(EDITORIAL from the Korea Times on Sept. 25)

Let Won Rise
Korea Inc. Should Prepare for Strengthening of Currency

Reasons can vary for Korean won's current strength against the U.S. dollar,
hovering around its highest levels in nearly a year.
Most of all, it would look rather strange if the nation's currency had not gained
some ground over the dollar at a time when the Fed printed new money equivalent
to about 10 percent of America's gross domestic product, flooding the financial
markets with the greenback. And the signs of an earlier-than-expected escape from
global recession have also reduced the dollar's appeal as a safe asset.
The Korean economy has also performed quite well, as demonstrated by its record
current-account surplus in the first half-year as well as its indices on business
sentiment and consumer confidence in the latter six months almost topping those
of other OECD members.
But therein lies the danger ??? the risk of a false complacency. As up to 60
percent of corporate executives acknowledged in a recent survey, the Korean
economy's seemingly stellar performance could be an ``optical illusion" caused by
the government's profuse stimulus spending and the nation's artificially
undervalued currency.
So the general reasoning might go like this: Now that the government spending
will taper off due to budget restraints, it should at least keep the other pillar
for economic growth by keeping the foreign exchange rate at its present level and
preventing the drop in exports. This may be correct, but only in part and in the
near term. In the longer run, the government should let the won rise ??? albeit
not in a steep and sudden way ??? to strengthen the industry's ``real"
competitiveness.
The time has long past for Korean exporters to resort to only their price
competitiveness but instead to shift to a competitive edge in terms of quality,
based on up-to-date technology and strong brand power. The recent strong showing
in global markets by Korea's leading firms, including Samsung Electronics and
Hyundai Motor, is no longer attributable to their cheap price tags but to their
sharply enhanced quality and brands. And what has made this possible was their
bold investment during the slump in anticipation of recovery.
Not all Korean firms can be like Samsung or Hyundai of course, requiring the
government's intervention in currency markets, which, however, should remain at a
technical level ??? minor and brief ??? not a lasting policy tool like in the
past. The won's gradual appreciation is also inevitable in view of the nation's
eventual shift from export-pulling to domestic demand-pushing pattern of economic
growth.
This means Korea ill-affords to have a top economic policymaker, like Kang
Man-soo, former finance minister and current special economic advisor to the
President. After failing to keep the Korean won at a level he targeted despite
unreasonable intervention last year, Kang said, ``I never spent money as freely
as I wanted as in the past few months."
Letting the exchange rate move relatively freely also helps to prevent excess
liquidity, which, coupled with the Lee administration's construction-led growth
policy, will only work to revive asset bubbles.
President Lee is advised to considerably change his basic economic concepts ???
and aides ??? in keeping with the rapidly changing environment surrounding the
country.
(END)