S. Korea Is Nearly a Net Creditor Nation

South Korea, once one of the world’s biggest borrowers, is expected to turn the tables next year and become a net creditor nation.

From being the world’s fourth-largest debtor in mid-1986 with a debt of $47.4 billion, South Korea’s outstanding foreign debt should drop well below $30 billion in 1989, by which time its foreign assets should be worth nearly $32 billion, officials of the Economic Planning Board said.

Even at the start of this year economists predicted that the country would not reach net creditor status until 1991. “It’s clearly an important psychological step,” one foreign banker said of the change in status. “It shows what a powerhouse this economy is.”

South Korea’s overseas assets include $12.7 billion of foreign exchange reserves through the end of October, deposits in overseas banks, investment in foreign stocks and bonds and exports sold on credit.

This year South Korea will make an estimated $3.8 billion in repayments ahead of schedule, a board official said.

Since 1986, South Korea has chalked up huge trade surpluses coupled with double-digit economic growth. The board estimates this year’s current account surplus will hit $13.8 billion, almost as much as 1986 and 1987 combined.

Gross national product, which measures total value of goods and services, is expected to grow 12.1% this year, compared to 12% last year.

South Korea’s position will give its companies more clout overseas.

“The shedding of Seoul’s debtor status means that the average spread (interest rate differential) that international banks have charged on local corporations is shrinking,” said Christian Evain, deputy manager of Banque Indosuez’s Seoul branch.

Five years ago, one of South Korea’s largest conglomerates would have paid an annual interest rate of 1.2 points above the London Interbank Offered Rate on bank loans. Now they can borrow for as little as 0.1 point above.

“Being a creditor nation will catapult us to the ranks of advanced nations,” said Kim Yong, director of financial planning at the Economic Planning Board.

Bowing to foreign pressure to reduce its balance of payments surplus, Seoul has gradually revalued the South Korean won against major currencies, making its exports more expensive.

Economic planners said a steep rise in the local currency would slow the inflation-adjusted growth of exports to 8% in 1989, from 11.3% this year.

Imports, many of which are used as parts in products later exported, are expected to show a 15.7% climb next year after a projected 15.8% gain in 1988, despite the drop in exports.