2nd foreign exchange liberalization may bring chaos

There are significant concerns in the market that the second phase of foreign exchange liberalization slated for January next year may bring about a second economic crisis.

According to academic circles, the financial sector and civic groups, the problem is especially grave as the government has not prepared any countermeasures in relation to the liberalization of capital movement.

The second phase of foreign exchange liberalization is to be implemented adhering to the agreement made with the IMF immediately after the foreign currency crisis in 1998 through amendments of the foreign exchange regulations. In relation to overseas travel expenses, the $10,000 limit will be abolished, as will the remittance restriction of $5,000. The $1 million remittance restriction for a family of 4 emigrating overseas will also be annulled. Fundamentally, the capital market will be completely free.

The government revealed that except for special adjustments, liberalization would automatically take place in conformance with international laws. If Korea does not keep its promises, the economy will see its credibility fall.

However, economists and civic groups are forewarning that the hasty liberalization of the capital market may touch off another foreign currency crisis.

As the Central and South American countries have experienced, capital flight by asset holders may damage the domestic economy. In particularly, the government's Financial Intelligence Unit (FIU), which was the solution for the liberalization of the market, faded into an information gatherer.

The secretary for the policy division of the Citizens' Coalition for Economic Justice stated that the Korean economy is not strong enough to absorb the shock from the liberalization of capital. Further, the justification of the outflow of national wealth for the benefit of the citizens is not right. A large campaign is being planned for the delay of the second phase of foreign exchange liberalization.

Lee Hoon dreamland@donga.com