[Editorial] Urgent Need for Dollars Amid Sluggish Foreign Investment: Regulatory Reform Must Be Tightened

Foreign Direct Investment (FDI) continues to decline. Fewer foreign investors are bringing in dollars to establish factories or acquire companies in Korea. This sluggish FDI is not only pushing the US Dollar–South Korean Won exchange rate higher, but also tightening the dollar supply in the domestic foreign exchange market. Unless this trend is reversed, the pressure on dollar liquidity will persist. The government must make extraordinary efforts to attract FDI in order to stabilize the exchange rate.
According to the Ministry of Data and Statistics, FDI inflows in the third quarter of this year (based on reported figures) amounted to $7.57 billion, a 23.1% decrease compared to the same period last year. Investment volume has posted negative growth for three consecutive quarters since the fourth quarter of last year. The decline widened from 9.2% in the first quarter and 19.1% in the second quarter to an even greater drop in the third quarter.
The government has introduced a series of policies to attract foreign investment. For example, it announced plans to improve regulations so that foreigners can trade Korean stocks and bonds through local securities firms without opening separate accounts with Korean brokerages. Foreign companies listed on overseas exchanges are also recognized as professional investors and granted various conveniences.
While encouraging foreign investment in stocks and bonds is important, it is not enough. Korean companies are building factories and creating jobs overseas—a strategic move aimed at both profit and government support in external negotiations. However, this has led to deindustrialization at home. The government must therefore pursue more proactive policies to attract foreign investors who will build factories and create jobs domestically.
There are countless reasons why foreigners hesitate to invest. The government attributed the decline in FDI in the first half of the year to domestic political instability and the uncertainty of US trade policy, predicting improvement in the second half. In reality, however, the situation has only worsened. The administration and ruling party, while speaking of growth led by business, have pushed through anti-business legislation. Leaders of the American Chamber of Commerce in Korea (AMCHAM Korea) and The Association of Foreign Chambers of Commerce in Korea visited the MOTI minister to express strong concerns over the Yellow Envelope Act (Labor Union Act) amendment. The rigid labor market has repeatedly been cited as a major obstacle to attracting foreign investment, yet nothing has changed. The same goes for the tangle of complex regulations.
The high exchange rate is a structural issue that can only be addressed by improving the domestic investment environment and strengthening economic fundamentals. If the high exchange rate persists, the already severe social polarization will become even more uncontrollable. Soaring exchange rates have already triggered a spike in prices. Last month, the Import Price Index hit its highest level in 17 months, and the Producer Price Index (PPI) has risen for three consecutive months. The impact of the exchange rate on prices typically appears with a two- to three-month lag, suggesting that inflation could become even more volatile next year. Low-income households, small businesses, and micro-enterprises will face increasing hardship. Bold regulatory reform and flexible labor policies are needed to attract foreign investment. Forcing companies to procure dollars is an outdated approach. Improving systems to meet global standards is the only way to prevent the high exchange rate from becoming the new normal.