Korea's gross external assets reached all-time high of USD544.5bn

Aftre increasing USD8.6bn in 1Q.

According to DBS, Korea’s external position has continued to improve. Gross external assets increased USD 8.6bn in 1Q and reached an all-time high of USD 544.5bn. The steady foreign currency inflowsstemming from current account surpluses have strengthened the capabilitiesfor banks and corporatesto invest abroad and fo rthe central bank to accumulate foreign reserves.

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Gross external debt decreased USD 3.3bn in 1Q to USDS 410.3bn. Long-term debt climbed by USD 1.2bn,reflecting foreign investors’ strong interestin KRW sovereign bonds. Butshort-term debt maturing within one yearfellsharply by USD 4.6bn,reaching the lowestlevelseen since 4Q06.

Speculative capital inflows based on interestrate arbitrage have remained insignificant.

The rate gaps between KRW and the funding currenciessuch as USD and JPY are limited, and market expectations about KRW appreciation in the nearterm are subdued. Meanwhile,the authorities have also tightened regulations on banks’ foreign currency borrowings and FX derivatives positionsin several steps afterthe 2008 globalfinancial crisis.

The external debt coverage ratio hasrisen to 1.33X in 1Q from 1.30X in 4Q12, a substantial improvement compared to the 2008 low of 1.08X. The ratio between foreign reserves and short-term external debtrose more apparently to 2.68X from 2.58X,far betterthan 1.26X during the 2008 crisis.

These imply that the country hasstrong ability of withstanding potentialrisks of capital outflows and foreign liquidity tightening. The fundamentalsupportto the KRW exchange ratesremainsintact.