Exporters get government help as won appreciates
Foreign exchange insurance premiums will be lowered by 45 percent by the Korea Trade Insurance Corporation as small businesses suffer under an appreciated won.
The product compensates companies hurt when the currency becomes more expensive.
At present, small and medium-sized enterprises (SMEs) get a 15-percent discount on the foreign exchange risk insurance, while larger companies qualify for a 10-percent discount. The government will up the discount by 30 percentage points.
The state-owned insurance company will expand its export receivables liquidation program from this year’s 600 billion won ($542 million) to 700 billion won next year, with minimum of 50 percent of that to be executed in the first quarter.
This is a program that guarantees export receivables, which are short-term debts.
The government will be creating guidelines on foreign exchange risk management for small companies and provide one-on-one consulting.
The appreciation of the won has been a hot issue recently.
On Tuesday, the won closed at 1,107.4 won against the dollar, depreciating from Monday’s close of 1,102.7 won. Monday’s was the first in 13 trading days in which the won appreciated to 1,100 won.
On Dec. 7, it hit 1,082.1 won, which is the strongest in more than two years. It traded at 1,280 won on March 23 as the pandemic started to build up steam.
According to a Hyundai Research Institute study released Tuesday, when the won value strengthens 10 percent, Korea’s exports shrink 3.4 percent.
“Concerns about next year’s exports are growing as the won is appreciating against the U.S. dollar on top of uncertainties including the resurgence of Covid-19 here at home and abroad as well as the launching of the new government in the United States,” said Trade, Industry and Energy Minister Sung Yun-mo during a meeting with research institutes as well as the Institute for International Trade.
“SMEs are struggling to manage foreign exchange risks due,” Sung said.
In a survey conducted by the Korea Federation of SMEs, 62 percent of SME exporters among 308 companies that participated said their profits were shrinking due to the appreciating won.
The companies said the most appropriate level for the won against the dollar is 1,181 won. The breakeven point is 1,118 won, meaning at this value companies start losing money.
The minister expressed confidence on Korean exports.
“Last month, both our overall exports and daily average exports grew for the first time in two years,” Sung said.
“Though mid-December, this momentum is continuing.”
He said by the end of this year, not only will overall exports and daily averages grow for the second consecutive month, but that for the first time in two years fourth-quarter exports will also increase year-on-year.
BY LEE HO-JEONG [firstname.lastname@example.org]