Page last updated at 09:43 GMT, Sunday, 19 October 2008 10:43 UK

S Korea guarantees foreign loans

South Korean woman walks past a poster of a paper airplane made of a US dollar (5 September 2008)
A high level of foreign debt is held by South Korean banks

South Korea's government has agreed to guarantee foreign-currency borrowing by the country's banks to help stabilise financial markets.

The finance ministry, the central bank and the financial services commission said about $100bn of borrowing would be covered by the package.

The government will also provide $30bn of liquidity to banks, and there will be more aid to small businesses.

South Korea's economy is the third largest in Asia and 13th in the world.

It enjoys major export success in a number of manufacturing industries, but especially shipbuilding, car-making, and electronics.

However, the country has appeared particularly vulnerable to the global credit crisis because its banks lacked sufficient dollars to service maturing foreign debt.

Falling currency

In a statement, the government said it would guarantee for three years all external debt taken on by South Korean banks before 30 June 2009 in order "to avoid placing domestic banks at a comparative disadvantage in terms of overseas funding and to allay fears in the financial market".

A further $750m will be injected into the Industrial Bank of Korea, so it can expand lending to small businesses.

The shortage of dollars is having a dramatic effect on the country's exchange rate, making it more difficult for businesses and individuals to get access to credit, says the BBC's John Sudworth in Seoul.

The South Korean won has fallen by almost 30% against the dollar this year making it Asia's worst performing major currency.

The government said that despite the crisis, the economy and the financial sector were "sound", and that its foreign exchange reserves were "sufficient".

The US, the EU and other governments have also announced multi-billion dollar packages aimed at stabilising markets.

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