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South Korea Environmental Export Market Plan
Chapter 1 - Economic Overview
Chapter 1 - Economic Overview

By major economic indicators, the Korean economy has apparently been bouncing back since early 1999 from the Asian crisis that hit the nation in late 1997. Korea’s GDP grew 10.7 percent in real terms based on the Korean won in 1999 after it dropped 5.7 percent in 1998 on the same basis. In 1999, the manufacturing sector, which accounts for 31.8 percent of the nation’s total output, grew 21.8 percent, but the construction sector declined 10.1 percent. In the same year, facility investment and consumer spending increased 38.0 percent and 10.3 percent, respectively.

In the first half of 2000, GDP grew 11.1 percent over the same period a year ago, when it rose 8.2 percent. The dual engine of consumer spending and facility investment powered the robust growth, which rose 10.1 percent and 46.8 percent, respectively. But construction investment shrunk 5.7 percent due to stagnant housing construction and infrastructure investment. Although Korea already may have passed the peak of the current growth cycle, the Ministry of Finance and Economy projects a GDP growth of 8 percent for 2000.

Both merchandise exports and imports have grown significantly since 1999. On a customs clearance basis, exports grew 8.6 percent to reach $143.7 billion in 1999 and 25.5 percent in the first half of 2000 on the year on year basis. Imports grew at higher rates of 28.4 percent to mark $119.8 billion in 1999 and 44.7 percent in the same period of 2000. Korea is one of the United States’ biggest trading partners. Currently, it is the sixth largest export market for the United States. For Korea, the United States was the largest source of imports with a share of 21.9 percent of total imports in 1999, closely followed by Japan with a 20.2 percent share. In 1999, imports from U.S. into Korea were $24.9 billion, compared with $20.4 billion in 1998 and $30.0 billion in 1997.

Exports hit a monthly record of $15.5 billion in June 2000. Semiconductors, computers and petrochemicals largely led this performance. Imports rose to $13.2 billion in the same month due to increasing demand for raw materials and components used in Korea’s major industries including semiconductors, computers, telecommunications, automobiles, steel, petrochemicals, textiles, and machinery. Overall, the country recorded a trade surplus of $4.4 billion in the first half of 2000, far less than the $11.7 billion surplus it achieved a year earlier. The government’s target in trade surplus is set at $10 billion for 2000. The nation’s foreign reserves hold steady at around $90 billion, thanks to the trade surplus

Other key economic indicators for the first half of 2000 appear to remain stable. The Korean won has not fluctuated much since it was stabilized at a won 1,100 to won 1,150 against the U.S. dollar in the early half of 2000. In May 2000, the unemployment rate fell to 3.7 percent or 828,000 persons, down from 6.8 percent in 1998 and 6.3 percent in 1999. Consumer price index remained at a healthy rate of 1.5 percent in the first half of 2000 and 0.8 percent in 1999, allowing the government to hold interest rates steady. The benchmark three-year corporate bond rate floated below 10 percent in the first half of 2000. Many economists, however, expect inflation to accelerate to about 3 percent by the year-end. The current favorable economic circumstances will likely worsen in the remaining period of 2000 and 2001 as the business cycle begins to reverse, according to a recent report released by the Korea Development Institute, the state-funded think-tank.

Foreign inward direct investment has increased remarkably since 1997 due to the Korean government’s strong drive to attract foreign capital and the ample opportunities for foreign investors to take over Korean-owned or joint venture companies amid industry and corporate restructuring during the economic crisis. Foreign direct investment (FDI) increased 75.6 percent to record US$15.5 billion in 1999 and further grew 20.0 percent in the first half of 2000 over the same period of 1999.

The Korean government maintained the expansionary policy stance adopted in mid-1998 to stimulate the economy. It was initially planned to increase the budget by 5 to 6 percent of GDP. The government doubled the budget during the 1999 fiscal year. As a result, fiscal expenditure increased by 9.7 percent above the 1998 level, which itself exceeded the 1997 level by 13.5 percent. Main contributors to the expansion were support for banking and corporate reform, strengthening of social safety nets, and increased investment in infrastructure. Nevertheless, the rapid recovery enabled the government to reduce the fiscal deficit to 2.9 percent of GDP for the year.

During the last two years, with significant financial assistance from multilateral development finance institutions, the Republic of Korea has made considerable progress in reforming and restructuring the domestic banking and corporate sectors. In the banking sector, many nonviable financial institutions have been closed, viable institutions have been re-capitalized, regulations and supervision have been strengthened, and information disclosure and transparency standards have been improved.

The government’s corporate restructuring program focused on restructuring corporate finance and improving standards of corporate governance. Debt-to-equity ratios of most large conglomerates have been reduced, and more than 87 percent of the cross-guarantees between the affiliates of the top 30 conglomerates have been phased out. Rights of minority shareholders in companies have been strengthened, and conglomerates are now required to present consolidated financial statements. In summary, substantial progress has been attained in implementing reforms in the finance and corporate sectors. However, many economists urge that the government should accelerate banking and corporate restructuring efforts in order for the national economy to emerge as a fully restructured, sustainable, and truly advanced one.
Major Economic Indicators

GDP, current prices (billions of U.S. dollars)476.6317.7406.7
GDP real growth based on Korean won (percent)5.0-6.710.7
GNI, current prices (billions of U.S. dollars)474.0313.0402.1
GNI real growth based on Korean won (percent)2.1-8.88.9
Per capita GNI (in U.S. dollars)10,3076,7428,581
Average exchange rate (won to U.S. dollars)951.11,398.91,189.5
Unemployment rate (percent)
Producer price inflation (percent)3.912.2-2.1
Consumer price inflation (percent)
Interest rate (three-year corporate bond yield) (percent)13.3914.998.86
Current account balance (billions of U.S. dollars)-
Foreign currency reserves19.752.073.7
Total exports (billions of U.S. dollars)136133144
Total imports (billions of U.S. dollars)14593120
Exports to U.S. (billions of U.S. dollars)21.622.829.5
Imports to U.S. (billions of U.S. dollars)30.020.424.9
Foreign direct investment (millions of U.S. dollars)6,9718,85215,541
FDI from U.S. (millions of U.S. dollars)3,1902,9733,738
FDI from E.U. (millions of U.S. dollars)2,4092,9686,423
FDI from Japan (millions of U.S. dollars)2665041,750
Source: National Statistical Office, Bank of Korea, Ministry of Finance and Economy

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