South Korea will likely unveil measures to boost its outbound investment to make use of accumulated dollars and reduce possible risks from the excessive current account surplus, government sources said Sunday.
In March, South Korea’s current account surplus jumped 41.9 percent on-year to $10.39 billion, the 37th consecutive surplus since March 2012. The Bank of Korea earlier projected a record high of $96 billion in the current account surplus for this year mainly thanks to lower crude oil prices.
A rise in the current account surplus means a higher flow of dollars and generally it is good for an economy as it could serve as a stronger line of defense against external market turbulence.
An excessive surplus, however, could cause the local currency to appreciate sharply and eventually hurt the price competitiveness of exports on which South Korea depends heavily for its economic growth.
Against this backdrop, the government is mulling diverse ways to boost the country’s investment in foreign stocks, foreign direct investment (FDI), and offshore mergers and acquisitions, as well as encouraging imports to tackle the risks from excessive surplus.
Ways under consideration to boost FDI include tax benefits.
Those measures are expected to be included in the government’s soon-to-be-unveiled economic management plan for the second half.
The Finance Ministry is in charge of drafting the plan.
Finance Minister Choi Kyung-hwan earlier said that he is thinking about measures related to foreign stocks, M&As and imports to boost overseas investment.
“There should be a comprehensive package of measures that should include deregulations and tax incentives,” he told reporters last week.
The move comes as there are many factors that could raise the value of the won. The continued pumping of money into the market by the European Union and Japan, as well as a possible delay for the U.S. to hike the near-zero interest rate, might be among them.
The “quality” of the current account surplus is another cause for concern.
Behind South Korea’s continued surplus is the faster decline in its imports compared with exports. The decline in imports is attributable to less consumption here, hard hit by the prolonged slump in demand.
Experts see the government’s push to boost the overall overseas investment as “positive,” saying that it might be an effective way to respond to the excessive surplus at a time when exporters are now suffering from the relatively strong won.
Some still sound caution against any possible side effects, saying that outbound investment could result in higher prices of imports by depreciating the value of the local currency. (Yonhap)
