2nd phase of FX liberalization inevitable

The government, to forge ahead with the second phase of foreign currency liberalization starting in January next year, has decided to establish a Foreign Currency Liberalization Action Committee, consisting of related agencies such as the Ministry of Finance and Economy, National Tax Service, Korea Customs Service, the Bank of Korea and the Financial Supervisory Service, for a six-month trial run.

The Ministry of Finance and Economy revealed through its report Monday, "Second Phase of Foreign Currency Liberalization and Supplemental Measure," that a delay in implementation could lead to a loss of trust by both domestic and international community and be detrimental to Korea.

"The liberalization has been a pledge made on several occasions both domestically and internationally, and the international financial market community believes it is a (necessary) part of the domestic financial reform," director of the International Finance Bureau under the Ministry of Finance and Economy Kim Yong-Duk said. "Delaying the liberalization would lead to a fall in trust internationally and especially by the international investors."

Kim stressed the pledge that Korea has made.

"Foreign currency liberalization is a reform reflected in the letter of intention (LOI) agreed on through policy negotiations with the International Monetary Fund," he explained. "Considering the differences in interest rates between domestic banks and foreign banks, the currency exchange fees, and the reporting fees to the National Tax Service, as well as the Korea Customs Service, funds deposited in foreign banks earn only 26% interest as would in a domestic bank."

He also sounded a positive note. "The concern of massive currency exodus might not be founded," Kim said.

Choi Young-Hae moneychoi@donga.com