South Korea Reveals Measures to Alleviate Affect of Quick Capital Flows

On Sunday, South Korea disclosed wide-ranging steps to alleviate the unpleasant affect of fast capital flows on the local economy, together with new regulations to restrict local and foreign banks' foreign exchange advance positions.

The measures that will come into effect sometime in July were mainly in order with market anticipations coming after a sequence of media news recently, but arrived when the local monetary markets closed during the weekend and only after Government officers remained quiet concerning the problem for weeks on worries that the news might cause chaos in the local fiscal markets.

Vice Minister of Strategy and Finance, Yim Jong-yong told journalists that the authorities have carried out pressure tests to local and foreign banks prior to the execution of the steps, thus any shock will be reduced.

The Ministry of Finance said, in a joint statement with the Bank of Korea, the Financial Services Commission, and the Financial Supervisory Service, "We find the fundamental reason for the financial crisis (the local economy had gone through) in the past in excessive volatility in capital inflow and outflow".

It said that Asia's fourth-biggest economy has endured a sadistic phase of quick capital flows, resulting in financial volatility and consequently an actual economic recession.