Big money begins to move due to economic worries

Ahead of the implementation of the consolidated taxation system on financial incomes scheduled for next year, it is reported that funds estimated at about 40 trillion won have begun to move in search of safe havens. As some of the funds seem to be heading for overseas financial markets under the belief that the Korean economy will suffer difficulties next year, fears are escalating over a massive capital flight.

According to the financial sector Tuesday, depositors of large amounts of money -- more than 500 million won per person, for example -- had previously watched economic conditions in a careful manner for investments. But recently they began to move away about 21 trillion won of deposits that reach maturity in November and December in a bid to avoid taxes under the new system, analysts said.

A bank official estimated that about 21 trillion won would leave the banking sector alone and, including the funds in the non-banking sector, the capital flight would amount to 40 trillion won. He said that an increasing number of customers at his institution are inquiring about ways to avoid the system.

Therefore, in a desperate attempt to retain such big customers, one commercial bank after another is rushing to develop products in preparation for the consolidated taxation system.

On the other hand, domestic branches of foreign financial institutions are also waging aggressive marketing efforts to induce customers to make overseas investments, emphasizing their safety. Some foreign securities firms report that more and more customers visit their firms to request the management of their funds. Their funds range from hundreds of millions of won to billions of won, they said. In extreme cases, some overseas mutual fund managers visit Korea and wage marketing efforts to attract large funds. As a result, the amount of funds subscribed to overseas mutual funds is sharply increasing. For instance, the funds sold by Citibank increased more than five times as of the end of October, compared with last February.