[VIEWPOINT]Investing overseas aids Korea

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[VIEWPOINT]Investing overseas aids Korea

The government recently said that it would consider easing foreign currency controls to allow Koreans to purchase overseas real estate. Although the announcement seems belated, the shift in the policy is welcomed for three reasons.
First, Korea’s foreign currency reserves are simply too large at more than $200 billion, which is the fourth-largest in the world. Comparing that with the country’s gross domestic product, Korea’s reserves are about at the same level as China’s, but twice as large as Japan’s. In order to maintain large foreign currency reserves, we have to pay a big price.
Korea’s foreign currency reserves continued increasing because of a steady surplus in capital and current accounts since the 1997-98 foreign exchange crisis.
The current-account surplus, in particular, started building up because the government has kept the value of the won lower than other major foreign currencies, including the dollar. Such a policy was designed to maintain Korea’s competitiveness in exports.
By keeping the won’s value low, however, Korea’s exports only grew in quantity, rather than quality. Furthermore, the surplus in the current account has brought about constant inflation pressures in our economy, as the current-account surplus led to an increased issue of currency.
To offset inflation pressures, the Bank of Korea has been issuing monetary stabilization bonds, but the bonds have been a burden to the economy. Last year alone, the interest payments on the bonds totaled 5.6 trillion won ($5.52 billion).
Every year, the government also issued the maximum amount in bonds approved by the National Assembly for its monetary redemption; this year, Seoul also used up one-third of the approved amount. The more treasury bonds that are issued, the higher domestic interest rates climb. That will not only hinder our economic recovery but also encourage more inflow of foreign capital.
If such a process repeats itself, the won becomes a target of currency speculation in the international currency market. As a result, if the value of won plummets one day, our exports will decrease rapidly and our foreign currency reserves will lose their value. To prevent such a problem, it is best to allow the market to determine the foreign exchange rate.
The next alternative will be to adopt a policy of encouraging the reflux of foreign currency inflow. To this end, the government said it would consider easing foreign currency controls for overseas real estate purchases.
Another reason for supporting Seoul’s possible shift in policy is related to the issue of how to increase the nation’s wealth in the era of globalization. As of now, all economic activities are taking place globally, and any act of investment, including in real estate, must be made freely, even overseas. This is particularly necessary when Korea’s domestic savings have outpaced the investment possibilities inside the country.
Making profits by investing domestic savings in various sectors, including overseas properties, will largely benefit the aging Koreans in the future by providing proper returns. To this end, investing in overseas real estate must no longer be seen as something wrong, as it has been treated in the past.
The government’s consideration in easing foreign currency controls is also welcomed because it would back Korea’s policy to foster the nation as a financial hub of Northeast Asia. In other words, building a financial hub is only possible when all foreign currency transactions are done freely in the country. When Seoul allows some of such transactions while barring others, the policy of building an international financial hub is nothing more than a ridiculous promise.
It is time for the government to trust its people to manage their assets reasonably, and it is time for Seoul to ease regulations on making overseas investments to meet the global standard.
Otherwise, the foreign currency reserves, created from Koreans’ blood and sweat, will rather become a source of headaches.

* The writer is the chairman of the Seoul Financial Forum. Translation by the JoongAng Daily staff.

by Kim Ki-hwan
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