SEOUL: South Korea yesterday sought to calm investor panic over false accounts at a top company by pumping US$1.6bil into money markets and saying it would slow a crackdown on family-run conglomerates.
Financial markets in Asia’s fourth largest economy stumbled nonetheless because investors were uneasy that malpractice could surface at other conglomerates after a US$1.2bil accounting scandal at SK Group, the country’s fourth largest chaebol.
The chaebols are family-run conglomerates that have dominated South Korea's economy for decades. New President Roh Moo-hyun, elected last December in part on a pledge to tackle them, has now subtly shifted key without changing the tune.
“President Roh Moo-hyun wants us to use ‘market reform’ instead of ‘chaebol reform’ because the latter could cause unnecessary concerns,” said Finance Minister Kim Jin-pyo, explaining that companies would be scrutinised but not all at once.
The main corporate watchdog, the Fair Trade Commission (FTC), echoed Kim, saying it would ensure a flexible timetable for investigating possible corporate malpractice at other groups.
The Bank of Korea, meanwhile, said it would pump two trillion won (US$1.61bil) into the money market to help allay fears over bond redemptions connected to SK Group. But a senior official told reporters the central bank did not favour rate cuts as a step to stabilise markets and would try to solve a liquidity problem.
The official also said the SK scandal differed in nature from events that led to the collapse of Daewoo Group, in that it was more about accounting than over-leveraged indebtedness.
But the central bank’s moves did little to help markets jittery over a confluence of political risk factors such as North Korea and Iraq, a slowing domestic economy, rising oil prices and concerns about the chaebols.
Shares tumbled more than 3% at one point yesterday before bouncing back on late trade linked to futures and options. The benchmark Korea Composite Stock Price Index nudged down to 531.78 points, its lowest close in 17 months.
The won retreated to trade near a five-month low of 1,246.8 per US dollar in late afternoon trade, after the market drew only temporary relief from an affirmation of ratings on South Korea’s sovereign bonds by Moody’s Investors Service. – Reuters
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