Allowing More
Investment Overseas
MOFE softens rules to expand overseas investment for domestic investors

The Finance and Economy Ministry said May 18 that domestic investors will be allowed to invest as much as $1 million in real estate in foreign countries effective from May 22. The government is speeding up deregulation of the local currency market by lifting major bans on overseas investment and further globalizing trade in the Korean won.
As part of efforts to stabilize fluctuations in the local currency and establish an efficient foreign currency exchange market, the ministry said it would advance its foreign exchange deregulation scheme by two years to 2009.
"Despite some recent measures to boost overseas investment and won trading, our foreign exchange regime still falls behind in consideration of the size of the Korean economy,"said DPM and Finance and Economy Minster Han Duck-soo during a press conference, explaining the ministry's decision to pull up the timing for easing financial regulations.
Individual and corporate investors will be allowed to invest up to $1 million in foreign properties and the limit will be eased further and by 2009, the foreign exchange regulations will be deregulated enough to remove the limit on abroad investment by domestic individuals and corporations. The ministry also took measures to raise the limit on local currency borrowing for foreigners from 1 billion won to 10 billion won, aimed at boosting demand for local currency in the market.
In the second half of this year, the ministry will promote the measure to have the won-dollar future trade listed on the Chicago Futures Trade Market. The tax rate on foreigners interest income from holding domestic bonds will be cut to 14 percent from the current 25 percent. At the same time, the financial institutions foreign exchange positions will be increased to 50 percent of capital from the current 30 percent to invigorate foreign exchange transactions.
The government's stronger efforts to liberalize currency trading came against the backdrop of the fast-appreciating Korean won and growing needs to globalize the financial sector.
In the wake of the financial crisis of 1997, Seoul has lifted several bans on foreign investment in Korea to attract offshore capital, but the restrictions on overseas investment by local individuals remained largely unchanged.
The ministry said Koreans who buy foreign real estate as an investment will be required to document their continued ownership of the property every two years. Such purchases must be made through a domestic bank, and that documentation must be submitted there. Profits from real estate transactions must be brought back to the country.
As the imbalanced regulative regime led to a glut of U.S. dollars in the local currency market in recent years, the Korean currency gained value rapidly against the greenback.
As Korea's capacity to invest overseas has grown considerably arising from the accumulated surplus in the international balance of payments, a need has sprung to make the best use of this as a way to revamp Korean companies'overseas investment. Boosted overseas investment is predicted to release difficulties in foreign exchange market stabilization and currency management as shown in the case of Japan in the '80s when it relaxed regulations to encourage foreign investment by nationals.
Korean travelers have been spending more money abroad lately, arising from their improved income level and five-day workweek. Vice Minister Bahk said overseas spending should be made in a sound and balanced manner, thus contributing to the national economy. To this end, the competitiveness of the service industry and balance in consumption demand at home and abroad should be promoted, the vice minister said.
At the same time, the government will actively support the revamp of productive overseas investment that boosts domestic production and exports, rather than mere transfer of production bases, causing hollowing out of industries.
Vice Minister Bahk assessed that the Korean economy overall continues to show signs of recovery, although the pace of recovery of real indicators such as consumption and investment is not as fast as expected. nw

DPM and Finance and Economy Minister Han Duck-soo.