SOUTH KOREA TO CHANGE POLICIES TO AVERT TRADE WAR
South Korea has decided on major changes
in its trade, investment and finance policies aimed at reducing
the growth of its balance of payments surplus and avoiding a
trade war with the United States, Deputy Prime Minister Kim
Mahn-je said.
    Kim told reporters the excessively fast rise in exports
could make South Korea too reliant on exports, increase
nflation and produce trade friction. The policy shift, which
means abandoning Seoul's goal of rapidly reducing its foreign
debt, was worked out at a series of ministerial meetings.
    Kim, who is also Economic Planning Minister, said the
current account surplus, previously expected to exceed eight
billion dlrs this year, would be held at about five billion
dlrs by increasing imports, accelerating market liberalisation
and rationalising exports.
    He said Seoul would try to limit its current account
surplus to around five billion dlrs a year for the next few
years, although trade volume would continue to grow.
    "This will gradually reduce the ratio of the surplus to GNP
(gross national product) from the current five pct level to
three pct by 1991," he added.
    Koo Bon-yong, an aide to Kim, said South Korea's foreign
debt had been expected to fall below 40 billion dlrs by the end
of 1987, against the initial forecast of 41.8 billion, and 44.5
billion dlrs at end-1986.
    "But now (with the policy changes) the debt is expected to
remain above 40 billion dlrs, although it could still be lower
than the originally projected 41.8 billion dlrs," he said.
    The policy change was announced two days before the
scheduled arrival of U.S. Commerce Secretary Malcolm Baldrige
for talks with Trade Minister Rha Woong-bae.
    South Korea is under U.S. Pressure to reduce its bilateral
trade surplus, which rose to 7.4 billion dlrs last year from
4.3 billion dlrs in 1985.
    Kim said the policy changes were also prompted by the swing
in South Korea's current account to a surplus of 2.06 billion
dlrs in the first quarter of 1987 from a deficit of 438 mln
dlrs in the same 1986 period. First quarter 1987 exports rose
36 pct to 9.4 billion dlrs.
    The government would make foreign currency loans worth 2.5
billion dlrs to firms willing to import capital goods, raw
materials and equipment, preferably from the U.S., He said.
    "The foreign currency-based loans, which carry interest at
1.5 points above LIBOR (London Interbank Offered Rate), are
considerable incentives given to increase imports," Koo said.
    Koo said the loans would be repayable in foreign currency.
"It means they could become interest-free loans if the Korean
currency continues to rise in value," he said.
    He said the South Korean won would be revalued against the
dollar gradually, but added "We do not believe in rapid one-shot
changes in the value of the won."
    The won, fixed at 839.70 to the dollar today, has risen six
pct against the dollar since the beginning of 1986.
 REUTER
