Korea puts pride on hold - South Korea - Statistical Data Included

Business Asia, May 17, 1999 by Randolph Ramsay

A new report by the East Asia Analytical Unit presents a trade update on South Korea. RANDOLPH RAMSAY reviews the report's findings

The Kim Dae Jung Government has introduced a raft of reforms and legislative changes that will drastically alter not only the way South Korea does business, but the way Korea looks at itself.

And it seems ordinary Koreans, full of nationalistic pride, have put their support behind the government despite initial reservations about the sweeping changes being imposed upon them.

Seoul has overhauled its finance sector, challenged the sovereignty of the conglomerates, increased labour market flexibility despite protests from powerful unions and, perhaps most significantly, opened its markets up to foreigners on an unprecedented scale.

Korea, mistrustful of foreigners because of its history of invasion, had previously discouraged foreign investment through a series of discriminatory restrictions and regulations.

Now foreigners can invest in almost any sector of the economy and can even own Korean land.

Despite these changes, some critics remain sceptical about Korea's long-term commitment to change and fear the window of opportunity for foreign investment may soon close.

Korean Minister for Commerce, Industry and Energy Mr Park Tae Young said the government's reforms had the support of the people.

"The new group of reforms has been sifting through every corner of life in Korea, from the shop floor to the boardrooms of the giant conglomerates," he said.

The Korean Commerce Department's International Trade Relations section director-general Mr Kim Jong Kap said a newspaper poll last year found that support for the changes, particularly in the area of foreign investment, was running at 80 per cent.

"Respondents felt foreign investment would be pivotal for the recovery of the country," he said.

"Now, I think more than 95 per cent of the people support these reforms."

That support was seen at Korea's May Day rally.

The country's once powerful labour unions, expecting a crowd of 500,000, had a turn-out of about 30,000.

Mr Kim said the people of Korea did not want to participate in anything that could threaten the economic recovery.

"The perception is that everyone should be sharing the burden in Korea and the labour sector should do their part," he said.

Despite some positive signs, the reforms are far from entrenched in Korea, with Australia's East Asia Analytical Unit (EAAU) executive director Dr Frances Perkins saying some sectors have been slower than others in implementing the changes.

"There is a concern that there could be a backlash -- that the Korean people will see that some things are being sold too cheaply," she said.

The EAAU's latest report on Korea has warned that resistance to the reforms remains, with some officials at local or regional levels slow to implement new regulations.

Rags to Riches

Strong pre-crisis growth and export performance (Overview of the Korean economy: last three decades)

                                      1965   1975   1985

GDP (current prices US$ billion)        3      21     94
Per capita GDP (US$)                  105     603   2310
GDP growth (real, per cent)(a)        9.1     7.4    8.9
Employment growth (per cent)(a)       3.7     2.5    3.1
Merchandise exports (US$ billion)       0       5     30
Total exports/GDP (per cent)(c)        10      28     34
National savings rate (per cent)       13      18     30
Foreign savings rate (per cent)       0.2    -8.9   -0.9
Government revenue/GDP (per cent)       9      15     18
Consumer price inflation (per cent)    14      12      6

                                       1995    1997   1998

GDP (current prices US$ billion)        489     477    321
Per capita GDP (US$)                  10854   10358   6921
GDP growth (real, per cent)(a)                  5.0   -5.8
Employment growth (per cent)(a)                 1.4   -5.3(b)
Merchandise exports (US$ billion)       125     136    132
Total exports/GDP (per cent)(c)          30      35     49
National savings rate (per cent)         36      35     37
Foreign savings rate (per cent)        -1.9    -1.8    (na)
Government revenue/GDP (per cent)        20      21     22
Consumer price inflation (per cent)     4.9     4.5    7.5

NOTE:

(a) Average growth rate for the decades 1965-75, 1975-85 and 1985-95; yearly rate for 1997 and 1998.

(b) Bank of Korea figure, the Ministry of Finance and Economy has employment growth at -7.3 per cent.

(c) Total exports are export of goods and services, national accounts basis.

(na) Means not available.

GDP is gross domestic product.

Source: Bank of Korea, Ministry of Finance and Economy, 1999a; CEIC, 1999; LG Economic Research Unit, 1999a.