S. Korea Acting to Boost Imports, Cut Exports to U.S.

The government Friday announced measures aimed at increasing South Korea’s imports and reducing exports to the United States to ease trade frictions and reduce its foreign trade surplus.

Deputy Prime Minister Kim Mahn Je, who is also economic planning minister, said that non-tariff trade barriers will be removed to widen South Korea’s import market, and that steps will be taken to expand the purchase of capital goods, equipment and raw materials.

He said export credits and other export incentives will be reduced and exports will be curtailed to such areas as the United States and diversified to other regions such as Asia and the Middle East.

Currency to Be Adjusted

South Korea is faced with strong pressure, particularly from Washington, to open its market wider and let its currency, the won, rise substantially to help reduce the trade surplus.

Kim reiterated that the won will be adjusted gradually in accordance with changes in the value of major trading currencies and taking into account South Korea’s balance-of-payments position and unspecified policy factors. He declined to say how much the won would be strengthened.

The newspaper Dong-A Ilbo said the government plans to let the won rise 10% against the dollar this year. So far this year, it has appreciated 2.5%, substantially below gains of other major currencies against the dollar.

Last year, exports grew 35%, accounting for 40% of South Korea’s gross national product. In the first quarter of 1987, exports grew 35% from the same time last year, government figures show.

With 40% of South Korean exports shipped to the United States, American officials have insisted on a bigger South Korean market for U.S. consumer goods and services to help reduce South Korea’s $7.4-billion surplus in trade with the United States.

Kim told a news conference that effective management of the growing surpluses is “the most important policy task for future economic management.”

Under the new policy, Kim said, economic growth will be held to 8% instead of the projected 10%, and the trade surplus reduced to $5 billion from a projected $8 billion.

South Korea’s economy grew 12.5% last year with a $4.6-billion current account surplus, its first ever.

A Western diplomatic source called the announcement “a very sweeping proposal,” but cautioned that “the proof . . . is in the implementation” of the new policies.

Koo Bong Yung, a top aide to Kim, said the government believes the growing surplus would produce undesirable structural problems, with investment “biased toward the export sector, obstructing balanced growth of the national economy.” He said increased money supply from the growing current account surplus also would “increase inflationary pressures.”

Limit Overseas Investment

Koo, a U.S.-educated economist, said it would give a false impression that South Korea is a “mercantilistic country” that accumulates massive trade surpluses while restricting its imports.

He said South Korea, with an annual per capita gross national product of $2,300, needs to limit overseas investment to improve living conditions at home.

Koo said $2.5 billion from the government’s foreign exchange reserves will be made available in loans to help finance imports. He said South Korean companies will be asked to limit investments that promote exports of low value-added products and to shift the focus away from short-term economic achievements.

He said South Korea’s external debt, now standing at $42.8 billion, could be reduced to around $40 billion by the end of the year, and that the government will boost public sector investment in transportation, medical services, housing and public utilities.