What will be the impact of a heavily depreciated currency?
SOUTH KOREA’S economy will struggle to post growth this year as its banks and consumers confront high debt levels, auguring a more difficult period for the petrochemical industry. This could result in an even weaker won (W) to add to the battering that the currency had already received in 2008. Under normal circumstances, a weak won would boost exports but such comfort was denied exporters as the pervading global economic slump spread faster than most had expected. The won fell by as much as 30% in October as the credit crunch highlighted the country’s most vulnerable spot – its corporate and household sectors are heavily indebted, according to economists. However, provided investor confidence recovers, an improving trade balance and a big government fiscal stimulus program could boost the currency. About 50% of the country’s bank loans have been allocated to small and medium-size enterprises (SMEs), while another 20% are mortgages, meaning that there are high risks of default. “Becaus
