Official: South Korean economy recovering, remains vulnerable

SEOUL: South Korea's economy is showing encouraging signs of recovery but prospects for a full-fledged revival remain cloudy, the country's financial regulator said Friday.

"In (South) Korea, we do see several economic indicators pointing to more positive directions," Chin Dong-soo, chairman of the Financial Services Commission, said in a speech prepared for delivery to foreign news organizations.

But he said "it would be overly optimistic at this point to suggest that a full economic recovery is under way," citing continued global economic turmoil and possible further financial market distress.

South Korea, Asia's fourth-largest economy, is fighting its worst downturn since the 1997-98 Asian financial crisis.

Exports and productions have plunged amid a sharp decline in overseas demand for its exports of automobiles and high tech products. Unemployment has risen.

The government and central bank have tried to stimulate growth with extra spending and lower interest rates, with some success.

Gross domestic product, which contracted 5.1 percent in the fourth quarter of last year, returned to growth in the first quarter, eking out an expansion of 0.1 percent.

The pace of decline in exports has slowed and the country has recorded record trade surpluses two months in a row through April.

The jobless rate, meanwhile, fell last month to 3.8 percent.

Chin said South Korean authorities have taken a number of steps to stabilize the country's financial markets, including establishing a recapitalization fund for banks and a stabilization fund for the bond market.

The government also guaranteed domestic banks' external debts and signed currency swap deals with other countries.

"As a result, we now have policy tools we can utilize to ensure ample supply of liquidity in times of widespread distress in the financial system," Chin said.

South Korea's financial markets, which were battered last year amid worries over the country's stability amid the global crisis, have stabilized in 2009.

The benchmark Korea Stock Price Index has risen about 24 percent this year.

The South Korean won, meanwhile, has fallen about 0.5 percent since the end of last year.

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