Era of easy money ends for South Korea

The default by Legoland’s developer was the first major sign of trouble in South Korea's debt market. The shock sent short-term credit yields soaring. — Bloomberg

SITTING in a lake teeming with wildlife, several hours by train from Seoul, South Korea’s Legoland is an unlikely poster child for the global struggle to fight inflation while maintaining financial stability.But a default on 205 billion won (US$155mil or RM682mil) worth of debt by the theme park’s developer triggered the worst meltdown in South Korea’s credit market since the global financial crisis. And as interest-rate hikes batter real estate markets around the world, it’s a reminder that even relatively safer financial systems like South Korea’s – labelled “resilient” earlier this year by the International Monetary Fund (IMF) – face threats of contagion.

South Korea’s central bank embarked in August last year on one of the earliest rate-hike cycles in the world, and is still battling inflation that at one point reached the highest level in more than two decades.