South Korea sees 3 months of deficit

Results not seen since Asian financial crisis

South Korea recorded an account deficit in April for the third consecutive month, the longest period recorded since the 1997-98 financial crisis. Though April’s deficit amounted to 1.53 billion USD, experts attributed this high figure to seasonal factors such as overseas dividend payments. Between January and April, the current account deficit reached 2.65 billion USD, a turnaround from the prior surplus of 4.88 billion won recorded the same period last year.

The poor figures are mainly attributed to a strong won and higher energy prices. Those factors, unfortunately, are likely to remain in the picture for the time being, boding ill for the nation’s objective to realize 10 billion USD in exports this year. Though a majority of experts still forecast a surplus for this year, some pessimists are painting a bleaker picture.

Most market observers say there is no need to panic, however, because Korea’s economic base is still solid, and the account figure is just one of many ways to measure economic conditions. Having a surplus is not necessarily a good sign, in some cases, experts say, especially at a time when the local currency is rising sharply against the U.S. dollar. An account deficit is in fact preferred in order to stabilize the exchange rate, they noted. But overall, economists agree it is desirable to keep a modest current account surplus, especially for a nation like South Korea, which depends heavily upon the overseas markets for growth.

As of the end of April, South Korea held foreign currency reserves amounting to 222.9 billion USD, enough to prevent a ballooning current account deficit from affecting the local currency market, experts say.

Still, three months of account deficit in a row has many worried. Adding to concerns, the South Korean economy remains vulnerable to outside factors such as higher oil prices, which could aggravate the current account deficit. For example, a 5-dollar hike in oil prices would translate into around 1 billion USD in account deficit. As Korean students and tourists go overseas to spend their money in greater numbers, recent travel deficit has posted 1 billion USD monthly, and the number is increasing. Export growth, which is a sole bright spot for the nation’s economy, is also expected to slow.