South Korea plans to move forward its timetable for foreign exchange liberalization by two years in an effort to curb the strength of the local currency and protect its export-driven economy, the Finance Ministry said Thursday.
The Korean won has gained around 7 percent against the U.S.
dollar this year on an economic recovery and global weakness of the greenback.
The local currency fell 10.1 won against the greenback to close at 947 won on a continued sell off of local shares by foreign investors and speculation about a rate hike in the United States.
A stronger won hurts South Korean exports by making them more expensive.
The planned liberalization, whose linchpin is deregulation of individual and corporate investments in overseas real estate, will be completed by 2009, two years earlier than originally scheduled.
Under the measures, individuals will be allowed to buy US$1 million worth of land or buildings overseas for investment purposes. The ceiling will be scrapped by 2009, the ministry said.
Earlier this year, the government scrapped a limit on purchases of buildings overseas for residences. It also raised a cap on financial investments by individuals to $3 million.
The ministry said that the ceiling applies to one person, which means that the cap for a married couple will be $2 million.
"The purchase of a house in foreign countries would not be subject to the taxation currently levied on multiple homeowners," said Kwon Tae-kyun, director of the ministry's financial policy bureau.
"A series of deregulation steps will help stabilize the foreign exchange market," Finance Minister Han Duck-soo said during a weekly briefing. "Individuals and companies will have more chances for inroads into overseas markets."
As for concerns that the deregulation measures may negatively affect the country's current account balance, the minister said there is no possibility that it would deteriorate sharply.
"The main reason for the falling of the current account surplus is high oil prices," he said.
According to the ministry, some individuals will be exempt from reporting to the Bank of Korea on their overseas purchases of real estate, and will no longer be required to seek the bank's permission, the ministry said.
Nonresidents will be allowed to borrow up to 10 billion won ($10.6 million), ten times the current limit, and the government plans to list won-dollar currency futures in an overseas futures exchanges such as the Chicago Mercantile Exchange.
The currency liberalization moves will also help expand currency trading, the ministry said. Foreign-exchange volume amounts to $29 billion a day in South Korea, compared with $113 billion in Hong Kong and $133 billion in Singapore, according to government data.
In the measures, the value of foreign currency that financial companies are allowed to buy or sell will be raised to 50 percent of their share capital, up from the current 30 percent.
Foreign investors will be allowed to put up deposits for futures-margin trading in foreign currencies, according to the ministry.
The government will also lower the withholding tax rate on interest income nonresidents earn on domestic bonds to 14 percent from 25 percent, it said.
In addition, South Korea plans to ease regulations on the conversion of its currency in other countries by allowing foreign financial institutions to exchange the won with their currencies.
Until now, foreign financial institutions were required to get approval from the central bank when they wanted to bring a certain amount of local currency into or out of the country.
The limit will be raised to $1 million from the current $10,000, according to the ministry.
Market experts said the deregulation measures are inevitable given the strengthening of the local currency versus the dollar.
"For now, the currency authorities are advised to closely monitor capital flows," said Kwon Sun-woo, a researcher at Samsung Economic Research Institute.
Rhyu Byong-kyu, a researcher at Hyundai Research Institute, said the liberalization steps are in line with global trends, but that money can flow into "unproductive" sectors overseas and there could be massive capital flight. Seoul, May 18(Yonhap News Agency)
Seoul to advance currency deregulation schedule |
