Capital flight feared from FX freedom

There are worries that capital flight might become a problem next year, as the government will implement the second phase of liberalization of foreign exchange transactions, potentially triggering another financial crisis in the nation.

Analysts point out that it could be serious because there is no government policy concerning full liberalization of the capital market.

The plan for second-phase liberalization of foreign exchange transactions was worked out in 1998 through consultation with the International Monetary Fund. The restriction of US$10,000 for overseas travel expenses will be lifted, and overseas remittances as gifts will be freed from the current limit of US$5,000 at a time. Overseas moving expenses, which currently are limited to US$1 million for a family of four, also will be liberalized.

The government explains that the policy will be implemented automatically under the sunset clause of the international law unless there is a special reason. If the promise is not kept, international confidence in the Korean economy will be substantially lowered, according to government officials.

However, economists and civic groups warn that full liberalization of the capital market could lead to another financial crisis at a time when the nation's economic environment is in bad shape.

As Central and South American countries experienced, the nation's economy could be hampered with massive capital flight by rich people, they noted.