By Kim Jae-kyoung
Staff Reporter


Foreigners residing in South Korea can borrow from domestic financial firms without regulatory approval, regardless of the amount, beginning next year.

Under the revised bill, foreign firms or foreign residents here can borrow local currency worth over 1 billion won ($948,000), the Ministry of Finance and Economy (MOFE) said Friday.

Foreign firms here will be free to issue won-denominated securities with a maturity of less than one year by reporting it to the authorities.

The measures are part of the government’s efforts to liberalize cross-border capital flow to meet the international standard by raising the nation’s capital liberalization rate to the level of advanced countries.

Korea’s rate of capital liberalization ranked lowest among 30 OECD member nations, according to the MOFE. The figure indicates the degree of freedom in capital movement across borders. If the capital market is completely liberalized, the degree is 100 percent.

Under the OECD Code of Liberalization of Capital Movements, the nation currently liberalizes 59 percent of its capital flows, well below the OECD average of over 90 percent. With the new measures in place, the rate is expected to rise to 86 percent, similar to the level of Japan.

The code stipulates that member countries should pursue their efforts to reduce or abolish obstacles to maintain and extend the liberalization of capital movement. The code covers all capital movement, including direct investment, derivatives and currency trading.

``If the new scheme is in place as scheduled, it will greatly contribute to speeding up the government’s vision of transforming the nation into a financial hub in Asia and raising the capital liberalization rate,’’ a MOFE official said.

Under the new bill, local firms with a debt ratio over the industry average will be allowed to borrow loans with a maturity of less than one year from overseas lenders without approval.

The ministry plans to allow the nation’s 30 largest business conglomerates to provide debt payment guarantees to overseas subsidiaries without having to seek approval.

The ministry also decided to expand the scope of investigation of the Korea Customs Service on illegal foreign transactions to capital transactions from the current export- and import-related transactions.

``Since the late 1990’s, the Korean government has worked to liberalize its foreign exchange market with a view to establishing an Asian financial hub in Korea,’’ Finance-Minister Han Duck-soo said in an earlier interview with The Korea Times.

``The government is determined to continuously respond to foreign exchange system advancement and deregulation demands from home and abroad, and further liberalize its foreign exchange market,’’ he added.

kjk@koreatimes.co.kr