By Lee Hyo-sik
Staff Reporter

The government will ease rules restricting individual and corporate purchases of overseas properties next year to gradually liberalize Korea’s foreign exchange market by 2010.

The Ministry of Finance and Economy (MOFE) unveiled a wide range of deregulation measures, including the lifting of regulations on overseas property investments, to further liberalize flows of capital in and out of the country, during the policy coordination meeting chaired by President Roh Moo-hyun held yesterday at Chong Wa Dae.

The MOFE initially planned to scrap all restrictions on foreign exchange trading by 2011 with some exceptional safeguard regulations, but decided to complete the liberalization process a year earlier than scheduled.

The ministry will launch a public-private joint taskforce composed of officials from ministries, universities and research institutes, in the second half of the year to map out a comprehensive set of measures to deregulate restrictions on the country’s currency market.

When the foreign exchange market liberalized, individuals and companies are not required to report to financial authorities or receive government permission prior to currency transactions.

The government plans to steadily expand the limit of individual foreign investments, currently set at $1 million, while drastically easing regulations restricting housing purchases overseas.

Under the current rules, individuals are allowed to buy a house or apartment for the purpose of residing in a foreign country for more than two years, with the value of the house restricted to $300,000.

Many Korean parents with children studying abroad have complained that the restriction does not reflect reality, forcing them to illegally buy houses for their children enrolled at schools in foreign countries.

Regulations on international transfer of funds by domestic companies will also be eased from the second half with no mandatory reports required for the transaction of less than $10 million a day between their headquarters here and overseas branch offices.

The government plans to relax rules requiring domestic institutional investors to obtain prior approval from the regulators for the trading of financial derivatives products in overseas markets, according to the MOFE.

Local investors will also be allowed to purchase overseas properties through real estate investment trust funds managed by the asset management firms, while various state funds are expected to invest more easily in foreign stock markets.

The government’s move was largely aimed at spurring outbound investment when the country is saddled with bloated foreign exchange reserves of over $205 billion and a stronger won against the U.S. dollar.

It has heavily intervened in the domestic and foreign currency markets to keep the value of the won low against the greenback by buying dollars.

The intervention is to keep a stronger won from hurting the competitiveness of exports overseas.

It has resulted in an ``excessive’’ increase in the amount of dollars the government holds as reserves, incurring hundreds of billions of won annually for interest payments on state bonds issued to purchase the dollars.