S. Korean Currency Pushes Higher : Pressure From U.S. Draws Quick Response From Seoul

The U.S. dollar fell below 700 won Tuesday, apparently ensuring that the rise in the value of the South Korean currency will set a record this year.

The breakthrough was attributed to mounting pressure from the United States, which--according to U.S. officials--faces another $10-billion bilateral trade deficit with South Korea in 1988.

The Treasury Department on Oct. 24 accused South Korea of manipulating the value of the won to keep it artificially low--in order to promote exports--and announced that it would begin negotiations to correct the exchange rate.

Allen Wallis, undersecretary of state for economic affairs, disclosed here Friday that Treasury Secretary Nicholas F. Brady had given his South Korean counterpart, Finance Minister Sakong Il, notice in late September of the impending Treasury accusation.

After that warning, the won’s value increased sharply, rising 17.6 points in October--an annual rate of 33%, far steeper than the 10% pace before Brady’s private warning.

The dollar’s record high of 893.40 won was set Oct. 25, 1985. But when the dollar later plummeted against major currencies, its value compared to the won remained virtually frozen until the beginning of 1987, when the exchange rate was still hovering around 890 to 1.

The Bank of Korea, which controls the exchange rate through a mixed basket of currencies, on Tuesday fixed the “arbitrated,” or official, exchange rate at 699.90 won to the dollar, down 1.50 from Monday. Since the beginning of the year, when the rate was 792.30, the Korean currency has appreciated 13.2%, its biggest one-year gain.

The spurt appears to guarantee that 1988 will mark the first year in which the won has gained in value against the yen, reducing South Korea’s competitiveness against Japan. The yen has nearly doubled in value against the dollar since 1985.

Seoul afternoon newspapers played the news of the won’s breaking “the 700-barrier” as their top story Tuesday.

Deputy Prime Minister Rha Woong Bae told the National Assembly last Saturday that the won was expected to appreciate by 15% this year--a rate that would bring the dollar’s value down to around 690 won by Dec. 31.

South Korea’s largest opposition party, led by Kim Dae Jung, denounced U.S. pressure for a stronger won as threatening the survival of South Korean industry.

When a nation’s currency increases in value, compared to those of its trading partners, its products become more expensive abroad. It was for this reason that the United States and its principal trading partners agreed in 1985--with the U.S. trade deficit growing quickly--that the relative value of the dollar should be forced down, to encourage U.S. exports.

Exports account for 45% of South Korea’s gross national product, and already it is being reported that labor-intensive Korean industriesare suffering slight declines in exports because of the won’s appreciation.