South Korea announced plans to stimulate overseas investments Monday in an effort to ease the local currency's sharp appreciation against the U.S. dollar.
The won surged around 10 percent to the greenback last year alone, squeezing exporters such as leading carmaker Hyundai Motor Co. and steel giant POSCO. A stronger local currency makes South Korean exports more expensive, eroding exporters' profit margins.
The Ministry of Finance and Economy said the plans focus on easing a cap on overseas property investment, encouraging foreign business projects and curbing the inflow of U.S. dollars.
"The plan will definitely ease upward pressure on the local currency somewhat," said Lee Sung-kwon, an analyst at Goodmorning Shinhan Securities. "Helped by an expected current account deficit and government regulation, the won will fall to around 960 won to the U.S. dollar within six months."
The fresh plans are aimed at managing the capital account surplus and reducing the amount of foreign currency in the local currency market, the ministry said. The government needs to stimulate foreign currency outflow and manage the amount of foreign currency in the market, it said.
Under the plans, the ministry will lift its US$1 million cap on South Koreans' property purchases for investment purposes in foreign countries to $3 million, as well as easing rules on foreign real estate investments via local asset managers and real estate investment trusts. The government plans to lift the cap on real estate purchases in 2008 or 2009.
In addition, South Korea will exempt domestic investors from the capital gains tax on earnings in overseas equity funds for three years. Currently, the government levies a 14 percent tax on earnings from overseas equity investments.
"The plans will have a considerable effect on the market," the Minister of Finance and Economy Kwon O-kyu said in a press briefing. "Even in a conservative forecast, the plans will result in a capital outflow of $10 billion to $15 billion."
The government will also increase financial support for Korean exporters.
The state-run Export-Import Bank of Korea plans to issue 1.7 trillion won ($1.8 billion) in won-denominated bonds and $100 million worth of foreign currency bonds in 2007 to help out local exporters, while the government will expand its soft loans to developing nations to support Korean exporters.
For this year, 550 billion won has been allocated for the Economic Development and Cooperation Fund, a state-run fund offered to developing nations, up from 360 billion won last year, the ministry said.
In addition, the Finance Ministry will also encourage local financial companies to set up units in foreign countries and ease government requirements for the procedure. The ministry will also push to manage the level of liquidity that flows into Korea from other countries.
"The government plans to react appropriately to the recent excessive liquidity in the market and surge in short-term foreign currency debt and state-run companies' exposure to foreign currency risks," the ministry said.
The government will enforce stricter regulation on foreign currency loans as well as encourage state-run companies to reduce needless foreign currency loans.
Seoul, Jan. 15 (Yonhap News)
S. Korea unveils plans to boost overseas investment |
