COLA drop attributed to ‘new market data’
September 5, 2008
CAMP RED CLOUD, South Korea — Some servicemembers in South Korea will see their cost-of-living allowance drop in their next paycheck, though why it’s happening is unclear in some cases, USFK officials said Wednesday.
COLA dropped two points for the Sept. 1-15 pay period in the following locations: Uijeongbu, Dongducheon, Gwangju, Daegu/Waegwan, Daejon, Kunsan and isolated areas.
On its Web site, the Defense Department Per Diem, Travel, Transportation and Allowance Committee lists reasons for COLA changes with a one-letter code.
In this case it listed "new market data" as the reason for the change in each of the seven areas.
It did not list South Korea’s plunging currency as a factor.
In April and May, the 175th Financial Management Center in South Korea collected pricing data by shopping off-base for goods and services.
Under Defense Department policy, bases where troops can bring their families are surveyed for COLA rates, said Stephen Westbrook, director of the per diem committee.
The reason is troops on unaccompanied tours likely do not have cars and live in barracks, meaning they do not have many of the expenses that troops who receive COLA do, Westbrook said Wednesday.
The COLA rates for troops on unaccompanied tours are set by Daegu, he said.
An Aug. 22 "Sharp Points" signed by U.S. Forces Korea commander Gen. Walter Sharp and posted on the USFK Web site said COLA would drop two points only in Daegu, and that it would rise two points in Seoul and Chinhae. It remained steady in other areas.
"I know some of you will question why your COLA is being adjusted downward ... I want you to know that these calculations are performed precisely in accordance with federal law and DOD regulations," the memo said.
COLA varies by rank, living arrangements and dependents. An E-6 in the affected areas with 10 years’ experience and two dependents living off-post will see $36.91 less in his or her next paycheck.
COLA falls when off-post prices overseas become cheaper than equivalent prices for select goods and services in the United States.
While part of it is based on the military’s retail pricing survey, another important piece is the currency exchange rate — which is why servicemembers may see another COLA drop for the Sept. 16-30 period, depending on the Per Diem Committee’s calculations.
The won fell to 1,149 against the dollar in currency market trading Wednesday afternoon amid concerns of a South Korean national economic crisis.
During the final August pay period, a rate of 976 won to a dollar was used to calculate COLA.
Defense Department civilians will also see a drop in their paychecks. Post allowance fell for the next pay period from 20 points to 15 points under the State Department-calculated mechanism.
The State Department sets post allowances for all civilians, Westbrook said.
Civilians making $50,000 per year with no dependents, for example, will see a $42 drop in their upcoming paychecks.
The South Korean government has spent more than $14 billion of its foreign currency reserves during the last two months to shore up the weakened won, according to local media reports quoting federal Bank of Korea officials.
Currency experts say the government will take more measures to boost the won, though they aren’t convinced of their effectiveness.
"If the won’s value is decided by the market alone, the won cannot help falling lower," said economist Jeon Hyo-chan of the Samsung Economic Research Institute.
But by the end of the year, Jeon and most other economists believe the won will rebound.
In terms of purchasing power parity, which compares a currency’s ability to buy consumer goods, the won is considerably undervalued against the dollar, according to The Economist magazine’s financial indicators.