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With Psy and currency swaps, South Korea grabs global influence

By Se Young Lee and Christine Kim

SEOUL (Reuters) - From rapper Psy to overseas financial aid, an economically and culturally confident South Korea appears to be taking on bigger neighbours Japan and China for the hearts and minds of the rest of Asia and beyond.

Its most recent effort to leverage brand "Korea" - three currency swap deals worth more than $20 billion that were announced this month.

South Korea had the seventh largest currency reserves in the world at the end of August, worth $331.1 billion, according to the Bank of Korea. It can easily afford to match cultural diplomacy with economic muscle as it competes with Japan and China for influence.

K-Pop icons such as Psy, whose "Gangnam Style" hit went viral in 2012, and even Korean food are used by Seoul to build South Korea's brand, while Samsung Electronics Co Ltd <005930.KS> and Hyundai Motor Co <005380.KS> are firms with global reach.

"Becoming a country that can offer currency swaps to support other economies elevates our standing abroad," a senior official at the central bank, who spoke on condition of anonymity, told Reuters.

Thanks to its huge foreign exchange reserves, South Korea doesn't need to buttress its currency against possible speculative attacks, although its swap partners Indonesia and Malaysia have been hit by recent financial market turmoil.

The third deal with the United Arab Emirates is part of a package that has seen energy-starved Seoul take substantial stakes in UAE oil fields and win a hefty nuclear contract.

Once impoverished, South Korea is now the world's 14th largest economy and has moved from a net aid recipient in the dark days after the 1950-53 Korean war to a net donor.

The government aims to increase overseas development aid by 9.9 percent in 2014 to 2.3 trillion won ($2.17 billion), outpacing a projected 2.5 percent rise in total spending despite fiscal constraints on the country's budget.

"Swap agreements and international aid should be seen as long-term strategic decisions to ensure a greater stake and influence in Southeast Asia and elsewhere," said Lee Sang-jae, an economist at Hyundai Securities in Seoul.

South Korea has a long history of using economic leverage to win diplomatic prizes.

In 1989, Hungary became the first Soviet bloc country to formally recognise South Korea in exchange for a tranche of economic aid in a move aimed at winning over communist allies of rival North Korea.

K-POP TO K-DRAMA

Soft culture is just as important as hard politics and cash to Seoul. K-Pop, the carefully choreographed dance music showcased by bands like "Girls' Generation" had sales worth $3.4 billion, according to U.S. show business magazine Billboard.

It is especially popular in Southeast Asian countries such as Malaysia and Indonesia, where stars fly in almost every month to sold out concerts and Malaysian buyers line up for days for the latest Samsung smartphones.

So popular are the acts that Malaysian mobile phone operator DiGi has run campaigns where customers had to buy pre-paid phone credits to win a chance to meet a K-Pop star while Asia's biggest budget carrier, AirAsia , sponsored a K-Pop concert to promote its Kuala Lumpur-Seoul route.

"K-Pop idols always have unique choreography and that is what makes their songs famous. They work really hard to please their fans," said Azim Shaun bin Hermain Herbert, 25, a paralegal at a Malaysian law firm.

Dian Novita, 27, an account manager at Jakarta-based Narrada Communications, has a Samsung phone, likes Korean food and watches Korean mini-series, known as K-Drama.

"I started to dig into Korean culture three years ago. It started out from watching K-Drama, then I started to listen to the music too," said Novita.

South Korean TV series are also popular closer to home - in China and Japan.

"There has been a sharp rise in positive responses in surveys of Korea's image among younger people (abroad); this is soft power," said Oh In-gyu, professor of Korean studies at Korea University.

The promotion of "brand Korea" has not always been straightforward. Rapper Psy's success was outside the mainstream carefully nurtured groups, but was later proclaimed as a Korean success story by the government.

In the 1990s, red faced officials withdrew the "My Seoul, Our Seoul" motto when told that a phonetic reading rendered it laughable to English speakers.

A recent Korean food promotion overseas by the government twinned K-Pop stars with "Energizing Persimmon", "Romantic Mushroom" and "Sexy Red Pepper Paste", among others and was met with bemusement.

Nonetheless, Seoul will continue to push ahead.

"As our products are exported, people start to take interest and start asking where South Korea is and to look for interesting things; as that spreads, there is a synergy," said Ju Won, a senior research fellow at Hyundai Research Institute.

($1 = 1,060.8 Korean won)

(Additional reporting by Niluksi Koswanage and Anuradha Raghu in KUALA LUMPUR and Andjarsari Paramaditha in JAKARTA. Editing by David Chance and Dean Yates)

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