Miracle on the Han River

Reasons

Export fuelled economic growth

Industrialization, education boom, rise in living standards

Urbanization, modernization, 1988 Seoul Olympics

Transformed from ashes of Korean war to a trillion dollar

economy
Revenue Growth
 Some Figures

Real GDP
1960 1989
US$30.3 billion 8.7% per year US$340.7 billion

1960
GDP per capita 1989
US$1226 US$8029
Growth

Outward looking strategy in 1960

Counter - poor natural resource endowment, high

savings rate, tiny domestic rate

Inflow of foreign capital was encouraged

Conservative monetary policy and tight fiscal policy

in 1980’s
Financial Stability

Government Intervention reduced

Liberalization of imports and foreign investment policies

High investment in public projects

Double digit inflation bought under control

First surplus in 1986, US$7.7 billion in 1987 and US$11.4 billion

in 1988
GDP
GDP (official
GDP (purchasing GDP - real exchange rate):
power parity): growth rate: $947 billion (2008
est.)
$1.335
2.2% (2008
trillion (2008
est.)
est.)
$1.306
5.1% (2007
trillion (2007 Rank: 15
est.)
est.)
$1.243
5.2% (2006
trillion (2006
est.)
est.)
Labor Force
Labour force
• 24.35 million (2008 est.) [Total Population of 50.06 million]
Labor Force Ranking
 Other Details

Poverty Line
• Total population below poverty line: 15%

Household income or consumption by

percentage share:
• Lowest 10%: 2.7%
• Highest 10%: 24.2%
High tech industries
Samsung Group
• Worlds largest conglomerate
• High Tech Electronics

Hyundai-Kia
• South-Korea: In top 5 Automakers

Display-Electronics
• Worlds largest maker of LCD, Plasma, LED, CRT

Shipbuilding
• Worlds largest Shipbuilding industry
• Hyundai and Samsung Heavy Industries
Asian Financial Crisis
 issues:
• a shortage of foreign exchange in
Asian countries
s or
• inadequately developed financial
sectors in the troubled Asian
problem
economies
•
basic
effects of the crisis on both the
United States and the world
four
• the role, operations, and
replenishment of funds of the
involves
International Monetary Fund. It
Asian Financial Crisis
Impact on South Korea

In return for IMF emergency loans,

Korea agreed to several conditions and
reforms:
upgrading
Reducing Increasing accounting
Control
current international and
inflation
deficit reserves disclosure
standards
Industrial Policies of South Korea
• Promotion of IT and biotechnology and development of SMEs
• Enactment of the Special Law on Innovation of Science and Technology
1990’s
in 1997
• Direction of industrial policy changed toward R&D in economic
development
• Export-led growth strategy was continued in sectors Semi-conductors,
1980’s
automotives, shipbuilding, metal, and small-sized aircrafts
• Focus shifted from LI to the build-up of high value-added HCI sector
• Preferential policy loans, selective protection, entry regulations, and
1970’s
corporate tax deductions
• Emphasis on exporting products from Light Industries e.g. textiles
• Export promotion measures e.g. tax deductions and export finance
1960’s
schemes
1960-2000
R&D Expenditure in Billion won
6000

5000

4000

3000
R&D Expenditure in Billion won

2000

1000

0
1980 1990 2000 2003
2000’s

Exports of semi-conductors increased

• Increase was from US$4.0 billion in 1989 to US$26.5 billion in

2004 -10.4 percent of total exports
Supporting international marketing activities and
exhibitions abroad

Tax benefits to R&D activities and FDI inflows

Recent policy to develop Eco-friendly industriesby

investing $84.4 bn for next five years
Sector-wise analysis
Energy sector

 Energy used in power generation consists primarily of

oil, coal, nuclear & LNG
 Limited domestic energy resources
 Oil supplies 50 % of South Korea’s total energy
consumption
 South Korea is the 5th largest net importer of oil in the
world
 Hydropower & other renewable energy sources make
up a small fraction
 Agriculture sector

 Heavily dependent on imported agricultural commodities

 Agriculture's share of GDP has steadily declined to about
3% in the past two decades
 Total imports of agricultural, fishery and forest products
in 2008 totaled $22 billion
 Korea is the 5th largest market for U.S. agricultural
products
 In 2008, agriculture trade deficit was $17 billion
 Tourism sector

 1988 : a boom year for tourism industry

 Continuation of trend in subsequent years & the 2002
FIFA World Cup
 Incheon International Airport, rated the best airport
worldwide consecutively since 2005
 In 2007, South Korea had 6.4 million visitors making it
the 36th most visited country in the world
 Industrial sector

 Hyundai Kia Automotive Group is the world's fourth

largest automaker, after Toyota, GM and Volkwsagen
 After recession country’s auto sales posted a combined
2.7% Y-O-Y increase in 2009
 World's leading producer of computer memory chips &
electronic products
 World's largest shipbuilder
Macro Economic Indicators
 GDP and Growth Rate

Definition
• The sum of the value of new, final goods produced within the domestic borders of
an economy.
Expanded 6% over the past 4 years.

Worth 929 billion dollars or 1.50% of the world economy.

Two main reasons for increased GDP growth are:

• Competitive education system.
• Highly skilled and motivated workforce.
Shift from centrally planned economy to a more market oriented one.

Major concerns
• Rapidly ageing population.
• Structural inefficiencies.
GDP and Growth Rate (contd…..)
Inflation Rate
Definition:
• A general increase in prices
measured against a standard
level of purchasing power.
January 2010 figure
• 3.7 Percent.
Well known measures:
• Consumer Price Index (CPI)
• GDP Deflator
Recent trend:
• Agriculture, livestock and
fishery products have gained
strength in recent years.
• Domestic oil prices have come
down and prices of non ferrous
metals has continued to increase.
Inflation Rate (Contd…..)
Unemployment Rate

Labour force v/s non labour force:

• Labour force: The number of people employed plus the number
unemployed but seeking work.
• Non labour force: Those who are not looking for work, those who are
institutionalised and those serving in the military.
Recent trends:
• Hiring in the agriculture, forestry & fishery dropped significantly in
November 2009.
• Sluggish exports led to decreased unemployment in manufacturing
sector.
• Hiring in private sector remained weak due to downward trend in
construction sector.
• Employment in services sector soared due to Government’s job creation
policies.
Unemployment Rate (Contd….)
Monetary Policy
Interest Rates
 Pace of
South Korea Stock prices
growth was Banks’ deposit
Increase in producer price Expanded the and exchange
not as and lending
Open market inflation hit a supply of rates exhibited
expected and rates remained
Operations. 10-month Korean won. very unstable
shows a very low
high. movements.
slow pace.
Key Points
Critical Questions

Two Critical Questions

Still Remains
• When will South Korea tighten
up its monetary policy?
• How Current Monetary policy
will tackle with ever rising
Inflation?
Expenditure and Revenue
Expenditure
Government Spend is relatively very less compared
to rest of the countries.

Mainly the expenditure is into Infrastructure, R&D,

national defence, and education.

Mainly defence which accounts for 24% of

expenditure

Now recently it was observed that focus is shifting

from defence to health care.
Revenue

Tax, mainly indirect taxes

Disinvestment in Electrification, banking,

communication and Manufacturing, but still remain
major stockholder

Four Public Enterprises

• Government Enterprise
• Government invested Enterprise
• Government Subsidiaries
• Government Backed Enterprise
Banking and Financing structure
Central Bank
2 parts of financial system:
• Monetary institutions: Central
bank & deposit taking banks
• Other financial institutions
Central bank:
• Established on June 12, 1950
• Purpose: price stability
• Issuing banknotes and coins,
formulating and implementing
monetary and credit policy,
serving as the bankers' bank
and the government's bank.
• Governor, the Senior Deputy
Governor, and 5 Deputy
Governors, manage
departments in the head office
and 16 domestic branches
Financing History : A timeline

1960s:
• Foreign credit based which decreased towards 1980s
• Generated need for domestic savings
• Nationalization of banks
1980s:
• Current account became surplus fuelling shortage of
domestic savings
• De-regulation of interest rates
• 3 new commercial banks and 13 financial institutions
History.. continued

Commercial banks focused on short term loans

Newer sources of funding for commercial banks

Relaxation of FOREX controls

1990s: new exchange rate system

Foreign investors: trust funds, convertible bonds, bonds with
warrants
Banking sector today
Banks are largely no longer handmaidens to the chaebol

Big Four

• Kookmin Bank (KB )

• Shinhan Financial Group (SHG )
• Woori Financial Group (WF )
• Hana Bank -- 70% of the market

4 banks re-privatised after nationalization of 6 banks

Foreign investments

Retail banks shrunk to 11 in number

 Hydropower
and other Oil: fifth:
renewable Coal : 24 % largest net
energy primary energy importer of oil
sources : small in the world
fraction
Other indicators : energy scenario
Currency - won
All @Won
The won ( 원 ) (sign: ₩; code: KRW) is the currency of South
Korea
Subunit: 1 Won= 100jeon
Theoretical (not used)

Coins₩1, ₩5, ₩10, ₩50, ₩100, ₩500

Banknotes₩1000, ₩5000, ₩10000, ₩50000

Central bank: Bank of Korea

First South Korean won

The won was first used between 1902 and 1910

Japanese invasion in 1910 : the won was replaced at par by

the yen, made up of the Japanese currency and banknotes of
the Korean yen.

Post world war II:

• Division in Korea (North and south)

• Won replaced the yen at par
• Only bank notes were issued
Pegs for the first South Korean won

Date introduced Value of U.S. dollar in won

October, 1945 15
July 15, 1947 50
October 1, 1948 450

June 14, 1949 900 (non-government transactions only)

May 1, 1950 1800

November 1, 1950 2500
April 1, 1951 6000
 Second South Korean won

The won was reintroduced on June 9, 1962 

Value was pegged at 125 won = 1 U.S. dollar

It became the sole legal tender on March 22, 1975 with the withdrawal of the last circulating
hwan coins.

ISO 4217 code : KRW.

Won was allowed to float on December 24, 1997 after an agreement with IMF

Won was devalued to almost half of its value, as part of the East Asian financial crisis.

On June 23, 2009, the Bank of Korea released the 50,000 Won note
Conversion
Wednesday, February 03, 2010
  1 KRW in KRW
American Dollar 0.00087184 1147
Australian Dollar 0.000982502 1017.81
British Pound 0.000546271 1830.59
Chinese Yuan 0.00595169 168.019
Euro 0.000623455 1603.96
Hong Kong Dollar 0.00676948 147.722
Indian Rupee 0.0400826 24.9485
Japanese Yen 0.0790105 12.6566
Swiss Franc 0.000918849 1088.32
Malaysian Ringgit 0.00296384 337.4
 S. Korean Won to US Dollar Currency Exchange Forecast

Forecast
Month Date
Value

0 Dec 2009 1,163.3

1 Jan 2010 1,176
2 Feb 2010 1,186
3 Mar 2010 1,192
4 Apr 2010 1,191
5 May 2010 1,176
6 Jun 2010 1,156
7 Jul 2010 1,140
8 Aug 2010 1,122

Source: The Financial Forecast Center

S. Korean Won to US Dollar Currency Exchange Rate

Past Trend Present Value & Future Projection

S. Korean Won per One U.S. Dollar- Average of Month
South Korea:
FOREX and GOLD reserves
FOREX and GOLD reserves rankings

Year Reserves of foreign Rank Percent Change

exchange and gold

2004 $155,400,000,000 4 - 

2005 $199,100,000,000 4 28.12 %

2006 $210,400,000,000 4 5.68 %

2007 $239,000,000,000 5 13.59 %

2008 $262,200,000,000 6 9.71 %

2009 $201,200,000,000 6 -23.26 %

South Korea in News for FOREX

South korea’s National Pension Service(NPS)

announced that official foreign reserves stood at
record high as of January end

According to BOK, Forex amounted to $273.69

billion

Increase is attributed to operating profits on forex

reserves and redemptions at maturity by NPS of its
currency swaps with BOK
Foreign Economic Policy
Exports
Exports
Imports
Imports
International Involvement
APEC – Asia-Pacific Economic
Cooperation

Relationship with US

• KORUS FTA 2006

North-South Economic Ties

Thank You