SEOUL, Dec. 25 (UPI) -- Argentina's financial crisis could batter South Korea's export-driven economy, which is already suffering from a steep fall in the yen, officials and analysts here said Tuesday.
Although the crisis was unlikely to have a direct impact on South Korea, which has less than $200 million in loans and direct investment in the Latin American country, officials said they feared the country could be affected indirectly through Japan.
"The crisis may further aggravate the Japanese economy that is heavily involved with Argentina, which is to exert an adverse effect on the South Korean economy," said Byon Jae-young, chief of the foreign currency monitoring team at the central Bank of Korea.
The Japanese yen could further tumble because Japanese financial institutions have some $1.7 billion of outstanding loans to debt-ridden Argentina, Byon said.
"Still worse, speculation has mounted that Japanese authorities would not stand in the way of a weaker currency because it gives Japanese exporters a competitive advantage," he said.
South Korea and Japan compete in key industries such as semiconductors, electronics and automobiles. A weaker yen would erode South Korea's export competitiveness, analysts said.
The Seoul-based Korea International Trade Association said in its recent report that the weak yen is posing a strong threat to South Korea because Japan is Seoul's biggest competitor in the global market.
"The competition-index study suggests that improved competitiveness of Japanese goods attributable to the weakening yen would deal a serious blow to Korean exports," said Shin Seung-kwan, a KITA economist.
South Korean officials have said Japan's policies favoring a weak yen were not desirable, warning Seoul was ready to take counter steps. The yen fell to a three-year low against the dollar on Tuesday as Japan's economic gloom deepened.
The Korea Institute for International Economic Policy also expressed concerns that Argentina's default might speed up the withdrawal of foreign investment from emerging market economies, including South Korea, in a move to reduce exposure to possible risks.
"Foreign investors could reduce their portfolio investments in South Korea, forcing the local currency to lose its value and destabilizing local financial markets," said an economist at the state-run think tank.
Concerned about the fallout from the Argentine turmoil and the falling yen, South Korean President Kim Dae-jung ordered his Cabinet to seek all possible measures to minimize a spillover effect.
Economic ministers led by Deputy Premier Jin Nyum held an emergency meeting to seek ways to keep financial markets stable. They decided to spend more than 65 percent of the 2002 budget in the first half of next year as part of efforts to spur domestic demand.
"A full economic recovery is expected to begin in the second half of next year with growth in exports and facility investment," they said in a statement.
The ministers also said the government had targeted growth of more than 4 percent next year, adding the country's economy was expected to have expanded more than 2.8 percent this year.
