Strong Won Is Weighing Down Businesses

Businesses called on the government to come up with countermeasures, saying that fast-rising oil prices and the strong won against dollar are reducing business profitability.

The Federation of Korean Industries (FKI) held a meeting of committee chiefs on April 26 and said, “The government should come up with measures to stabilize the foreign exchange rate to ensure that businesses can better respond to external environments worsening with high oil prices and a strong won.”

Cho Kun-ho, vice chairman of the FKI, said to reporters after the meeting, “The government needs to expand demands through monetary, financial, and tax policies to help accommodate changes in unfavorable external environments and continue economic recovery. At the meeting, many said the government also needed to ease regulations to facilitate investment.”

The FKI will call on the government to ease regulations, including the abolishment of the investment ceiling system, Cho stated.

“To tackle aggressive merger attempts from foreign capital, it is important to stabilize management power. The FKI is now working with the government to submit a relevant bill,” Cho mentioned.

The Korea Chamber of Commerce and Industry (KCCI) stated that “when the foreign exchange rate drops to 907 won against a dollar, many companies will give up exports.”

The KCCI conducted a survey on 300 local exporting companies and said, “Companies regard 1,015.7 won against the dollar as an optimal level that businesses can make profits from, and 985.8 won against the dollar as the break-even point. Under the current 950 won against dollar, many companies are exporting while losing money.”

In particular, many businesses think with a rate of 907 won against dollar, they cannot continue operations.

“Despite the steep appreciation of the won, companies cannot make up the losses by increasing prices for fear of losing price competitiveness. They added only 4.7 percent of the appreciation to their export prices,” said the KCCI.

On the question about the won/dollar forecast at the end of the year, companies predicted the won will drop to 918.1, and 27 percent of respondents forecast a below-900 level.

Jeong-Hun Park sunshade@donga.com