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The current account shortfall was US$1.36 billion last month, a turnaround from an $861 million surplus in the previous month, marking the first current-account deficit in four months, the Bank of Korea said on Friday.
South Korea posted a current account surplus of $1.91 billion in November after a record surplus of $4.9 billion in October. For all of last year, the account went into a deficit of $6.41 billion for the first time in 11 years, as soaring oil prices pushed up import bills.
The central bank said January's deficit was attributable to tumbling exports amid the global economic slowdown and increased energy imports. The current account is the broadest measure of trade, service and investment flows into and out of the country.
South Korea's exports suffered their biggest-ever drop in January, underscoring the country's vulnerability to the global economic slowdown.
According to the bank report, South Korea's customs-cleared exports plunged 33.8 percent on-year to $21.4 billion last month, led by a 56.3 percent drop in car exports and a 44.9 percent decline in semiconductor shipments, the country's two main export items.
Imports also declined 31.9 percent to $24.7 billion in January due to the slumping domestic demand. But imports of oil, gas and other energy sources gained 10.1 percent to $8.1 billion, posing a burden to the country, which buys almost all of its energy and raw materials overseas.
The South Korean economy is vulnerable to shocks from the outside as international trade accounts for more than 75 percent of the country's gross domestic product. The country is the world's fifth-largest crude oil importer and second-biggest liquefied natural gas buyer.
According to the BOK report, the shortfall in the service account, which includes South Korean spending on overseas trips, narrowed to $708.5 million in January, compared with $1.52 billion a month earlier.
The income account, which tracks wages for foreign workers and dividend payments overseas, logged a surplus of $564 million last month, down from $576 million a month earlier.
The capital account, which tracks cross-border investments, posted a net inflow of $4.86 billion in January, a turnaround from a net outflow of $4.83 billion a month earlier. The first net inflow in five months was attributed largely to banks' overseas funding, the bank said.
It is feared that the bank’s report on shortfalls will put downward pressure on the local won currency, which hit an 11-year low against the U.S. dollar on Friday. The won has fallen 17 percent against the greenback so far this year amid jitters over dollar liquidity.
The financial authorities remain reluctant to intervene in the market due to the country's shrinking foreign currency reserves and fears that a stronger won could further pound its already tumbling exports. A stronger won makes it difficult for local exporters to compete in the overseas markets as it makes their goods more expensive.
In an effort to bring in foreign currencies and calm fears about a dollar shortage, the government has announced a plan to exempt foreigners from interest income and other taxes on their investment in state bonds.
"Foreign investors in state and currency bonds will be exempt from interest income and capital gains taxes," Vice Finance Minister Hur Kyung-wook said. A related bill will be submitted to Parliament by April, he said.
"The possibility of our country facing a foreign currency liquidity crisis is extremely low," he said, referring to speculation that South Korea could fall into a foreign exchange crisis in March when the bulk of Japanese funds may exit the country as Japanese financial institutions close their books.
The BOK said it expects South Korea to post a current account surplus of over $3.5 billion in February driven by a rebound in exports. "February's current account surplus is seen exceeding $3.5 billion," Yang Jae-ryong, head of the bank's balance of payments statistics team, told a press conference.
Trade and Commerce Minister Lee Youn-ho also said South Korea's trade surplus is expected to reach $3 billion in February on robust exports backed by the weak local currency. "The trade surplus is likely to continue in March if the local currency remains weak," he said.
