Keep it in the blackKorea reported a bigger-than-expected current account surplus in October - $4.91 billion. This helps Korea secure needed liquidity. Since a current account surplus affects foreign currency supply and demand, October’s surplus will calm the nation’s chaotic foreign currency and financial markets.
In fact, Korea witnessed current account deficits every month this year except June and October, negatively impacting the nation’s economy.
At a time when the entire world is coping with an economic recession, the most important thing is keeping the current account in the black well into the first half of next year. By doing so, relief will spread to the local financial market and Korea can restrengthen its fundamentals.
However, it is hard to cheer about October’s surplus after looking at the details.
The country was only able to report the surplus because the price of crude oil dropped and Koreans traveled overseas less. The bad news is that despite the local currency’s low value against the greenback, exports declined. Exports of Korea’s flagship products - semiconductors, automobiles and home appliances - all declined. This means the world’s economic situation is worse than expected.
Above all, it is not a good sign that the capital account recorded a deficit of $25.5 billion, which means foreign investors kept selling shares and bonds even after the Korean government guaranteed banks’ foreign loans.
When announcing October’s current account surplus, the Bank of Korea also said yesterday that it will receive $4 billion from the U.S. Federal Reserve through a currency swap agreement. This means the central bank has admitted that the current financial market is not good.
The won-dollar exchange rate hovers around 1,500, and nobody knows when Korea’s foreign currency reserves will dip below the $200 billion mark.
We need to come up with safety measures. First, Korea must finalize the $30 billion-currency swap negotiations underway among Korea, China and Japan.
We also need to revive the nation’s exports, which are our only way to survive. Local banks still deny letters of credit to companies, while the credit limits for trade loans have been lowered. The central government should do something about this so that exporters won’t face worse difficulties.
For now, keeping the current account surplus in the black is the only hope for riding out financial instability and economic crisis.