Seoul pushes for overseas investment

The government yesterday unveiled measures to induce overseas investment by local firms and individuals, a major shift in its foreign exchange policy that once strictly restricted capital outflow.

The plan drafted by the Ministry of Finance and Economy is aimed at removing regulations on Koreans buying foreign real estate and other overseas assets.

The eased regulations will take effect as early as July 1, the ministry said.

Individuals will be allowed to invest up to $3 million in hotels and real estate abroad, compared with the current $1-million ceiling.

They also will be able to spend $500,000 on an overseas residence and must report to tax authorities when the amount exceeds $200,000. At present, the ceiling is $300,000 and the report is mandatory regardless of the purchase amount.

The new measures also would allow local real estate investment trusts to acquire real estate in foreign countries and scrap the $50 million ceiling on a local fund`s investment in overseas real estate.

The finance ministry expects the new measures to create outflows of between $1 billion and $1.5 billion per year. Korea has had a net inflow of foreign currencies worth about $25 billion on average every year since the 1997-1998 Asian financial crisis, according to the finance ministry. The central bank expects the net inflow to reach about $20 billion this year. In a separate move, the Bank of Korea yesterday was supposed to unveil a plan that would allow part of its foreign exchange reserves to be lent to overseas investors.

BOK`s seven-member monetary policymakers, however, put off the decision saying that it needs to take more time to review the plan. On Monday, the central bank scheduled a news briefing but it was canceled two hours before the scheduled time.

Industry insiders have speculated that the central bank delayed the decision as it could spark fresh criticism about a possible massive capital flight. Among the BOK`s top priorities is managing more than $200 billion foreign reserves more efficiently and preventing a possible property bubble that could disrupt economic stability.

Investors are closely watching every policy measures on both foreign currency and property market and financial markets have been sensitive to the news.

The government officials expect the measures aimed to spur overseas investment to help slow down the local currency that has strengthened 17 percent against the U.S. dollar since the beginning of 2004. The won`s steep rise could erode the profitability of exports, the main engine of its economic growth as domestic demand isn`t picking up significantly.

The measures are also expected to allow local residents to purchase overseas property legally and encourage domestic firms to invest overseas, they added.

So far, many Koreans have taken expedient measures to purchase real estate properties overseas without reporting the transactions to authorities.

According to the BOK`s tentative plan, local banks would provide foreign-currency loans, using some of the central bank`s foreign exchange reserves swapped for won, to local firms and individuals investing abroad. The foreign-currency loans are estimated to be as much as $5 billion.

(jungmin@heraldm.com)



By Kim Jung-min