By Lee Hyo-sik
Staff Reporter

The won is overvalued against the dollar and cannot sustain its appreciation against the greenback and other major currencies, a senior Finance and Economy Ministry official said on Thursday.

The comment comes as the won climbed to a seven-month high against dollar this week. But officials have not confirmed whether or not the government will intervene in the currency market to stem the won's rise.

Kim Sung-jin, deputy finance and economy minister for international affairs, said that the government and most economic research institutes agree that the won's recent gain is too fast compared to economic fundamentals and it will begin losing its strength.

``Stabilizing the won's value against other currencies is one of government's top priorities. We are closely monitoring the won's direction,'' he said.

A stronger won makes Korean goods expensive on overseas markets and erodes exporters' earnings. The worsening business bottom line will also lead to a drop in corporate employment and investment, negatively affecting domestic consumption. But a strong won is a bonanza for Korean tourists abroad.

The won has appreciated against the dollar at a rapid pace over the past week, rising to a seven-month high against the greenback mainly because of the ample supply of dollars on the local foreign exchange market as a result of strong exports and foreign buying of local stocks.

On Tuesday, the won closed at 918 won to the dollar, the strongest level for the won since Dec. 7, 2006 when it traded at 913.8 won. The won corrected its gains as it lost 2.1 won to close at 922.00 won Thursday, rising for two days in a row on intensified verbal intervention by officials, dealers said.

The won appreciated 8.8 percent against the dollar in 2006 and appreciated another 1.1 percent this year. In contrast, the yen depreciated 0.7 percent against the dollar in 2006, and lost its value 3 percent since the beginning of the year as of yesterday, according to the Bank of Korea.

Kim said Korea's current account surplus will continue to shrink, reducing dollar supply. At the same time, a series of government policies aimed at promoting overseas investment have and will facilitate outflow of dollars from the country, he said.

``Unlike last year, there will be no oversupply of dollars on the local currency market this year. Also, major domestic and international economic institutions, including the Korea Development Institute, the International Monetary Fund (IMF), all said the won is overvalued, forecasting it will soon lose ground against the dollar and other currencies,'' he said.

Separately, Deputy Finance and Economy Minister said that the financial authorities are closely monitoring the foreign exchange rates.

Cho Hyun-seok, a currency dealer at the Korea Exchange Bank (KEB), projected that the won will weaken gradually after rising to a mid-910 won range against the dollar.

``Domestic exporters, including shipbuilders, have been converting record amounts of dollars they earned abroad into the won to hedge against the currency, pushing up the won's value. Also, foreign investors have brought dollars into the country to purchase local stocks amid the bullish market run,'' he said.

But Kim said the country will import more goods from abroad amid the strong won. ``Many companies and individuals will likely expand investment overseas. Also, the strong currency has and will continue to encourage Koreans to travel overseas, taking some steam out of the won's strength.''

leehs@koreatimes.co.kr