South Korea, already flush with cash from its growing trade surplus, fears a tidal wave of hot money once it opens the Seoul stock market to foreigners.
President Roh Tae-woo raised foreign investors' hopes last month by announcing that Seoul would soon open its tightly-restricted market to funds
from abroad.But the government seems determined to open the market gradually over several years. Some analysts forecast full market opening will have to wait until at least 1992.
A timetable for the market opening is due to be announced this month.
An influx of hot money is inevitable once the markets open, an Economic Planning Board official said.
The opening must be partial, said a finance ministry official. If we lift the ban hastily, we will end up with a drain of national wealth due to hit- and-run foreign investments.
Stockbroker Yu Seung-hoon of Daewoo Securities said a number of Japanese stock houses recently opened offices in Seoul to cash in on the market opening. The Japanese lead with six of the 15 offices of foreign investment firms here.
Japanese investments will be huge if they ever get clearance, Mr. Yu said.
Seoul planners are already troubled by the growing trade surplus, which may top $12 billion counting goods and services this year, way above last year's record $9.85 billion.
They fear a foreign capital influx, coming on top of high domestic interest rates and the steadily appreciating currency, the won, will play havoc with economic policy. The government has said it will lift controls on bank lending rates as part of wide-ranging banking reforms, and that this will probably make loans dearer.
The government hopes to escape direct trade pressure from its partners by showing some softening on capital markets, said Yang Ho-chul, managing director of Daishin Securities.
It is possible that the government will raise the volume of existing overseas investment funds to cushion the impacts of sudden exposure.
With the Seoul stock market still closed to direct overseas investment, foreigners can only buy in indirectly through two offshore closed-end investment funds, one listed in New York, the other in London, as well as four convertible bonds and seven mutual funds.
Former Prime Minister Yoo Chang-soon last month presented Mr. Roh with a report on economic restructuring, recommending that liberalization should come gradually, starting only when the country had stabilized its interest rate system and at least partially freed the foreign exchange market.
The government is sitting on the fence.
South Korea, brimming with confidence after years of rapid growth, wants to join the ranks of industrialized countries by playing a full role in the Organization for Economic Cooperation and Development, the International Monetary Fund and other economic groupings.
But on the foreign exchange question, at least, they are not yet ready to take the plunge and meet the minimum OECD and IMF demands.
All one finance ministry official would say was: Foreign exchange policy will be gradually liberalized to keep pace with the opening of capital markets.
Some brokers are losing patience with the government's cautious approach toward opening the stock market.
The bureaucrats are too worried about lifting the ban, said Park Sin-bom of Lucky Securities Co. We don't expect market opening to bring catastrophe.
The Seoul stock market is on an upward trend in both the short and long term, said Higashi Michio, an analyst at Daiwa Securities Co. in Seoul. Japanese investors are still very interested in the market but they are losing patience because of the prolonged opening schedule.
Many brokers say that within five years, the market may become the second-largest stock exchange in Asia after Japan because of South Korea's vital economy.