Korean won's earlier slide 'out of line' with fundamentals: finance minister
Finance Minister Lee Hyoung-il speaks during a session with reporters at Queen Sirikit National Convention Center in Bangkok, Friday. Courtesy of Ministry of Finance and Economy
BANGKOK — The Korean won's sharp decline against the U.S. dollar earlier this year was "out of line" with the country's strong economic fundamentals, the finance minister has said.
Finance Minister Lee Hyoung-il made the assessment during a meeting with reporters in Bangkok on Friday, after the won recently strengthened to a two-year high against the U.S. dollar at 1,330-won levels, compared with around 1,550 won in July.
"The levels observed (in July) were rather out of line with our economic fundamentals," Lee said.
The finance minister thus said the exchange rate is "moving into line" with Korea's economic fundamentals.
"We will continue to closely monitor the situation, as external conditions could change," he added.
Asked whether exchange rate movements could affect revenue projections in next year's budget proposal, Lee said they do not call for a revision in the forecast at this stage.
"Our corporate tax revenue estimates already place considerable weight on chipmakers' performance," Lee said. "But since we have taken both upside and downside factors into account, I don't think the current situation calls for a change in the tax revenue forecast."
The finance minister added a currency swap arrangement between Korea and the United States could serve as a "robust safety net" for Seoul's foreign exchange market, noting such an arrangement would be "meaningful and necessary" in this context.
Lee, however, stressed his remarks did not mean Korea needed a swap arrangement because of foreign currency liquidity constraints. Rather, he said the country could seek such arrangements in line with levels in other advanced economies.
Turning to the Korean stock market, whose main index recently slipped to the 5,000 range after surpassing 9,000 for the first time in June, Lee said the country's economic fundamentals remain sound.
"The stock market appears to undergo corrections amid concerns over more frequent rises in global interest rates than expected, questions about the sustainability of returns on AI and semiconductor investment and geopolitical risks, including those in the Middle East," he pointed out.
"The chip industry accounts for a particularly large share of the Korean market, so (such concerns) have weighed more heavily on it," the top economic policymaker said.
Lee said the government is closely monitoring the market and stands ready to take market stabilization measures if necessary, depending on market conditions. He declined to elaborate, saying disclosing specific measures in advance could undermine their effectiveness.
Lee also stressed the need to enhance the competitiveness of the Korean stock market and identify new growth engines beyond semiconductors.
"Beyond semiconductors, our fundamental task is to find new sources of growth through the seven SEED projects, the K-GX initiative and the services sector," Lee said.
SEED stands for Strategic Emerging Engines for Disruptive Innovation and covers areas such as small modular reactors (SMRs), nuclear fusion and renewable energy. K-GX refers to the Korea Green Transformation initiative, which aims to identify new business opportunities while addressing climate change.
Lee said the finance ministry had reached out to partners with experience in operating sovereign wealth funds, including Saudi Arabia and Singapore.
Earlier this year, Korea unveiled plans to launch a new sovereign wealth fund next year to make long-term investments in cutting-edge and strategic industries.
The new fund, set to launch with at least 20 trillion won ($14.9 billion), will be established through a new account under the Korea Investment Corp.
"The partners welcomed Korea's move to launch a sovereign wealth fund," Lee said, adding it would open opportunities for joint investment.
The minister, however, said no concrete arrangements for regular meetings or a separate dialogue channel had been discussed, as the fund has yet to be established.
Regarding the government's plan to tax cryptocurrency starting next year, Lee said his ministry is gathering opinions amid criticism of the plan, without elaborating.