[EDITORIALS]Productivity and the won

The won continues to soar, and has just broken through the 1,200 won per U.S. dollar mark. When it fell to its lowest point against the won since November 2000, the nation's foreign exchange market shivered. Most comments were about how fast it had happened.

The majority of the nation's conglomerates and economic research institutes forecast the dollar to weaken this year because of the rising South Korean trade surplus and the increased flow of capital into the country. But those Korean strengths are amplified by the general weakness of the U.S. economy. The won could continue to rise in the second half of the year; the dollar is being dragged down by the slow pace of recovery in the U.S. economy and negative news in the market; like a series of book-rigging scandals at large U.S. companies. For such reasons, international capital is fleeing the U.S. market in search of better returns in other markets.

The Japanese yen is also moving upward against the dollar in step with the won; that is good news because South Korea and Japan are trading rivals. But in the case of China, with whom South Korean companies compete in light manufacturing goods, there is a major concern: The Chinese yuan is fixed to the dollar.

Seoul's verbal interventions have produced no effect, and it finally acknowledged that its options are limited when the dollar is falling against most currencies. Hurried intervention may just attract currency speculators.

The companies that will suffer from the rising won are not the leading conglomerates but small and medium-sized companies. Since the 1997 financial crisis, these companies have prepared for foreign exchange risk but many of them still are vulnerable. The government should make efforts to cushion the weak dollar's impact on exports through measures such as early redemption of foreign liabilities to stabilize the exchange rate.

But the fundamental solution is to make our businesses more resilient by improving productivity and beefing up research and development. Our national competitiveness is no longer determined by the value of the won in the international market. It is time to step up industrial restructuring to make the economy grow.