Foreign investment worth 16 billion U.S. dollars fled Korea's stock market in 2022 according to Bloomberg News on July 17. That is the third largest exodus in foreign capital after Taiwan and India among Asia's emerging states (China excluded). Global investors are leaving Asia which is vulnerable to foreign exchange rate as US dollar hits a 20-year high. Capital exodus already began even before the reversal of the benchmark interest rate between Korea and the U.S.
Also dubbed "super dollar" or "king dollar,” the U.S. currency is valued unusually high in recent days. Investors are flocking to the U.S. dollar, one of the world's safest assets as the U.S. Federal Reserve is speeding up its interest rate hike to tackle global inflation and economic recession. The value of Korean won dropped by more than 9 percent in 2022, Europe's euro by 11 percent and the Japanese yen by 17 percent, respectively. Except the U.S., the world is suffering from a double whammy of inflation due to soaring import prices and capital flight.
Inadequate countermeasures the Korean government came up with include exempting tax for foreigners investing in government bonds. It is far from enough to turn foreign investors back by belatedly following key major states such as the U.S., the U.K., Germany and France, which already took such steps.
Korea’s Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho said in a foreign press interview on Monday that capital flight is not triggered by just one factor such as interest rate gap. The deputy minister may have meant to stress healthy economic fundamentals of Korea, but the nation is faced with harsh reality. First and foremost, record-high trade deficit that we saw in the first half should be addressed. Taking first steps to signing a currency swap contract with the U.S. at the Korean-U.S. Finance Ministers meeting scheduled in Seoul on Tuesday is just as important. With benchmark interest rate reversal imminent, the Korean government and the Bank of Korea must take all feasible measures.