07 March 2009

Update. Won-Dollar Exchange Rate: From Bad to Worse.

Update: If you want the nuts and bolts of how this all works check out today's New York Times leader: "Rising Dollar Lifts the US but Leads to Crisis Abroad"

I wrote about this a while back (see "If") but the situation has become so much worse that I thought it would be beneficial to comment on it again. As of this writing the rate sits at 1/1555, which means that if you need to send home $500 a month it will cost you over W800,000 depending on how you do it. This is not good. I have friends who have to send a lot more than that home and things for them are getting desperate. The rate has now collapsed to the point where one wonders where it will bottom out, or if it will.

There is some indication that the rate change is beginning to affect recruitment and, as a result, salary levels here. Posted salaries were increased for the last EPIK hiring cycle but they are no where near replacing the lost income through exchange rate deflation. It will be interesting to see if the salary schedule for the current hiring cycle will reflect any acknowledgment of the current rate dive. I am not sure the Education Ministry understands the degree to which this could affect the willingness of new teachers to come to Korea. Of course, with the unemployment rate in the United States now topping 8% there will be more push from the backside but the debt load of the average college graduate ($19000 as reported by the SeattlePI or see a complete breakdown here at the AMSA site) may cause many of them to look elsewhere to teach abroad.

The problem is the uncertainty: Even if you look at the rate now and feel you can deal with it you still have to ask yourself: if the won/dollar trade has declined over 55% in one year where will it be a year from now? Most economists think that the economic downturn in the United States is going to get much worse before it improves.

There may be some hope. The good people at forcasts.org (who BTW predicted a much smaller downturn in this quarter) have the Won rebounding by September. Since they last updated in early February the rate has collapsed completely so it will be interesting to see how they adjust the comeback levels. I would be ecstatic if the rate got back into the 1/1250 range again. I hope they are right.