[EDITORIALS]Adapting to a stronger won

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[EDITORIALS]Adapting to a stronger won

The Korean won has strengthened to a three-digit value against the U.S. dollar for the first time in seven and half years. The dollar closed at 998.90 won for the second straight day yesterday. Since the U.S. trade deficit is growing and pressure to allow the appreciation of the Chinese yuan is rising, the dollar is likely to remain below 1,000 won for a while. The Korean government has reached its limit in keeping the won weak through market intervention.
The Korean economy, highly dependent on international trade, is vulnerable to external factors. If the U.S. dollar declines by 100 won, export profitability deteriorates by 10 percent, and the nation’s economic growth will slow by 0.5 percentage points, according to private economic research institutes. The dollar’s decline in the first quarter of this year caused Samsung Electronics Co. a 900 billion won ($901 million) loss and LG Electronics Co. a 300 billion won loss, clouding the nation’s 4 percent growth target.
As domestic consumption has not recovered, the stronger Korean won as well as higher international oil prices could be difficult for the economy. The recovery of the domestic economy and creation of new jobs is not possible if companies don’t want to invest and consumer sentiment remains negative.
In addition, if the yuan appreciates between 3 to 5 percent, the won will strengthen further and exports to China could fall in the long run.
Now, everybody should seek ways to survive in the era of the strong won. Companies should be active in foreign exchange management and increase overseas production. The government should seek ways of investing dollars through state-run funds overseas.
But the government should not artificially intervene in the foreign exchange market or recklessly undertake policies to boost the economy. Such moves will only bring about negative effects. The government should pay attention to the market’s unexpectedly calm reaction to the first three-digit Korean won against the U.S. dollar in seven and half years.
This is because the sales of large exporting companies have become less sensitive to price changes, aided by new technology developments and improvements in quality. Semiconductors and mobile phones, whose sales depend more on quality than prices, are cushioning the foreign exchange shock. Companies should adapt themselves to a strong local currency, even if it hurts them.
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