Too Many Dollars Is a Mixed Blessing

Foreign exchange dealers say that the recent changes in the value of the Korean won and the Japanese yen seem to mirror the recent rift between the two countries over a Japanese textbook that critics say whitewashes the country's wartime atrocities.

The two currencies, which had been moving in the same direction until April, have gone their separate ways since.

And experts say the gap between the won and the yen will widen. The value of the Korean currency will probably rise due to a massive inflow of U.S. dollars following overseas fund-raising by some major local corporations, while the Japanese yen is expected to continue to fall in step with the country's prolonged recession.

Seoul does not welcome the large influx of dollars because a stronger won may hurt Korea's export competitiveness.

The yen's value has declined 9 percent against the greenback so far this year, while the won has shed just 2.5 percent. As a result, the won rose to 1,030 won per 100 yen from 1,100 won early this year.

According to a recent survey by the international news agency Reuters of 50 global financial institutions, experts projected that the yen, now trading at 125 yen to the dollar, would weaken to 128 yen against the dollar on average and to as low as 140 yen. By contrast, most analysts see the won strengthening through December.

The money raised overseas by local companies is expected to bring $8 billion into Korea. Hynix Semiconductor Inc. has raised $1.3 billion through overseas stock issues and Korea Telecom Corp. $2.3 billion. LG Electronics Inc. attracted $1.1 billion from Dutch-based Royal Philips Electronics NV. Doosan Group secured $450 million from selling its beer unit, Oriental Brewery, and Hyundai Development Co. sold its I-Tower, one of Korea's largest buildings, for $500 million.

And even more dollars may flow into Korea; SK Telecom Co. and Korea Telecom Corp. are seeking to sell stakes to overseas companies, and Hyundai Investment Trust & Securities Co. and Daewoo Motor Co. are also up for sale.

Adding to the influx of dollars, the country is expected to see a current-account surplus of $13 billion despite slowing exports.

Therefore, experts say that the "10 to one" exchange rate, the customary relation between the won and the yen, may collapse.

They project that a steeper drop in the yen relative to that of the won would hurt the competitiveness of Korea's shipbuilding, steel and electronics exporters.

"Korean exporters will be able to hold out until the won hits 1,250 won (against the dollar)," said Cheong Mun-kun, head of the research division at Samsung Economic Research Institute. "If the won strengthens past that, local exporters will lose competitiveness."

by Cheong Chul-gun