BANGKOK — Deputy Prime Minister for Economic Affairs and Minister of Economy and Finance Lee Hyoung-il left open the possibility of deploying a stock market stabilization fund and other measures should volatility in the equity market intensify.
Asked at a press briefing on the 16th at the Queen Sirikit National Convention Center in Bangkok whether the government would tap the stabilization fund or temporarily suspend short selling, Lee said the ministry is "monitoring the situation at all times and preparing so that we can take the market stabilization measures we have, if needed." Lee stopped short of specifying which tools might be used or when, saying only that "what measures to take depends on the situation."
The stabilization fund is a mechanism under which financial companies and securities-related institutions contribute capital to buy stocks during sharp market declines, easing damage to investor sentiment. It was first introduced in Korea in 1990 and was actually deployed during the 2003 credit card crisis and the 2008 global financial crisis. A fund of about 10 trillion won ($7 billion) was also assembled during the COVID-19 outbreak in 2020, but the money was never deployed as the market rebounded quickly. In 2022, preparations were completed to reactivate a similarly sized fund amid global monetary tightening, but it was not executed either.
Lee cited concerns over rising global interest rates, doubts about the profitability of artificial intelligence and semiconductor investments, and geopolitical risks in the Middle East as factors behind the recent market correction. Still, he said the growth momentum of the Korean economy "is very strong," adding that "investment is leading now, but over time that momentum will spread to consumption as well." He assessed that the fundamentals of the domestic economy and stock market remain solid, citing factors such as a large current account surplus.
On the won-dollar exchange rate easing to around 1,330 won, Lee said the currency is "currently in the process of finding its way back to economic fundamentals." He explained that "the rate went as high as the 1,550-won range in July, and that was the picture that actually departed from our fundamentals."
On the need for a currency swap arrangement with the United States, Lee said it is "meaningful and necessary in the sense that it would serve as a solid safety net for our foreign exchange market." He added, however, that "this is not us asking for a swap because we are struggling for lack of foreign currency liquidity." Earlier this year, the ministry's position had been that it did "not feel the situation requires a currency swap right now."