[EDITORIALS]Weathering a weaker wonAs the saying goes, it never rains, it pours. To be more specific, it’s pouring all over the Korean economy. International oil prices are skyrocketing, but at the same time, the won-dollar exchange rate is crashing. Last week, the won-dollar exchange rate fell beneath the psychological barrer of 950 won to the dollar. This week, it dropped below 940 won. At this rate, some analysts are predicting that soon the exchange rate might fall below 900 won.
Facing this critical situation are export firms who have already been complaining about the rate for some time. Some companies are saying that the foreign exchange bureau should have safeguarded the 950-won line.
In the case of Hyundai Motor, if the exchange rate falls by 100 won, sales will reportedly fall by 1.5 trillion won ($1.6 billion) and profits drop by more than 800 billion won. If that’s how bad it is for large companies, one can imagine how much worse it is for small and middle-sized firms, which in their already defenseless state have been exposed to the plummeting exchange rate. Already, a considerable number of small and middle-sized export companies have either shut down or are hanging on in the hope that export values will rise above costs. If the exchange rate continues to fall, an enormous number of small and medium-sized export companies could go bankrupt.
The problem is that for the time being, there is little chance that the exchange rate will turn around. The United States is less likely than ever to raise interest rates and the world seems to agree that the dollar is weak. In addition, foreign investment funds are pouring into Korea and companies that once received earnings from exports in dollars are now selling off their greenbacks.
However, there seems to be little room for foreign exchange authorities to interfere in the market and prop up the foreign exchange rate. The strategy of pouring in won to protect the foreign exchange rate already proved its limits last year. At this point, any rash intervention would simply benefit foreign exchange speculators. In the short term, we need a way to avoid the dangers of foreign exchange shifts, but in the long-term, the only solution is for companies to be more competitive so they can withstand fluctuations in the exchange rate. We believe that a certain level of mediation is needed to prevent a drastic decrease in the exchange rate. As one fundamental method of adjusting foreign exchange, we need systematic measures for investing the dollars accumulating in Korea, such as more foreign investment.