Choi Sang-yun doesn't know how much longer he can bankroll his sons' US education -- and the slumping Korean won is to blame.
The 2.7 million won Choi takes home each month as managing director of Sejin Trading Corp, a Seoul stationery importer, was worth US$2,442 a year ago. Now, it's just US$2,068.
"I'm not sure how much longer I can keep this up," said Choi, whose two sons, aged 13 and 11, are living with their mother in Boston for 18 months to attend public school and learn English.
"Almost half my monthly pay goes toward their expenses, and now it's costing me even more." Like any Korean who spends, travels, borrows or buys abroad, Choi and his family are losing out after the Korean won slumped 18 percent against the dollar the past year. The decline means people and businesses have to shell out more for everything from overseas education to electronic parts.
The falling won may be a boon for exporters, making their products cheaper overseas. It's bad news for just about everyone else: not just Koreans who travel or abroad, but also for companies that borrow overseas and rely on imported materials. That's putting added strain on an economy that's already slowing.
A weaker currency "does more harm than good to the economy because it drives up consumer prices and boosts companies' costs," said Go You-sun, an economist at Meritz Securities Co in Seoul.
"Besides, the advantage isn't as great as for other Asian countries," whose currencies have weakened more sharply than the won this year.
The won has declined 3.1 percent against the dollar this year, and closed yesterday at 1,305.40 to the US dollar.
For Cheil Jedang Corp, Korea's biggest maker of cooking oil, sugar and other food staples, the weaker won means higher interest payments on overseas loans, which made up about 40 percent of the company's borrowings at the end of last year.
"We had initially expected the won to be in the 1,200 won range," said Cheil Jedang spokesman Elliot Chung. The currency has lagged that forecast since December, prompting the company to raise flour prices 9.4 percent at the beginning of this month.
Pohang Iron & Steel Co, the world's second-biggest steelmaker, cut its 2001 profit target by 17 percent to 1 trillion won last week, saying the weaker currency is pushing up costs.
Companies like Posco that borrow overseas are vulnerable to the won's decline. US dollar loans accounted for about two-thirds of its borrowing at the end of March, and it had US$2.6 billion in total foreign liabilities at the end of 2000. The company lost 69 billion won in foreign-currency transactions in the first quarter.
Korea's largest oil refiner is also feeling the strain from a weaker won. For every 10 won the currency weakens against the dollar, SK Corp said it has to pay an additional 8 won for each of the roughly 24 million barrels of crude oil it imports each month. Korea depends entirely on imported oil.
"It's inevitable that losses from the weaker won will be reflected in consumer prices in the coming months," said Daniel Youn, an SK spokesman.
The won's decline is filtering through to the cost of living for Koreans, putting an added damper on spending already sapped by rising unemployment and slowing economic growth. It's also prevented the central bank from cutting rates for the past two months, even though economic growth is expected to slow by half this year to about 4 percent.
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