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All Players Should Join Efforts to Prop Up Korea Inc.
An alarm has rung for South Korean exporters as the local currency continues to become stronger against the U.S. dollar and the Japanese yen. The Korean currency rose to 918 won to the greenback on the Seoul foreign exchange market Tuesday, the highest since Dec. 7, 2006. The currency also marked a 10-year high of 749 won to 100 yen. Some market players say it is a matter of time before the won breaks the 910-won mark, the highest since the 1997 Asian financial turmoil.
On Thursday, the local currency dropped to 922 won to the dollar and fell below 750 won to 100 yen, driven by financial policymakers' warnings about the won's overvaluation. However, it is uncertain whether the currency can be stabilized at the current level. Many foreign exchange dealers believe there is still strong upward pressure on the won as the United States and Japan tolerate their currencies' weakness.
Particularly, the greenback has little sign of regaining its value against the world's major currencies. On the contrary, Washington is calling on Beijing to appreciate the yuan against the U.S. dollar in a bid to rectify the huge U.S. trade deficit with China. The Japanese yen also shows little sign of reversing its weakness over the short term.
Domestic companies, especially exporting firms, have already felt the pain of the strengthening won over the last several years. Many of them said their profitability has deteriorated since the won fell below 950 won to the dollar. If the local currency continues its gains, a large number of exporters might lose product price competitiveness on overseas markets. Some Korean products, including electronics and automobiles, are even becoming more expensive than their Japanese counterparts.
In addition, local companies are in fiercer competition with their Chinese and Indian rivals, which are aggressively marketing cheaper products around the world. Things have become worse for South Korean manufacturers as prices of crude oil and other natural resources have surged on international markets. Unionists' demand for higher wages and better working conditions has increased production costs. Businesses are also worried about an anticipated interest rate hike. The central Bank of Korea (BOK) has recently hinted at raising the overnight call rate in a desperate attempt to bring excess liquidity under control.
Exporters are calling for the financial authorities to intervene in the Seoul currency market to stem further rises in the won's value. They are also urging the government to work out measures to help maintain their products' competitive edge. However, market intervention is not easy because of its huge costs. And policymakers also have difficulties in supporting exporters.
In the end, enterprises will have to go all-out to improve their competitiveness by management reform and technological innovation. Such firms as Hyundai Motor, Samsung Electronics and the top steel-maker POSCO are speeding up relocating their production lines overseas to overcome the stronger won and higher production costs. It's time for all economic players to pool their wisdom to boost the international competitiveness of Korea Inc.
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