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Currency Shock This Actually Is Return to Pre-Crisis Level | |||
The Korean won's ongoing rise against the U.S. dollar has been anticipated, but is embarrassing still for its speed and steepness. The direct reason for Wednesday's surge, which put the won-dollar parity rate back to the three-digit range for the first time in eight months, was the Federal Reserve Board's suggestion to stop raising interest rates. By most signs, however, the weak dollar will be a long-term trend, to which Korea should adjust. The problem is how to minimize pain in the process. Monetary authorities and government officials are on special alert underneath the ostensible calm. They should be: At stake is the nation's exports, its main _ if not sole _ prop for the economy. Depending on its degree and duration, a strong won, especially when coupled with prolonged strong oil prices, could threaten this year's growth target of 5 percent. A 5-percent gain in currency value and 10-percent rise in crude prices will reduce economic expansion by 0.5 percentage point. Analysts forecast local currency could soar to 950 won per U.S. dollar at year-end. This will almost come true, if Korea's exports grow more than 11 percent, while America's trade deficit widens to 8 percent of its GDP, as projected now. A currency's value is a mirror of its nation's economic power or condition, so the people should feel better, if their money becomes stronger. The enormous short-term pains, however, trigger a global war to undervalue currencies. All these point to the direction the nation should follow. Korea ought to reproduce the feat of Japan, which overcame more than a 100-percent appreciation of the yen in the 1980s and 90s by consolidating and sophisticating industries. Tokyo did so by keeping ``real'' exchange rate low, which in turn was possible thanks to enhanced productivity, or technological renovation amid stable wages. This is a tall order for Seoul reeling under a protracted slump, but effective as the ultimate goal. Nor can it be attained in a few years. In its course, the government needs to cushion as much impact as possible not just with monetary policies but industrial policies as well. Monetary intervention, particularly against currency speculators, should be prudent but swift and sweeping. It should focus on small businesses, ill prepared for market fluctuations. These companies suffer from double trouble by shouldering part of the burden of their larger partners. Hefty incentives are necessary for big firms that invest and help suppliers. Before the 1997-98 currency crisis, the exchange rate hovered in the 800-won range, but Korea had little problems in exports. Whether the nation can reenter that atmosphere after undergoing economic reforms and industrial restructuring depends on correct policies and concerted efforts. After all, it's just another growth pain. |