Sucking Sound

Not a R.A.I.N. concert.  Even worse:  capital flight.

The government is seeking to prevent massive capital flight led by U.K. and U.S. investors. In all, US$9.264 billion foreign investors had in stocks, bonds and dividends here left the country between the beginning of this year and Aug. 11, the most since the stock market was opened to foreign investors in 1992.

This is especially worrisome as the foreign funds are fleeing the country for good without re-investing here after they sell stocks and deposit the profits in domestic banks. Korea experienced a net outflow of $830 million in foreign capital in 2002 and $2.43 million in 2005, but this year the situation is precarious.

The government sent delegates to the U.S. to drum up investment in Korea, holding an investment blitz in Boston and New York on Friday and Saturday. The government will reportedly give its reading of the North Korean nuclear problem and other negative factors foreign investors consider the greatest risk to putting their money into the nation.

Could the solution possibly be more obvious?  It certainly isn’t doing more to restrict the movement of funds, which only signals to investors that capital invested in Korea would be trapped in one of the world’s most potentially unstable regions.  The answer is, in no particular order:  practice mature diplomacy, knock off the state-sponsored xenophobia, get relations with the United States and Japan back in order, restore the rule of law by punishing violent strikers and protestors, check the rise of taxes and regulations, reform the courts so that investors can resolve their disputes fairly and efficiently, sever the incestous relationship between the banks and the chaebol, liberalize protectionist restrictions on international trade, and put real pressure on North Korea to check its menacing behavior.  All of those things scare investors off.

But since the capital flight is a recent development, I suspect that the primary causes are rumors about the decline of USFK and North Korean weapons test scares.  I wonder who today’s radical student protestors will blame in two years, when they’re still unemployed.