Korean businesses are pinning their hopes on reaching some type of agreement at a meeting between the OPEC and non-OPEC members in Doha on April 17.
If the oil producers reach a consensus on an output freeze, Korea may be a beneficiary, as the nation is an export powerhouse in petrochemical products.
Although an increase in crude prices has many positive effects, some industries will also have to bear a heavier burden in procuring raw materials. This divided sentiment reflects the desperate situation of Korea’s exports, having posted a year-on-year drop for the 15th consecutive month in March.
Further, Korea Customs Service data shows that exports for the first 10 days in April fell by 25.7 percent compared to the same period last year. The figure has weighed down some optimism that export performance would rebound sooner or later.
Despite hopes on the April 17 meeting, the prospects are not bright as OPEC-member Iran -- which is resuming its crude exports following the lifting of international sanctions -- has expressed its skepticism over a freeze.
It is widely believed that Iran hopes to boost its economy by expanding oil output. There is even speculation that it may boycott the meeting.
Irrespective of the outcome of the meeting, it is no longer convincing for the government to ascribe the export slump to low oil prices. Amid expectations of a production freeze or cut, international crude prices climbed about 40 percent over the past two months to hover around $40 a barrel.
But the performance of Korean exports worsened in early April despite the rapid bounce-back in oil prices, which had dipped to below $30 in early February.
Some have attributed the lackluster export performance to the Japanese yen’s depreciation against major currencies and the Korean won. Last year, the exchange rate fell to below 900 won per 100 yen during some sessions.
But the situation has changed, and there is no room for clumsy excuses. Since late last year, the won has lost ground to the yen to trade above 1,050 won per 100 yen. The won lost more than 10 percent of its value from its strong position a year earlier.
Theoretically speaking, Korean carmakers should have had a greatly advantageous position over Japanese competitors in price competitiveness on the global stage, as the yen has also sharply risen against the greenback and euro. Local exporters’ performance, however, has not been impressive.
It is anachronistic to depend on favorable global indices. The economy should be more resilient to negative external factors.
The government plans to unveil a package of measures to overcome the sagging exports and accelerate domestic demand. Though it is welcome, the stimulus policy should no longer be an emergency prescription.
In consideration of fierce competition involving China in international trade, the government has induced industries to shift their business paradigm. Even though it is taking longer than expected, exporters should invest in high value-added, high tech-integrated segments.