FT.com / Lex - Lex: Bank of Korea

リンク: FT.com / Lex - Lex: Bank of Korea.

Lex: Bank of Korea Published: May 18 2005 20:52 | Last updated: May 18 2005 20:52 The Bank of Korea is talking the talk. Its pledge to quit intervening in the foreign currency markets will be music to the ears of US politicians weary of Asian mercantilism. It also makes domestic sense. South Korea's $206bn of foreign reserves are among the highest in the world, and comfortably cover 10 months' imports or its entire foreign debt. That is far more than normal caution dictates. Reserve accumulation, much of which is in low-yielding US assets, also carries a cost, since sterilisation means paying higher domestic interest rates. The devil, however, is in the delivery. South Korea relies on exports for almost half its gross domestic product, making a stronger Won which has outperformed its neighbours an enemy of the fragile recovery. The Won has risen 15 per cent in the past 12 months against the US dollar, and 9 per cent against the Japanese Yen. This, combined with high raw material prices, has driven stalwarts of Korean industry into the red. Backstage politics also feature. The Bank of Korea and the Ministry of Finance and Economy locked horns last year. So far this year they are on a similar path essentially, that policy should support growth, which is expected to decelerate. Renewed policy disagreements cannot be ruled out. But assuming the current run of dollar strength peters out, concerns over economic weakness suggest the Bank will return to the foreign exchange markets before the year is out.