Korea external debt surge to USD 6.1b

Blame it on the rise in short term debt amid favorable financing conditions.

According to DBS, external debt increased USD 6.1bn in 2Q. This was primarily due to the rise in short term debt and mainly in the form of bank loans, as the external financing conditions facing Korean banks have remained favorable.

Here's more from DBS:

Meanwhile, the country’s long term debt position remained stable in the second quarter, reflecting the attraction of KRW bonds in part related to the demand from foreign central banks seeking reserve diversification.

The increase in foreign debt is not a big concern yet. Compared to gross external assets, the ratio of external debt was 82.6% in 2Q12, up from the bottom of 80% in 2H11, but much lower than the peak of 93% during the global financial crisis in 2H08. Short term external debt as a percentage of foreign reserves have risen to 45.3% from the bottom of 43%, also far lower than 77% in 2H08. Meanwhile, if considering the sharp decline in equity position exposed to foreign investors (-USD 30bn in 2Q), the vulnerability of the external account to potential capital outflows should have decreased rather than increased.

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