Go to contents

[Editorial] Weak Won`s Positive Effects to Wane

Posted May. 11, 2009 03:04,   


Among the world’s top 2,000 businesses, 1,243 of them excluding financial institutions have shown worsening performance since the fourth quarter of last year due to the global economic crisis. Their average rise in sales of eight to nine percent before that quarter has plummeted to negative 0.6 percent. Their overall business performance is expected to remain sluggish this year.

Among them, 44 Korean companies have seen their sales growth rates rise from 13.2 percent in 2007 to 24.3 percent last year. Based on the strong performance, experts predict a quick rebound in the Korean economy.

They should remember, however, that much of the Korean companies` sales increases are due to a decline of 18.7 percent in the value of the Korean currency over the past year. According to a survey by LG Economic Research Institute, global corporations based in Korea showed the highest rate of sales increase last year, followed by those in the United States, Europe and Japan. In U.S. dollar terms, the ranking is reversed. Korean companies` sales in dollar terms increased just 5.1 percent last year, down from 16.4 percent in 2007.

Korean corporations should not be complacent about their performance, much of which is attributable to the weaker won. Now, the effects of the foreign exchange rate are diminishing. The won closed at 1,247 against the U.S. dollar Friday, dropping below the 1,250-won mark for the first time since Oct. 15 last year.

Certain experts forecast the Korean currency to strengthen to 1,100 per greenback, making it more difficult for Korean exporters to maintain their price competitiveness overseas. A report said that if the won reaches the 1,200 level, the operating profits of Samsung Electronics, the nation’s most profitable company, could be halved this year.

The International Monetary Fund yesterday said Korea will post a current-account surplus of 20.8 billion dollars this year, the eighth highest among the world’s top 33 economies, and post a surplus of more than 20 billion dollars every year until 2014.

Such optimism can be realized only if Korea maintains a trade surplus through lower imports and robust exports. A cause for fear is that the trade surplus stems from a sharper decline in imports than exports. This year, export performance is being maintained with lower prices. Only with higher product competitiveness can Korean exporters raise their prices in accordance with a stronger won.

Nam Yong, vice chairman of LG Electronics, warned in March that the effects of the weak won will disappear this year. Kang Ho-moon, president of Samsung Mobile Display, urged in an in-house broadcast Friday a creative strategy of its own color because the exchange rate`s effects cannot last.

On the same day, the heads of state-funded and private think tanks urged the government to deal with the stronger won. Both the government and business should bear in mind that exchange rate measures will have a limited impact in maintaining competitiveness in the global market.