(EDITORIAL from the Korea Herald on Sept. 26)

dailies-editorials (1)

(EDITORIAL from the Korea Herald on Sept. 26)

No shoring up

On Wednesday, the exchange rate fell below 1,200 won per U.S. dollar, the level
long regarded by Korean exporters as a psychological barrier. The local currency
closed at 1,194.4 won per dollar, marking an 11-month high for the Korean
currency against the greenback.
The 9.4 won fall in the exchange rate, or the won's gain in value by the same
margin from the previous day, was a matter of concern to the business community,
which has been pressuring the government to keep the won weak for the promotion
of exports. The Federation of Korean Industries said earlier that a majority of
respondents to its latest survey believe the nation's improving economic
indicators would prove to be an "optical illusion" if it were not for deficit
spending and high exchange rates.
But the government will do well to keep itself from intervening unless the
fluctuations are deemed so wild as to disrupt the foreign exchange market. The
last thing it can afford to do is attempt to shore up exports by buying up
dollars in the market.
But the sooner Korean exporters abandon the idea that the government will come to
their rescue, the better it will be for them. What they need to do is prepare
themselves for a continuously strengthening won. A consensus emerging among
economic think tanks and financial experts is that the won will continue to
strengthen not just in the months ahead, but in the years to come.
The Samsung Economic Research Institute forecasts the year-end exchange rate will
range from 1,150 won to 1,160 won per dollar. This prediction is reportedly
shared by foreign financial firms, such as Morgan Stanley and BNP Paribas. Some
others say the fall would be more moderate. But few predict a reversal in the
exchange rate anytime soon.
The reason is simple. More dollars are coming in than going out. This trend is
most likely to continue at least in the foreseeable future.
During the first seven months of this year, the nation's current account had a
$26.1 billion surplus. Exports are surpassing imports, further contributing to
the current account surplus.
Moreover, the net equity purchases that foreign investors have made since the
outset of this year amounts to 25 trillion won. The Korean stock market has yet
another potential boost - the FTSE has recently upgraded Korea's status from
emerging market to developed market.
Apparently based on all these developments, an international financial
consultant, Global Insight, believes the exchange rate will fall below 1,000 won
per dollar in 2011. But this should not come as too much of an alarm to Korean
exporters. Such a strong won will not be new to Korean businesses.
If the memory fails to serve them right, they should be reminded that the
exchange rate fell below the level of 930 won per dollar in the second quarter of
2006. At the time, businesses responding to a survey said they were losing money
but they could break even when the exchange rate rose to 985.8 won on average.
All this is not to say that a continued fall in the exchange rate will cause
exporters little pain. On the contrary, it would be painful, and all the more so
if the fall is rapid.
But it should not be seen as insurmountable. Its impact on business conglomerates
may not be as great as it looks, given that their increasing production abroad
shields them much from fluctuations in the exchange rate. In addition, the impact
is mitigated because a strengthening won will help import raw materials and parts
at lower prices for the manufacture of export items.
Ultimately, however, businesses will have to push for innovations, cut costs,
raise productivity and, by doing so, make themselves strong enough to tide over
any change in exchange rates.
(END)