Weakening won drives importers up against the wall

As the Korean won plunged, breaking the 1,300-won barrier against the dollar, import dependent industries such as oil refineries, aviation companies, and shipping companies were on red alert.

The won's depreciation is not expected to lead to more exports, since the yen is also continuing to fall. Rather, this time the won's sharp depreciation is causing trouble and confusion for small and mid-sized business' export negotiations. Furthermore, a weaker won might throw the Korea economy back under the same conditions experienced during the Asian currency crisis, just as it emerges from them. A weaker won may also double international raw material prices and destabilize domestic consumer prices.

The won fell to 1299.40 won to the dollar March 19, and in the afternoon session plunged, breaking the 1,300-won barrier once. This is the lowest rate since November 18, 1998 when it recorded 1,294 won.

Highly import dependent industries such as oil refineries, the petroleum based products, aviation companies, shipping companies, and electric companies are worried about worsening profitability because of high raw material prices.

Members of the aviation industry predicted that Korean Air would incur a net loss of 2.8 billion and Asiana Airlines 1.4 billion won whenever the won falls by one. This accounted for foreign debts, worth around $2.8 billion and $1.4 billion respectively, from purchasing airplanes abroad.

Oil refineries are likely to raise prices in line with currency fluctuations, as it has to pay more money in order to import materials and deal with exchange rates loss.

The main export bodies, vessels, cars, textiles and electricity, will not see export increases because the yen fell much faster than the won. Economic experts predicted that the weaker yen would last for a long time as outside credibility drops for the Japanese economy.

Especially, small and mid-sized exporters will have difficulty in determining product prices and on the time that their contracts should begin.

An official at MOCIE said that the won's sharp depreciation might have a negative effect on the trade surplus. It would be better for small companies that suffer from handling currencies to use foreign exchange rate insurance properly, he added.

Meanwhile, the Korea International Trade Association (KITA) analyzed that if the won falls by 10 percent, then export cargoes should increase by 4.29 percent in that year, 2.14 percent in the next year, and 0.72 percent the year after that, totaling 7.15 percent or $2 billion over three years. Imports, on the other hand, would be expected to decrease by 2.3 percent or $2.8 billion in the first year alone, improving the total to $4.8 billion in trade surplus over three years.