The nation’s current account surplus reached $70.73 billion last year, surpassing the central bank’s earlier forecast of $63 billion by a sizable margin. The administration expects the momentum, though slightly tamed, to continue into this year.
The bulging surplus certainly helps the nation keep its currency stable at a time when other emerging countries are scurrying to fend off the U.S. dollar’s onslaught against their own. Still, Korea finds it difficult to embrace it with open arms. On the contrary, it is concerned about mounting pressure on the Korean won to strengthen.
The driving force behind the upsurge in the current account surplus was Korea’s prowess as an exporter. Exports, posted at $570.9 billion, surpassed imports by $60.7 billion last year. The trade surplus helped push the current account surplus up 47 percent from a year ago to its highest-ever level.
The nation produced a small monthly trade surplus of $735 million last month, as both exports and imports inched down in January. Still, it expects the 2014 current account surplus will be larger than $50 billion. No wonder international pressure is mounting on the Korean currency to gain, putting the brakes on Korean exports.
Korea will have to keep its current account surplus at a high level and permit its currency to remain strong if that is needed to forestall the kind of financial crisis that is threatening other emerging economies with weak currencies. Some of them are raising interest rates in response to the tapering of quantitative easing in the United States.
But the downside of a strong won is that it will curb exports. Korea will find its exports are even more vulnerable, both in Japan and other parts in the world, because the Japanese yen is weakening against the dollar. The two countries compete against each other in exporting similar goods, such as ships, steel products and autos.
A way out of this dilemma is to push for deregulation and encourage corporations to spend more on capital goods, which should increase imports and curb the nation’s trade surplus. An increase in capital investments should set in motion a virtuous circle of increasing employment, consumer spending and reducing the trade surplus.
The administration will have to strive to keep the current account surplus at a proper level and put the export earnings to good use. It is no use Korea wringing its hands as the United States and other trade partners put greater pressure on the Korean won to strengthen against the dollar and other reserve currencies.