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Korea pledges $100bn guarantees for banks


October 20, 2008

Korea pledges $100bn guarantees for banks
The South Korean government on Sunday officially announced that it will provide $100 billion state guarantees on foreign debts to be raised by local banks, government news agency Yonhap reported.

"As other major economies start providing guarantees to inter-bank loans, the South Korean government will take similar measures to avoid placing domestic banks at a relative disadvantage in terms of overseas funding and to allay fears in the financial markets," said a statement jointly issued by chiefs of the Finance Ministry, the Bank of Korea and the Financial Services Commission.

"The government will pursue market stabilisation policies in a preemptive, decisive and sufficient manner to minimise the total cost of implementing the proposed measures," the statement said.

The decision was regarded as an efforts to ease the dollar shortage in the local financial sector and to revive market confidence.

According to the statement, $30 billion will be provided "as soon as possible" to local banks and exporters by using the country's foreign reserve holdings. The government announced earlier that it will provide $15 billion to its financial system.

The state guarantees will be applied immediately from Monday for three years on foreign debts to be raised until June 30, 2009,the government said.

Until it obtains parliamentary approval, the guarantees will be provided by the state-run Korea Development Bank and the Export-Import Bank of Korea, it added.

In a related move, the government said that it will offer tax incentives for long-term holdings of funds, a move that it expects will help strengthen stability of the stock markets, which are undergoing a roller-coaster session, sparking fears over capital outflow, South Korea's Yonhap News Agency reported.

The South Korean government also stressed that it will seek closer cooperation with other countries to cope with the financial turmoil.

"The government will not only promote multinational collaboration among group of 20 industrialized countries, but also reinforce the regional ties centered on South Korea, China and Japan," the statement said.

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