SEOUL, South Korea (AP) _ Headlines warn of a "September crisis." The currency falls to a four-year low and the stock market tumbles. Rumors swirl that foreign investors will pull out their money.
A spasm of anxiety has gripped South Korea this week amid a blitz of alarming media reports and speculation that have triggered painful memories of the Asian financial crisis that devastated the country nearly 11 years ago.
"Already uneasy financial markets are showing signs of racing toward wholesale panic," the Maeil Business Newspaper said Tuesday, after the benchmark stock index plunged 4.1 percent the previous day.
Government officials and economists dismiss it as a media-driven scare with little basis in reality. Even if there was a crisis, they say, the South Korean economy is much better prepared than it was a decade ago to deal with it.
The anxiety reached such a pitch that even Prime Minister Han Seung-soo - the country's second-highest official - was compelled to speak up and try to restore calm.
"The theory of a 'September crisis' is nothing but groundless rumor," Han said Wednesday, adding that media reports about a possible crisis were inflated.
"The size of our economy has become larger and we also have an appropriate level of foreign exchange," he said. Currency reserves can be used to defend the value of a nation's currency.
Concerns grew early this week after markets tanked.
"The first day of September, 'Black Monday,'" said the top headline in Tuesday's Seoul Economic Daily newspaper.
Helping fuel the angst were media reports speculating that foreign investors who held about US$7 billion in South Korean government bonds maturing later this month would pull those funds out of the country.
That could further pressure an already weak currency, the won, which fell to 1,148.50 to the U.S. dollar on Wednesday - its lowest close since Oct. 7, 2004 - before recovering a bit later in the week.
Citibank Korea economist Oh Suk-tae and others say there is no evidence to support such a view.
"We don't believe in a much-hyped scenario of a 'September crisis,'" Oh wrote Tuesday, arguing that the amount of foreign bond holdings due to mature "is simply too small to cause any meaningful crisis in Korea."
Financial markets have stabilized over the last couple of days, but any talk of crisis clearly makes people nervous.
"Whenever I hear about a September financial crisis or 'Black Monday,' I recall the nightmare from the 1997 Asian financial crisis," Chung Pil-young, a 57 year-old businessman who lost his wedding business amid that turmoil, said Friday.
The fallout for South Korea was brutal. Millions lost their jobs. The once high-flying Daewoo conglomerate collapsed under the weight of tens of billions of dollars in debt.
But the country has bounced back strongly since then to become one of Asia's most dynamic economies, led by the likes of Samsung Electronics Co. and Hyundai Motor Co.
And the country has built up foreign exchange reserves of US$243.2 billion, the world's sixth largest - far more than it had when the Asian financial crisis broke.
To be sure, South Korea's economy is facing a host of challenges, including high oil prices, inflation, rising external debt and an expected current account deficit.
The won has been one of Asia's worst performers this year, declining as much as about 20 percent in 2008. It fell this week to its lowest levels in four years before rebounding.
Sean Callow, senior currency strategist at Westpac Institutional Bank in Sydney, says the won has come under pressure as foreign investors aggressively sold South Korean equities this year.
"I don't think Korea's fundamentals are deteriorating at the pace its currency is declining," he said.
The stock market, meanwhile, has slid 25 percent so far this year, after jumping 32 percent in 2007, its fourth double-digit percentage gain in five years.
After hitting their lowest level in 18 months on Tuesday, stocks rebounded the following day. But the benchmark index slid 1.6 percent Friday to 1,414.38 in line with broad declines in regional markets following Wall Street's sell-off Thursday.
The International Monetary Fund, which played a major role in South Korea during the 1997-98 financial storm by arranging a US$58 billion bailout package, also expressed confidence this week.
South Korea is "a mature and resilient economy," said Meral Karasulu, the IMF's resident representative in a statement, and characterized the country's fundamentals as "much stronger than 10 years ago."
Associated Press Writer Jae-hyun Jeong contributed to this report.