US, South Korea focusing on structure of US$350 billion deal, not swap
Seoul is prioritising the negotiation of a balanced composition for the investment package, likely involving a mix of direct investments, loans, and guarantees
[SEOUL] South Korea and the US are focusing on the structure of a US$350 billion investment pledge by Seoul, rather than a currency swap, according to Finance Minister Koo Yun-cheol.
Officials in Washington, including Treasury Secretary Scott Bessent, now see the potential for a shock to Seoul’s foreign-exchange (FX) market from an “upfront” deployment of funds, Koo told Bloomberg TV in an interview on Wednesday (Oct 22) that also touched on weakness in the South Korean won stemming from the unfinished deal, car tariffs and artificial intelligence (AI) technology.
“Secretary Bessent fully understands the difficulties in South Korea’s FX market and is having internal discussions on how to respond to the situation,” Koo said.
The won jumped as much as 0.3 per cent to 1,428.11 per US dollar, near a session high, immediately after the news. Though the currency gave back most of the advance, it was still among the best performers among emerging-market peers on Wednesday. South Korea’s currency weakened to around 1,433 early Thursday in Seoul.
The comments come ahead of US President Donald Trump’s visit to South Korea next week for the Asia-Pacific Economic Cooperation summit in Gyeongju. Trump is expected to meet with President Lee Jae-myung and Chinese President Xi Jinping for separate bilateral talks that may shape trade relations for years to come.
Seoul is prioritising the negotiation of a balanced composition for the investment package, likely involving a mix of direct investments, loans, and guarantees. With talks still underway, he declined to elaborate on the breakdown, adding that South Korea’s need for any financial safeguards will ultimately depend on how the deal is built.
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“Whether a currency swap is needed, and to what extent, will depend entirely on how the deal is structured. It may not be necessary at all, or it could be arranged on a smaller scale,” he added.
South Korean Prime Minister Kim Min-seok told Bloomberg last month that the investment pledge would shock the South Korean economy without a swap agreement. The Bank of Korea said earlier this week that US$20 billion a year is probably the maximum the government can provide without affecting the currency market.
The Chosun Ilbo newspaper reported on Thursday that Seoul is in talks to make phased payments of US$25 billion per year over eight years, citing an unidentified source.
Koo’s indication that the swap itself is not the sticking point suggests that Seoul’s raising of the issue may have gained it some bargaining leverage in the negotiations.
Presidential policy chief Kim Yong-beom flew back to Washington on Wednesday alongside Industry Minister Kim Jung-kwan, just days after returning home. Koo said that the government is aiming to finalise the deal during next week’s Apec summit and will make every effort to meet that goal.
The renewed push follows a separate US$550 billion investment pledge between the US and Japan, formalised through a memorandum of understanding. That deal raised eyebrows for some of its conditions.
The memorandum stipulated that if Tokyo did not provide funds for projects suggested by Trump within 45 days, the US could consider raising tariffs. Details of the structure of the Japanese investment pledge also remain opaque.
The prolonged negotiations between Washington and Seoul, which have dragged on for more than two months since the initial deal was announced in late July, suggest a finalised South Korean deal may be more detailed than Japan’s.
With the details still unresolved, US tariffs on South Korean cars remain at 25 per cent. That leaves Korean automakers at a disadvantage compared with Japanese rivals, who now face levies of just 15 per cent.
South Korea, which has long enjoyed a zero tariff on auto exports to the US under a free trade agreement, is now at risk of losing that edge. Japan previously faced a 2.5 per cent tariff, meaning South Korea benefited from a relative advantage, one that would disappear if both countries are subjected to the same 15 per cent rate under the new framework.
Koo said Seoul has repeatedly flagged this disadvantage to Trump and other US officials. But he said Washington has not been particularly receptive on that point. South Korean negotiators will continue to press their case, he added.
The concerns over the currency impact of the investment pledge come at a time of weakness in the won. The currency hit its weakest against the US dollar since 2009 in April and after a short-lived rally has started to weaken again. The won was around 1432.55 against the US dollar on Wednesday evening in Seoul.
“We believe much of the recent depreciation reflects market concern that the deal hasn’t been finalised,” he said. “Once the tariff issue is resolved, that uncertainty will likely fade.”
Despite earlier speculation that the US might object to the currency’s decline as a bid to gain a competitive advantage, Koo said that Treasury officials have expressed no concern on that front and fully understand South Korea’s situation.
Koo said that the government is accelerating plans to launch 24-hour trading of the won that would further enhance market access and reduce the so-called South Korea discount on equities. That’s also a key prerequisite for MSCI Developed Market inclusion. Technical preparations are already underway, and the goal is to implement the new system as quickly as possible, Koo added.
Beyond trade and currency, Koo stressed that South Korea’s broader economic strategy hinges on building an innovation-driven economy. The government is channelling resources into AI, digital transformation, and deep-tech sectors to address structural challenges such as population ageing, a declining birthrate, and rising debt-to-GDP levels.
He said the government’s 58 per cent debt projection represents a worst-case scenario, assuming most of its targeted investments fail. But even partial success – say, 10 per cent of its innovation projects – could yield high-bandwidth memory-level breakthroughs that boost productivity, expand economic growth, and improve fiscal stability.
“We are not simply expanding the budget, we are concentrating spending on transformative technologies,” Koo said. “Even limited success could reduce our debt ratio.” BLOOMBERG
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