South Korea to Tap Foreign Returns, Eyes Overseas Bonds for US Pledge

South Korea plans to fund its $350 billion US investment pledge mainly through returns on foreign currency assets and may tap overseas bond markets if needed, a presidential adviser said, outlining a strategy that may ease concerns over economic strain.

The investment , finalized Wednesday during US President Donald Trump’s visit to South Korea for the Asia-Pacific Economic Cooperation summit, consists of $200 billion in investment and $150 billion earmarked for the shipbuilding sector. The $200 billion portion will be deployed in annual increments of up to $20 billion, Kim Yong-beom , the presidential policy chief, said at a press conference Wednesday.

The annual cap “falls within the manageable range that Korea’s foreign exchange market can absorb and will help minimize any impact on the market,” he said. “We won’t be sourcing funds directly from our foreign exchange market. The returns from interest and dividends are quite substantial, so we expect to make significant use of them.”

Kim’s comments, along with annual investment caps, aim to ease concerns that the pledge may hurt fiscal health and disrupt currency markets. Still, longer-term risks remain over how the $350 billion commitment — one of Korea’s largest ever — might affect sovereign credit ratings, trigger capital outflows, and limit future investment capacity.

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Korea’s foreign exchange income may not be enough to fully fund the planned investments, and the government may need to issue $5 billion to $10 billion in dollar bonds annually, Barclays economist Bumki Son wrote in a note.

Issuing bonds would “relieve some of the market concerns around potential KRW funding and FX swaps into USD for the investments, which could have been both rates and FX negative,” he wrote.