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(LEAD) S. Korea may move to stabilize currency: finance minister

All Headlines 16:38 October 23, 2009

(ATTN: UPDATES with more details in paras 11-13; ADDS comments on inviting N. Korea to G20 meeting from para 14)

SEOUL, Oct. 23 (Yonhap) -- South Korea may take steps to deal with distortions in the foreign exchange market that have the potential to harm the national economy, the nation's top economic policymaker said Friday.

"Seoul will not stand idle in the face of distortions in the exchange rate," Finance Minister Yoon Jeung-hyun told lawmakers during a parliamentary audit.

The remarks come a day after he acknowledged the Korean won's rapid ascent against the dollar in recent weeks, raising concern over the price competitiveness of locally made products that can hurt exports.

The Korean currency has gained about 33 percent versus the dollar since March on the strength of the country's growing trade surplus and as foreign investors snapped up local shares.

The minister, however, stressed that it is not appropriate for the government to announce its stance on foreign exchange issues and made clear any action will be limited to implementing so-called smoothing operations to prevent sharp fluctuations.

The official also said that he is not in a position to comment on the possibility of making verbal warnings that can influence the foreign exchange market.

On the prospect of South Korea implementing a so-called exit strategy to reel in excess liquidity, the official reiterated that policymakers plan to examine all possibilities in the first half of 2010.

He said without going into detail that when such actions are taken Seoul may move more swiftly compared to developed economies in some areas, while taking more careful steps in other fields.

South Korea, like many other countries, injected large sums of money to push forward stimulus programs aimed at coping with the worldwide financial crisis caused by the Lehman Brothers collapse last year. Such actions have helped stabilize the economy, but there are now concerns that excess liquidity could trigger inflationary pressure down the road.

The finance minister added that in order to achieve a fiscal balance in 2013-2014, efforts must be made to start cutting unnecessary spending in the public sector. He said a rough balance between spending and earnings should be reached around 2011.

Yoon also said that the government will start discussing ways to revamp the country's financial supervisory system next year. "The discussion will touch on foreign exchange, responsibilities for monitoring the global financial market," he said.

He hinted the government could weigh a possible merger or readjustment of jurisdiction over financial oversight, currently dispersed between the finance ministry and the Financial Supervisory Commission. Such a division has been cited for inefficiency and a failure to respond quickly to sudden changes in the market.

Yoon, meanwhile, said a North Korean delegation may be invited to the G20 meeting that South Korea will host in November 2010.

"It is customary for the chairperson of the annual meeting to invite a few non-members to the gathering although no decision has been reached on the guest countries for next year," he said.

He said that asking North Korea to attend the G20 as an observer is one of many options that can be explored.

His remarks come amid growing speculation that South and North Korea may have engaged in talks that could lead to another summit meeting to help resolve outstanding issues like Pyongyang's nuclear ambitions and inter-Korean cooperation.

Leaders from the two Koreas have met twice before in 2000 and 2007, during a decade of liberal rule in South Korea when the country maintained a conciliatory stance towards the North.

Cross-border relations cooled after conservative President Lee Myung-bak took office early last year.


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