Examples of Countries with Improved Foreign Exchange Reserves and Intervention Transparency: South Korea Case
[Asia Economy Reporter Kim Eunbyeol] The International Financial Center assessed that the U.S. Department of the Treasury welcomed South Korea's disclosure of market stabilization measures in its currency report and supported the South Korean government's plan to increase the frequency of such disclosures.
According to the International Financial Center's report on "Key Contents and Evaluation of the U.S. Treasury Currency Report" on the 18th, the U.S. Treasury maintained South Korea as a monitoring country in the currency report but supported South Korea's disclosure of market stabilization measures.
In particular, the Treasury cited South Korea as a key example in its evaluation that transparency regarding foreign exchange reserves and interventions among trading partners has recently improved. It expressed support for the South Korean government's plans to enhance transparency and timeliness.
However, in this currency report, the Treasury presented both the figures disclosed by the Korean authorities on market stabilization measures and its own estimates. The International Financial Center stated, "It is expected that the Treasury will continue to present its own estimates alongside disclosures until the frequency of market stabilization disclosures increases from semiannual to quarterly."
Additionally, in the currency report, the Treasury mentioned that the Korean won depreciated by 4% as a representative case while describing the overall strengthening of the U.S. dollar and weakening of emerging market currencies during the first half of last year. The Treasury identified economic slowdown, worsening outlook, and expectations of monetary easing as the main reasons and pointed out South Korea, along with Germany and Malaysia, as countries whose currencies were undervalued (based on International Monetary Fund (IMF) estimates of 1?7%) yet showed further depreciation.
Furthermore, the U.S. Treasury urged South Korea to increase fiscal spending. The currency report noted that South Korea expanded its fiscal spending plan by 9.5% compared to the previous year and emphasized the importance of its implementation. South Korea was identified, along with Germany and the Netherlands, as a country with sufficient fiscal capacity to pursue active economic stimulus measures.
Moreover, the report suggested improving labor market duality and increasing economic participation rates through labor market reforms as a new direction for fiscal policy, recommending that this would raise potential growth rates.
Meanwhile, the currency report pointed out that Taiwan is the only major Asian country that does not disclose foreign exchange reserves according to the standards set by the IMF. It emphasized that foreign exchange and macroeconomic policies of countries meeting only one criterion each for designation as monitoring or in-depth analysis countries (such as Taiwan and Thailand) are also being closely observed.
The International Financial Center stated, "The Treasury's removal of China from the currency manipulator list in this report was a predictable outcome ahead of the signing of the U.S.-China Phase One trade agreement," noting that the global financial market's reaction immediately after the announcement was limited.
However, the International Financial Center also assessed that negative perceptions are increasing as the currency report is being used as a political tool, resulting in a loss of objectivity compared to before. It added, "It is not possible to rule out the possibility that China may be re-designated as a currency manipulator during future negotiations between the U.S. and China."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
