South Korea’s foreign exchange reserve adequacy ratio is lower than India and Indonesia, which are rattled by signs of a financial crisis

S. Korea lags behind India, Indonesia in FX reserve adequacy ratio

2013.08.26

Based on economic data, South Korea’s foreign exchange reserve adequacy ratio is lower than India and Indonesia, which are rattled by signs of a financial crisis. According to data from the Bank of Korea, Ministry of Strategy and Finance and International Monetary Fund (IMF), Korea held $329.7 billion in foreign exchange reserve as of late July this year, equivalent to 130 percent of the base level set forth by the International Monetary Fund (IMF). Taking into account short-term external debt, the outstanding balance of investment in securities and others by foreigners, M2 money supply and exports, the IMF sets out a base level of foreign exchange reserves by country and suggests a country hold 100 to 150 percent of such level. Korea has maintained about 130 percent of such level for the recent years. Indonesia posted a reserve adequacy ratio of 165 percent and India that of 180 percent in late 2011, according to the IMF’s estimates for Asian emerging countries. Many of the countries’ ratios exceeded that of Korea, as the ratio of the Philippines came to 344 percent and that of Thailand 317 percent. Malaysia’s ratio stood at 137 percent as of late 2012. Korea runs a current account surplus and boasts a fiscal discipline, yet the country suffers a frequent inflow and outflow of foreign investment funds, as well as risk arising from North Korea. As a result, Korea cannot afford to be secure about foreign currency reserves even as it meets the IMF’s guideline. This has bolstered the voice that Korea needs to increase foreign currency reserves in case major economies wind down quantitative easing.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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