Transcript Korea
South Korea A Toothless Tiger Suzana Karim And Ryan Songerath Historical Perspective 1950’s Adopt Japanese Model Zaibatsu in Japan Chaebol in Korea (chay bol) The Chaebol’s Family controlled Market share over profits Poor investments High debt-to-equity ratios 300%-400% Corruption The Top Five Chaebol Over the Years Rank 1 Late 1950's Mid1960's Samsung Samsung 1974 1983 1990 1995 2000 Samsung Hyundai Hyundai Hyundai Hyundai 2 Samho Samho LG Samsung Daewoo Samsung Samsung 3 Gaepung LG Hyundai Daewoo Samsung Daewoo LG 4 Daehan Daehan Hanjin LG LG LG SK 5 LG SK Hanjin Gaepung Ssangyong Ssangyong Ssangyong Fight for Reform Chun Doo-hwan 1980 1987 Democratization Market Liberalization Pace and Sequence? Freedom for labor union formation Wages increase 60% from 1986 - 89 1993 acceleration of liberalization Open most protected sectors by 97-98 Why Overvalue Currency? 15000 10000 5000 Direct investment 0 -5000 -10000 Goods and services Politics 96-97 Failed to push through reforms Lame duck President Son involved in scandal Problems Begin January 97 Hanbo steel Manufacturing Co. collapses Soon after Kia and several other mid-sized Chaebol’s file for bankruptcy August 97 won begins rapid depreciation 2000 3/4 2000 1/4 1999 3/4 1999 1/4 1998 3/4 1998 1/4 1997 3/4 1997 1/4 1996 3/4 1996 1/4 1995 3/4 1995 1/4 1994 3/4 1994 1/4 1993 3/4 1993 1/4 1992 3/4 1992 1/4 1991 3/4 1991 1/4 1990 3/4 1990 1/4 Balance of Payments 120,000.00 100,000.00 80,000.00 60,000.00 40,000.00 Current account Capital and financial account 20,000.00 Official account 0.00 -20,000.00 The Crisis 1800 1600 1400 1200 1000 800 600 400 200 0 United states($) Japan(per 100 yen) Hong kong(h.k.$) Singapore(s.$) Malaysia(ringgit) China(yuan) Recovery (1998-1999) Main Objectives: Stabilize currency market Stop the outflows of capital Increase foreign reserve Contained the downward spiral in credit market Currency Market stabilization IMF announced a bailout package of $58.4 billion(13% of Korean GDP) (Figure 2) Government Intervention Temporary agreement with private creditors to maintain exposure Voluntary rescheduling of short term debt- $24 billion of short term private debt turned into claims of one to three year maturity. Tight Monetary Policy (Figure 1) Reduced Consumption and investment Reduced demand for import and surplus in current account-$50 billion Credit Market Stabilization Governments role as moderator in the financial market (Table 1) Public funds to restructure private institutions Two major banks were nationalized Government has more say over their operation (because it is providing fund) Forced banks to roll over loans to small firms Encouraged banks to provide new loans with govt. guarantee Capital Market Stabilization Diversified fund resource (Figure 3) Issued commercial paper In 1998, net commercial paper issues jumped 154 percent from the year before and outpaced the decrease in bank loans Revived equity market Foreign ownership of Korean equity reached 76.6 trillion won in December 1999 and increased to 87.7 trillion won by June 2000 Labor Market Improvements Some layoffs to cut costs (8.6% unemployment rate from around 2%) Temporary workers instead of permanent workers Wage cuts Increased productivity and large decrease in unit labor costs of 20% (972000) After Recovery Some pre-crisis problems were unresolved Chaebols remained unprofitable Government debt increased to 40% of GDP Nonperforming loans were 14% of all loans Korea retained pegged exchange rate Questions And Comments 30 20 10 0 GDP %∆ Inflation Rate Private Consumtion %∆ -10 -20 -30 Back Gross Fixed Capital Formation %∆ Back 01 10 07 04 01 10 07 04 01 10 07 04 01 10 07 04 01 10 07 04 01 10 07 04 01 Back 1990. 1990. 1991. 1992. 1993. 1993. 1994. 1995. 1996. 1996. 1997. 1998. 1999. 1999. 2000. 2001. 2002. 2002. 2003. 2004. 2005. 2005. 2006. 2007. 2008. United states($) * Basic exchange rate 1800 1600 1400 1200 1000 800 600 United states($) * Basic exchange rate 400 200 0 Back