Deepening South Korean crisis to hurt Japan
11:36 a.m. Dec 12, 1997 Eastern
By Kanta Watanabe
TOKYO, Dec 12 (Reuters) - The deepening economic crisis in South Korea
could deal a severe blow to Japan's manufacturing and financial
sectors, economists in Tokyo said on Friday.
Japanese manufacturers are expected to suffer a double punch of a
slowdown in their exports to South Korea, Japan's second-largest export
market after the United States, and also stiffer competition for
overseas markets following the Korean currency's freefall.
Meanwhile, Japanese banks, already suffering from huge non-performing
loans at home, are facing more risks on their exposure to South Korea,
economists said.
In the past, a pick-up in Korean exports was accompanied by a surge in
Japanese exports of capital goods to South Korea, due to Korean
manufacturers' heavy dependence on imported Japanese manufacturing
equipment.
But that is unlikely to be the scenario this time, as Korean
manufacturers have plenty of idle capacity within their existing
facilities after hefty capital spendings in 1994 and 1995, economists
said.
''Due to a credit crunch and a slowdown in domestic demand, one cannot
expect big capital spendings by Korean firms. So Japanese exports of
capital goods to South Korea are likely to slow down,'' said Shunta
Yamato, senior analyst of the international research department at Daiwa
Institute of Research Ltd.
Japan's exports to South Korea in the first half of this fiscal year
ending in March 1998 totalled 1.59 trillion yen, accounting for about
six percent of its total exports and about 15 percent of its exports to
Asia.
Some Japanese manufacturers could also face tougher competition with
their Korean rivals due to the won's depreciation against the U.S.
dollar, which make Korean imports cheaper. So far this year the won has
lost 55 percent of its value against the greenback.
''In certain sectors, such as steel, shipbuilding and semiconductors,
Japanese companies could face tougher competition with Korean makers due
to the won's sharp fall,'' said Daiwa Institute's Yamato.
The won closed at 1,710 to the dollar on Friday, after opening at
another record low of 1,891.4, compared with Thursday's close of
1,719.8.
Susumu Takahashi, general manager at Japan Research Institute, said
although Japanese banks' exposure to South Korea was not so high
compared with that of other Asian nations, they may still be vulnerable
to the mounting financial problems in South Korea.
This is because about 60 percent of Japanese banks' lending in Korea has
been concentrated in the banking sector.
''What's happening in South Korea is crisis in the financial sector, and
the concern is that Japanese banks have a big exposure to that sector,''
Takahashi added.
Non-performing loans held by South Korea's commercial banks totalled
28.53 trillion won at the end of September, up from 14 trillion won at
the end of 1996, Seoul's Finance Ministry said last month.
Japanese banks had the biggest exposure by a single country to South
Korea as of the end of 1996, with their loans to the country totalling
$24.3 billion, according to the Bank for International Settlements
(BIS).
South Korean Finance Minister Lim Chang-yuel said on Thursday that
Japanese banks have withdrawn $9 billion in short-term lending this
year.
''If Japanese banks cooperate with rolling over debt we won't need any
more money (from the International Monetary Fund),'' Lim said.
Financial market sources in Tokyo said Lim may be asking Japanese banks
to roll over short-term debts because European banks have already
withdrawn most of their loans.
According to the BIS data, European banks' exposure to South Korea
totalled $33.8 billion at end-1996. But market sources said most of
these loans may have been withdrawn by this autumn.
((Tokyo Treasury Desk +81-3 3432-9780 |
