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# October 20, 2004
# The Korea Herald
# By Sim Sung-tae



The Korean won has appreciated the most against the dollar this year among major Asian currencies largely due to foreign investors' "Buy Korea" spree and the nation's current account surplus, the Ministry of Finance and Economy said today.

On Tuesday, the won-dollar exchange rate closed at 1,144.8 won, up 4.2 percent from 1,192.6 won at the end of last year.

The appreciation is a concern to because it threatens to stifle price competitiveness of exports, which have propped up the nation's sagging economy.

Most of the total production of Korean semiconductor and electronics is exported and paid for in dollars. Autos, information technology and home appliances also are heavily reliant on overseas sales.

On the other hand, a strong won helps stabilize local prices by making imports cheaper. Import prices, propelled by rising oil costs, are putting inflationary pressure on the economy.

"The jump in foreign equity investment funds and the country's currency account surplus drove the won higher," said Kim Ik-ju, director of the ministry's foreign currency funds division.

This year, foreign investors brought in $11.4 billion to buy Korean stocks as of Oct. 15, while the country reported a current account surplus of $17.5 billion in the first nine months.

In contrast to the won's robustness since the end of 2003 to Tuesday, the yen-dollar exchange rate has risen just 2.2 percent from 106.99 yen to 109.42 yen. The Taiwan and Singapore dollars have appreciated 0.5 percent and 1.4 percent, respectively, against the greenback. The Thai baht has dropped down 4.3 percent.

China and Malaysia, which adopted a fixed exchange rate policy, saw no change in the value of their currency, which is pegged to the dollar.

The Finance Ministry may issue may issue additional 1 trillion won of treasury notes this month to help boost the dollar as the won-dollar exchange rate is hovering at a 6-month low, the ministry official said.

The government has been issuing 2 trillion won of treasuries per month to stabilize the local currency since July, but has only issued 1 trillion won so far this month. It has eased its earlier opposition to a strong won after politicians' criticism over the cost of currency intervention during the ongoing annual parliamentary audit and on inflationary concerns stemming from spiraling global oil prices.

Choi Joon-kyung, director general of the ministry's international finance bureau, however, said there was no change in Korea's foreign exchange policy. "We won't intentionally weaken to support exports, but could participate in the market to stabilize the won against the speculative force," he said.

Over the past five years, Korea has funneled more than one third of its debt into keeping its currency from rising against the dollar, a government report showed today.

State debt totaled 165.7 trillion won as of 2003, up 67.1 trillion won from 1999, according to the report by the Ministry of Planning and Budget said in a report to an annual National Assembly audit, Wednesday.

Of the increase, currency stabilization bonds accounted for 33.8 percent, or 22.7 trillion won. Proceeds from currency bond issues are used to buy or sell dollars, which is intended to stabilize the value of the Korean won against the greenback.

"State debt rose over the past five years as the government increased spending to overcome the 1997 foreign currency crisis and issued currency stabilization bonds to stabilize the won," the ministry report said.