South Korea to scale down foreign currency stabilisation fund

South Korea plans to scale down the amount of its foreign currency stabilization fund for next year as part of efforts to reduce mounting losses from its operation, the finance ministry said Monday. According to the ministry, the government set the amount of the money being operated under the fund at 72.07 trillion won (US$67.5 billion) for next year, which is down 10.5 percent, or 8.42 trillion won, from this year. The government runs the fund, aimed at protecting the local financial market from external shocks, by issuing state bonds and overseeing the raised money partly by investing in safe assets such as U.S. Treasuries. To that end, the government earlier said that it will restrict the maximum amount of additional issuance of Treasuries for the fund to 16 trillion won for next year, down from this year’s 18 trillion won. The move comes as the government is pushing to reduce fast-growing losses in running the fund. Losses are mostly attributed to borrowing costs, which is spiking as the overall fund scale is expanding. Cumulative losses from the fund have been increasing fast over the past several years. In 2009, the losses stood at 13.8 trillion won, which grew to 18.9 trillion won in 2010 and 22.2 trillion won in 2011. Last year alone, the government logged a loss of about 12 trillion won in operating the currency stabilization fund, which brought the total cumulative losses to 34.4 trillion won, according to the ministry.