Posted November. 15, 2004 23:04,
As the value of the won against the U.S dollar has dropped to around 1,090 won per dollar over seven years, an export emergency has been declared.
On November 15, the won-dollar exchange rate at the Seoul foreign exchange market closed at 1,092 won, which dropped 12.5 won more than last weekend.
This was the first time after November 24, 1997 (1,085 won) that the exchange rate dropped below 1,100 won.
The won-dollar exchange rate dropped 5.3 percent (60.6 won) over 40 days since October 6 (1,152.6 won).
The won-dollar exchange rate on this day suddenly dropped following the U.S governments implication that they will maintain their weak dollar and signs of the governments continued non-interference in the foreign exchange market for a while.
Roh Sang-chil, the branch chief of the Kookmin Bank foreign exchange fund team said, After the exchange rate suddenly dropped at the beginning of trading, there was a war over trading, but as the hope that the authorities of the foreign exchange would interfere broke down, there was a bargain sale towards the last moment of trading.
An official from the Ministry of Finance and Economy made clear their position again of not interfering in the foreign exchange market by saying, Although we will not stand idly by speculation movements, the exchange rate basically has to be decided by the market.
Also, an official from the Bank of Korea said, As the major currencies such as the Euro and the yen, along with the won, are going strong compared to the dollar, it will hardly do any good even if Korea interferes in the foreign exchange market.
As the won-dollar exchange rate dropped below 1,100 won, domestic exporting companies have taken emergency measures such as changing their business plans for next year.
Major groups such as Samsung, LG and Hyundai-Kia Motors have launched counter plans in case the won-dollar exchange rate falls lower than 1,100 won next year.
Some small and medium-sized companies are examining plans such as moving their production bases overseas, restructuring the manpower, and disposing of their marginal businesses.
Shin Seung-kwan, an economist of the KITA Trade Research Institute said, The downtrend of the exchange rate at the present is difficult to accommodate for exporting companies through measures such as cost reduction.
According to data collected on 392 export companies that KITA presented this day, the break-even exchange rate for these companies was 1,127 won.
This means that at the exchange rate of the present, companies are exporting 90 percent below-cost.
On the other hand, although the stock value for this day dropped, the market closed at 882.33, up 5.66 points (0.65 percent) from last weekend, going up for four consecutive days after the commercial fund influx.
Lee Jong-woo, the chief of Hanwha Securities research center said, The shock of the exchange rate drop has already been sufficiently reflected in last weeks stock value. and added, However, the exchange rate drop is a potential burden which decreases competitiveness in export for domestic companies.