigners’ hands.

Think about it. Foreign exchange holdings of Korea are not the level of having more than 1,000 billion dollars like China and Japan… Short term foreign debt is more than 120 billion dollars. At this moment, the government will provide 100 billion dollar payment guarantees for three years??? Others are laughing… It’s a comedy. If this is feasible, trade account surplus every month should be at least more than 5 billion dollars. How can this be possible in such a difficult time? It’s nonsense… […]That is, it shows that foreign exchange holdings of Korea is hanging over a cliff… Today, the government confessed to us. Then how about us????? We should run away!!! Run away with cash~~~~~~

[…]I didn’t know that the Ministry of Strategy and Finance is monitoring posts of Agora in detail. I thought that they have more important things to do. Maybe Agora is marked as a danger signal in information system of the MSF. The MSF omitted an important fact of their announcement. Countries that receive the payment guarantees from the government are preventing from loss of investment and financial institutions. It can be interpreted as a strategy to react relief loans and interest rate cut that the US government performs.

However, our case is different. The reason why US dollars became rare in the money market of Korea is due to the ‘Sell Korea’ symptom that investors leave securities markets and bond markets. Then why does this happen? There are several reasons, but the main reason is because of the current government and the Grand National Party. Even the man who is explaining of the necessity of the payment guarantees might be closely related to the current government.

The government emphasizes that banks should be nationalized as a global strategy. It doesn’t make sense. Did their policies focus on privatization? They emphasized the division of financial capital and industrial capital so that chaebol (conglomerates) can own banks and privatization of the Industrial Bank of Korea. How about currency swap?

Reduction of interest… what I can’t understand is that the government said the reason why they have to perform the payment guarantees is due to instability of foreign exchange markets. Now the value of Korean money has been declining heavily and it weights instability of foreign exchange markets. Under these circumstances, is the reduction of interest necessary?

Payment guarantees of the government…
This news seems to bring more stable foreign exchange rate in the market. However, the government even knows that this is like peeing on your frozen feet. Right away, it can generate stability of dollars, but there would be the higher possibility that instability of foreign exchange markets will reoccur. During the economic recession all over the world, it is impossible to expect current account surplus. In addition, due to stagnation of domestic consumption, we can’t see the positive view at present. Increasing tension inside due to financial crisis and increase of the risk of the Korean peninsula due to the current government and the GNP might bring more instability to foreign exchange markets.