Former U.S. Federal Reserve Chairman Ben Bernanke on Wednesday downplayed fears of a massive capital outflow from Korea if the U.S. conducts an interest rate hike.
“Countries like Korea, I think they’re actually very well placed because this is a country that has, in general, a good policy and good institutions,” he told a financial forum held in Seoul Wednesday.
Speculation is rife that as early as next month, the Fed, amid signs of a U.S. recovery, could raise its key rate after having kept short-term rates at almost zero since December 2008. But this has fueled jitters of an abrupt capital outflow from emerging markets like Korea.
Bernanke said Korea is “not a weak or underdeveloped economy that doesn’t know how to handle capital flows … so I think that whatever problems occur will be temporary.”
He also suggested that economic restructuring in Korea could weather sudden fluctuations in foreign exchange rates, saying, “You need to have a more diversified economy, more domestic components, more ability to move back and forth from exports and domestic production.”
A more balanced model, he added, could involve stimulation of domestic consumption in the event of sluggish exports or currency fluctuations.
By Chun Go-eun
