Financial Services Commission chairman Kim Seok-dong called for stronger measures to secure foreign exchange reserves to stave off debt woes abroad spilling over into local financial markets.

“Inflation doesn’t undermine a nation immediately, but the foreign currency liquidity problem does topple a nation,” Kim told a meeting last week, a commission official said.

The comments came as the market faces fears of another liquidity crunch stemming from debt crisis in the U.S. and Europe, a likely scenario given the sharp capital outflows it watched during the Asian financial crisis of 1997-8 and global financial recession of 2008-9.

The benchmark KOSPI plunged on Friday over jitters in the U.S. and Europe. It began to dip on Tuesday, and continued the decline to close at 1943.75 points on Friday.

In line with Kim’s remarks, last month the FSC requested that 12 local banks to submit detailed plans on how to fund foreign currency liquidity in case of emergency.

“Inflation takes a serious toll on people, but he meant that our financial crisis has been caused by the foreign currency sector,” said another official.

Korea’s foreign exchange reserves hit $311.03 billion as of July, the highest level the Bank of Korea has ever accumulated.

By Cynthia J. Kim (cynthiak@heraldcorp.com)