On Friday the government organized a meeting about the exchange rate and spoke with strong words about its intention to stabilize it. It is appropriate for the foreign currency authorities to take action when a fall in the rate against the dollar is causing confusion on the market. They should also take rigorous action against currency speculation and nonessential borrowing.
The part about significantly relaxing regulations on making overseas investment in order to solve the problem of an oversupply of dollars, however, is absurd. The government says it is going to immediately increase the ceiling on acquiring residential real estate overseas and on direct overseas investment by individuals and individual businesses, and that it is going to eliminate the limits on both within the end of the year. It says it will also gradually liberalize restrictions on purchasing foreign real estate for investment purposes.
They say that all is just a matter of moving up the timetable for the foreign exchange liberalization that was scheduled anyway for 2008, but it is inappropriate for two reasons. For starters, as has been the case at the start of every year since 2001 the problem right now is a temporary excessive sale of dollars, and liberalizing foreign exchange is a long-term prescription. There is no way the dollars pouring over the market are going to turn around and leave to buy real estate. And the foreign currency market's response has been negative.
The other reason would be that they are taking a system that is hard to change once you meddle with it, and turning it on its head. The whole reason there are planned stages and a timetable for liberalization is because of concern about the side effects of such action. There is room for adjustment if conditions change, but it is hard to understand why they want to fit those measures into policy on the exchange rate and implement them so hastily. You wonder why the government has to take the lead in releasing the national wealth overseas when there is already a serious outflow with the rapid rise in foreign travel and study. Investment money like that does not come back even if the status of foreign currency turns bad. Furthermore the changes could be misused in smuggling cash out of the country since it is hard to confirm whether money is being used for its stated purpose.
The foreign current market cannot always be favorable. The government should give more careful consideration to instant liberalization of the restrictions.
The Hankyoreh, 7 January 2006.
[Translations by Seoul Selection]
[Editorial] Don't Liberalize Foreign Currency Regulations |
