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If the won continues to weaken against the U.S. dollar, Korea¡¯s per-capita gross national income (GNI) appears headed for a fall below US$20,000 this year, the psychological barrier it first exceeded last year. The LG Economic Research Institute has raised its forecast for the average value of the won against the dollar this year from W985 to W1,010, and the Samsung Economic Research Institute is expected to raise its forecast from W983 to the W1,000 level. Hana Institute of Finance has raised its forecast to W1,030, and Shinhan Bank to W1,055.
If the won weakens as significantly as these research institutes have forecast, then there is a strong possibility that Korea¡¯s GNI in dollar terms could fall from $20,045 in 2007 to below $20,000 this year. In order for Korea to maintain $20,000, the rate of income growth must be higher than the rate of the won¡¯s weakening against the dollar. But if the average value of the won, which was W929.20 against the U.S. dollar last year, weakens past W1,000 this year, the Korean currency would fall in value at a rate of more than 7 percent, while our economic growth is expected to be only between 4 and 5 percent.
As the won failed to strengthen, forex authorities on Wednesday intervened aggressively in the market. Choi Jong-ku, head of the Strategy and Finance Ministry's international finance bureau, convened a press conference to send a message of warning to the foreign exchange market. He said the excessive weakening of the won was a serious concern in light of consumer price stabilization and added officials would continue to monitor market conditions and ¡°take measures if necessary.¡± Officials had begun verbal intervention in the market saying they would not allow abnormal fluctuations in the currency.
Verbal intervention by a forex authority shows just how serious the market situation is. This month alone, the won has weakened 7.1 percent against the dollar. The central Bank of Korea tried to calm market jitters by issuing data rebutting rumors of a ¡°September crisis¡± circulating in the market. That rumor highlights the fact that $6.7 billion of Korean bonds mature in September and the won will weaken sharply if all of the money leaves Korea at once. The BOK said Korea¡¯s interest rates are still higher than those of the U.S. so there is little reason for investors to pull out, while foreigners were continuing to buy Korean bonds in August.
(englishnews@chosun.com )
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