Strong Won Fuels Record Credit Card Spending Abroad

Overseas credit card spending reached a new record in the third quarter despite the continuing slump.

According to the Bank of Korea on Friday, Koreans spent W2.71 billion (US$1=W1,058) abroad in July to September, up 14 percent compared to the same period of 2012.

Cash spending abroad also increased 37 percent to $3.34 billion.

A total of 4.02 million Koreans traveled abroad during the period, up 15 percent on-quarter. Analysts say the strong won fanned the trips.

The won weakened to W1,137 against the dollar in June but had risen almost five percent to W1,085 in September.

Travel agencies began offering cheap package tours abroad during the peak summer vacation and Chuseok holidays to drum up business. Kim Kwan-mi at the Korea Tourism Organization said travel packages to Japan used to cost W400,000 but fell to W190,000.

The increase in outbound tourists also led to a surge in sales at duty free shops here.

Another factor in overseas credit card spending is growing purchases from overseas websites. According to customs officials, online overseas purchases almost tripled from $242 million in 2010 to $642 million last year. 

Products can be 20 to 30 percent cheaper on foreign websites, and purchases worth less than $200 are tax free under the Korea-U.S. free trade agreement.

Analysts say the trend is likely to continue. Korea's current account surplus is nearing $70 billion and the Japanese yen is weak, bolstering the won and fanning overseas buying.

But the increase has a negative impact on Korea's economic recovery. Domestic consumption in the third quarter rose only 0.8 percent, compared to 1.1 percent in the second quarter.

Shin Min-young at the LG Economic Research Institute said, "An increase in overseas spending is basically a rise in imports, and that doesn't help the domestic economy improve."