Korea pressured on currency

Seoul officials expected to turn more cautious in wake of U.S. criticism


Korean officials are expected to take a more cautious approach in dealing with the foreign exchange market following the U.S. criticism of their active intervention to keep the won low, analysts said Monday.

The Bank of Korea declined to make any official comment on the U.S. Treasury Department’s recent report to Congress on the “International Economic and Exchange Rate Policies.”

The report detailed Korea’s alleged intervention in the currency market over the past few years. During the most severe period of the 2008 global financial crisis, “Korea intervened heavily” to support the won, the report said.

Since 2009, the report said, Korea has intervened in the opposite direction, selling won and buying foreign currencies to rebuild reserves and slow won appreciation.

“As of the end of December 2010, the won was still 24 percent below its 2007 peak against the dollar, and 25 percent weaker than its pre-crisis high in real effective terms, despite a strong recovery of its domestic economy and exports,” it also said.

Woori Futures analyst Byeon Ji-young said, aside from the sentences, the report pointed out a variety of intervention cases one by one.

Saying that Korea is the main target of criticism in the report, following a similar report of the U.S. in 2009, she said the pressure from Washington will affect foreign exchange policies of the nation’s central bank and the Ministry of Strategy and Finance.

“I don’t believe the authorities can gloss over the report,” she said, forecasting a policy shift. “But the possibility that the authorities will totally give up their intervention is low.”

Samsung Futures analyst Jeon Seung-ji also predicted a weaker-stage intervention. “It does not seem that the authorities will continue to actively intervene (for the time being).”

Apart from the U.S. pressure, inflationary pressures including rising import prices will be another factor pushing the authorities to shun strong intervention and tolerate the won’s gaining value, the analysts share the view.

A BOK official said, “We have the position of not mentioning foreign exchange rate policies.”

Should the Finance Ministry make comments, the position of the government and the BOK would be the same, he added.

An unidentified official of the Finance Ministry was quoted by an online news provider, as saying, “I don’t think the report puts pressure on Korea. It seems that it is merely the details of changed foreign exchange market since 2008.”

He added that the report only commented on Korea’s fine-tuning in the currency market under excess capital in and out of the country.

By Kim Yon-se (kys@heraldcorp.com)