South Korea rules out major economic fallout from high oil pricesSouth Korea rules out major economic fallout from high oil prices

South Korea rules out major economic fallout from high oil prices

Seoul (Platts)--18Aug2005

Rising crude oil prices have had little impact on the South Korean economy
because the country's strong currency has cushioned rising crude prices, a
senior official said Thursday, dismissing concerns about domestic rising fuel
costs. "High oil prices were one of the main causes for a delay in economic
recovery in the first half, but a strong won is helping minimize its impact on
consumer prices," vice finance and economy minister Bahk Byong-Won said during
a press conference. The won gained some 15% against the US dollar during this
year. "International crude prices soared more than 100% in recent months, but
domestic prices of oil products rose just 10%," he said. "The crude price rise
is largely cushioned by a stronger won." Bahk ruled out any immediate tax cuts
on oil products and restrictions on the use of passenger cars to reduce
gasoline consumption. "There are calls for a cut in oil taxes, but at this
point we don't have such a plan," he said. "Mandatory energy-saving measures
are highly likely to produce negative effect."

He was apparently referring to fears that they may damage the country's
already sagging economy caused by sluggish private spending. The country's oil
consumers and manufacturers have called for tax reductions on oil products to
lower their domestic prices. Taxes account for more than 63% of South Korea's
gasoline price. They include transport tax, driving tax, and value-added tax.
The price of benchmark Dubai crude for Middle East oil, which accounts for
about 80% of South Korean crude imports, recently shot up to $55/bbl from
$30/bbl in the early months of 2004. According to a central bank estimate, a
1% rise in oil prices would trim 0.02 percentage points off the nation's
economic growth. South Korea, the world's fourth-largest crude buyer, imports
almost all of the oil needed to power its economy, the world's 11th-largest.
South Korean consumer prices increased in July at the fastest pace in four
months, mainly due to a rise in oil costs, according to government data.

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