Current account’s 20th surplus

The current account balance marked its 20th consecutive monthly surplus, getting close to the central bank’s year-end goal of $63 billion.

However, there have been growing concerns over decelerating exports, particularly after the Korean won strengthened against the U.S. greenback.

According to the Bank of Korea, the current account balance in September reached $6.6 billion.

This was 13 percent larger than the previous month’s $5.7 billion and 10 percent higher than September 2012’s $5.9 billion.

The central bank is confident that the surplus will continue through this month, the 21st in a uninterrupted row.

“We believe that this year’s outlook will be realized unless affected by an unexpected external factor,” said a BOK official.

For the first nine months of the year, the current account surplus totalled $48.8 billion. That was 41 percent more than the $28.3 billion in the first nine month of last year.

The increase in the goods account surplus contributed to last month’s current account surplus as exports, once again outpacing imports.

The surplus on the goods account in September was $5.7 billion, up from August’s $5.3 billion.

Despite the surplus, exports fell 2.7 percent to $46.3 billion when compared to a year ago.

Since late August, the Korean won started to appreciate against the U.S. dollar because of a buying spree by foreign investors on the local stock market. Despite rumors that the U.S. Federal Reserve may start tapering off its bond-buying program, the Kospi continued to attract foreign investors and the currency was strong compared to other emerging economies in the region such as India and Indonesia.

Strong economic fundamentals including the current account surpluses also helped attract foreign investors.

Foreign investors went on a 42-day net buying spree through Monday, which continued yesterday.

As foreign investors loaded up on stocks on the Seoul bourse, the won appreciated to the 1,060 won level, and on Thursday and Friday, appreciated to the 1,050 won level. Last Thursday, the won hit this year’s high of 1,056.6 against the greenback. This prompted the government to reportedly intervene and weaken the won back to the 1,060 level.

The Korean won closed at 1,060.6 won against the greenback yesterday.

Finance Minister Hyun Oh-seok said last week the government was closely monitoring the currency market. But he denied any government intervention.

The 1,050 won-to-dollar mark is considered the break-even point for many exporters. They start losing if it gets stronger.

In fact, a third-quarter economic growth report released earlier by the central bank showed that economic expansion in the July-September period largely resulted from an improvement in the domestic market rather than expansion in exports, which have been the drivers of Korea’s economic growth since the 2008 global crisis.

Third-quarter gross domestic product was up 1.1 percent compared to the previous quarter and up 3 percent on-year, which was the first such robust growth in nearly two years.

The central bank, however, denied that last month’s current account surplus was the recession-type in which the surplus was only achieved by a sharp drop in imports as exports struggled.

Imports last month fell 3.5 percent year-on-year to $40.6 billion. Even when compared to the previous month, they were down 0.7 percent from $40.9 billion.

“Exports fell because there were fewer working days than last year due to the Chuseok holiday,” said a BOK official. “But when you consider the average daily outbound shipments, it is clearly not a recession-type surplus.”

Another noticeable change last month was the improved services account. The services account surplus expanded from $100 million in August to $870 million last month. This was largely because of significant reductions in the travel account deficit as fewer people traveled abroad.

The travel account deficit nearly halved from $1 billion in August to $540 million last month.

The financial account last month also saw its net outflow reduced from $7.7 billion in August to $4.5 billion. While the deficit on the direct investment account expanded from $915 million in August to $1.2 billion last month, stock investment saw its net inflow grow from $1.4 billion to nearly $6 billion during the same period.

Meanwhile the current account balance for this month will adopt a new system dubbed “BPM6” introduced by the International Monetary Fund.

The central bank said intermediary trade, which was previously factored into the services account, will now be placed under the goods account.

The central bank said with the adoption of the new system, the current account surplus will likely increase, although more details on the changes will be made clear after it is actually applied.

By LEE HO-JEONG [ojlee82@joongang.co.kr]