|Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho, right, talks with Financial Services Commission (FSC) Chairman Kim Joo-hyun before a meeting on macroeconomic and financial affairs at Korea Center for International Finance in Seoul, Friday. Yonhap|
By Yi Whan-woo
The government is making all-out efforts to curb the won's sharp fall against the U.S. dollar, in a desperate bid to prevent a massive outflow of capital.
This move comes as the value of the Korean won has dropped by about 20 percent against the dollar this year and concerns are growing over a possible shortage of foreign currency.
The fiscal and monetary authorities as well as financial regulators are taking measures aimed at stabilizing the stock and bond markets using trillions of won in taxpayers' money.
According to sources, Monday, the Ministry of Economy and Finance is looking into the feasibility of easing the capital gains tax on retail investors owning stocks abroad who sell them and exchange the profit amount into won.
The government currently levies a 20-percent capital gains tax on profits raised from stocks traded outside the country.
"The tax rate can be possibly lowered temporarily to allow individual investors to reap more profits," a source said.
For domestic entrepreneurs, the finance ministry is considering offering them incentives if they sell their financial assets abroad and bring them home.
The net value of the targeted financial assets is $744.1 billion as of the second quarter of 2022.
The amount is about double the foreign reserves held by the Bank of Korea (BOK), according to sources.
The financial assets owned by the domestic private sector abroad increased by more than 60-fold in less than the past eight years, according to the sources.
A need for offering incentives in return for selling assets abroad was brought up as the won is feared to dip below the 1,500-level per dollar, which is comparable to that of the 2008-2009 global financial crisis.
The Korean currency logged a two-day losing streak and closed at 1,430.2 won per dollar on Friday, while plunging to the 13-and-a-half-year low of 1,440 won at one point during Wednesday's trading.
With foreign investors' growing preference for safe-haven assets, the benchmark KOSPI closed at an annual low of 2,155.49 points, Friday.
"We are dealing with the foreign currency-related issue from a broad, long-term perspective," a foreign exchange official said, noting that it will take efforts at both the private and government levels. "We will come up with various measures to stabilize the currency market in a timely manner."
Park Sung-wook, a researcher at the Korea Institute of Finance, assessed that the government is "right on track" in its long-term efforts to stabilize the market, noting that the strong dollar will persist amid the war in Ukraine, U.S. inflation and the U.S. Federal Reserve's hawkish monetary policy.
Among other countermeasures taken by the authorities to prevent capital flight are the Ministry of Economy and Finance's plan to buy back 2 trillion won ($1.4 billion) worth of government bonds and the BOK's plan to purchase another 3 trillion won worth of government bonds, with the shared goal of tackling the sharp spike in bond yields.
The Financial Services Commission (FSC) announced its plan to resume the operation of a 10-trillion-won fund, which was initially created in March 2020 during the early stages of the coronavirus pandemic, to counter the impact of the pandemic on the stock market.
In a telephone conversation with U.S. Treasury Secretary Janet Yellen, Friday, Deputy Prime Minister and Minister of Economy and Finance Choo Kyung-ho agreed to work together and implement liquidity facilities when necessary.