1. The new exchange rate system seems to properly reflect
1) The REER and the current account in the 1990s have
been more stable than in the 1980s.
2) Unlike the 1980s, the exchange rate tends to revert to the
2. Given the current level of capital inflows, the exchange rate
in the 1990s seems to be near the level that is consistent
with the external balance.
1) The exchange rate that would lead the current account
balance appears to be approximately 3-5 percent higher
than the actual rate in ,1995
2) The depreciation pressures due to the current account
deficit appears to be roughly in balance with the
appreciation pressures due to the capital inflows
3. The current pace of the capital market opening may be
manageable without causing serious macro-problems to the
Korean economy, but the commitment of the full-scale
liberalization of capital markets should be made with caution.
1) The current level of deficit (less than 2-6 percent of
GDP) appears to be sustainable without causing a debt
2) A drastic full-scale opening of capital markets is likely to
induce huge (approximately 15 percent) appreciation
pressures in the short-run.
3) With the downward trend of the real interest rate in
Korea, a gradual pace of liberalization seems to help
relieve the appreciation pressures and the resulting
4) With the gradual capital market liberalization process,
policy efforts to reduce the rate of inflation are also
necessary to lower the nominal interest rate.