By Lee Hyo-sik
Staff Reporter
The country's economic growth could fall below 4 percent this year if international oil prices exceed $170 per barrel, a senior finance ministry official said Monday.
Deputy Strategy and Finance Minister Kim Dong-soo said in a radio interview that the nation's gross domestic product (GDP) growth is projected to expand by just below 5 percent in 2008 under the assumption that oil prices average $120 a barrel. ``But if prices increase beyond the government estimate, the economy will grow at a slower pace,'' he said.
Kim added it was difficult for the government to forecast at what rate the Korean economy will expand this year because the outlook for oil prices was unpredictable on global supply and other variables.
``But we will make our estimate public as soon as possible after closely studying the course of global oil prices,'' he noted.
Last Wednesday, the government cut its 2008 growth forecast to 4.7 percent from its earlier 6 percent, citing soaring oil prices, and sluggish domestic consumption and investment. The Bank of Korea (BOK) also said the GDP, the total value of goods and services produced within the country over a given time, will increase 4.6 percent this year, down from an earlier 4.7 percent forecast.
Kim's remarks came after the West Texas Intermediate (WTI) for August delivery rose to an all-time high of $145.29 per barrel last Friday in New York, up $1.72 from the previous trading. Also, the price of Dubai Crude, South Korea's benchmark, jumped to the record high of $140.7 per barrel, up $0.39.
On Sunday, the head of the Organization of Petroleum Exporting Countries (OPEC) warned that oil prices will continue to rise because of the falling dollar, which is expected to further boost crude prices in coming days.
OPEC President Chakib Khelil said the current supply is sufficient, adding that if the dollar falls against other major currencies by 1 percent, oil prices increase by $4 per barrel.
Touching on the weakening won against the dollar, Kim said the government will closely monitor the won-dollar rate, adding it is unacceptable for the rate to be determined by speculative buying and selling.
``If the won-dollar rate is decided by market supply and demand, there isn't much the government can do even if the won loses ground against the greenback. But it is undesirable that speculators command the course of the local currency market,'' Kim said.
On the same day, the finance ministry and central bank said they will use part of the nation's foreign exchange reserves to keep the won from falling further against the dollar.
Initially, the government had tried to lower the won's value against the greenback to boost exports and improve the current account balance.
But with surging oil and other commodity prices, the government abandoned its weak won policy and started propping up the won's value to lower the import costs of raw materials.
But the won has continued to lose ground against the dollar and last Friday, closed sharply lower at over 1,050 won per greenback.
Over the past few weeks, the government sold dollars on the local currency market to boost the won but its attempt has largely failed. Shortly after the state interventions, the local currency lost ground again against the greenback.
Importers demand more dollars to pay for rising oil and other commodity costs. Also, recent foreign selling of local stocks has been boosting the value of the dollar here as non-Korean investors convert the won into dollars before taking their money out of the country.
Regarding the slumping real estate market, Kim said the government will continue to maintain current policies to curb rises in property prices at a time when food and fuel costs are increasing sharply. ``But we are considering halving registration and acquisition taxes, and exempting households owning one house for a long period of time from paying capital gains taxes when selling the holding to boost real estate transactions,'' he said.