New rules aim to tamp down invigorated won

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New rules aim to tamp down invigorated won

In an attempt to rein in an appreciating won and reduce the amount of foreign currency in the local market, the Ministry of Finance announced a series of measures to stimulate overseas investment by Korean individuals and corporations.
They include making it easier for Koreans to buy real estate overseas and for foreign companies to sell products here.
Some of the measures could come into effect during the first quarter of this year, the ministry said in a release.
Under the new rules, for instance, the government will exempt investors here from paying capital gains taxes in overseas equity funds for three years. Currently, there is a 14 percent withholding tax in such cases, although profits from domestic funds are not taxed.
In addition, new rules will allow foreign asset management companies to offer funds in Korea if they have at least 1 trillion won ($1.1 billion) under their management. Previously, they had to have at least 5 trillion won.
The ministry has announced plans to increase the amount of foreign real estate Koreans are allowed to buy for investment purposes. The new ceiling will be $3 million, up from the current $1 million. The cap could be abolished in 2008 or 2009, the ministry said.
The Finance Ministry also will encourage local financial companies to set up offices in foreign countries and ease the government requirements needed for the procedure. There will no longer be a monetary cap on the amount of foreign investment allowed by companies investing in small and medium start-up firms.
Meanwhile, the state-run Export-Import Bank of Korea plans to issue 1.7 trillion won in won-denominated bonds and $100 million worth of foreign currency bonds this year to help out local exporters.
“The government plans to react appropriately to the recent excessive liquidity in the market and surge in short-term foreign currency debt,” the release said.
The nation’s foreign reserves in December rose for a sixth consecutive month, and closed 2006 at $238.9 billion, up $28.6 billion over the previous year.
The won gained nearly 9 percent to the U.S. dollar in 2006, and as the stronger local currency made Korean products more expensive, it eroded exporters’ profit margins and their competitiveness on the world stage.


by Yoo Jee-ho
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