Economic Study of South Korea
-Group 5
Sreedhar G.
Mayank Tripathi
Poonam Khaitan
Shivam Mehrotra
Shaurya Vikram Singh
Contents
History
Economy
Events under the First Republic
Events under the Second Republic
Events under the Military Rule
E...
US- South Korea Ties
Graphs
Findings
[Contents contd.]
History
Also called the Republic of Korea (ROK)
Established on 15 August 1948
Its history is marked by alternating
periods...
Economy
Today it is a high-tech industrialized economy.
Per capita GNP, only $100 in 1963, exceeded $9,800 in 2002.
Chaebo...
Economic Overview
GDP(PPP) $1,541trillion
Real GDP Growth Rate 3.4%(27-10- 2011)
GDP per capita $29,997
Unemployment rate ...
United States' sixth-largest trading partner and is the 12th-
largest economy in the world
Events under the First Republic
First Republic of South Korea was South Korea's first
independent government, ruling the c...
The Korean War(June 25, 1950
- July 27, 1953)
Broke out when the two Koreas
barely managed to maintain
socio-economic stab...
Destruction Ratios:
Textile Industry 70%
Chemical Industry 70%
Agricultural Machinery Industry 40%
Rubber Industry 10%
Pow...
Hyper Inflation:
War expenses were equivalent to 50% of the national budget
Temporary increase in taxes could not meet the...
Distortion of Two Major Economic Reform Policies
The Farmland Reform Bill(1950)
Farmers who wanted to buy distributed farm...
The Enemy Property Privatization Bill(1950)
Sales of the confiscated enemy properties (production
facilities or business f...
The Long-term Consequences of the US Aid
During the war the government took in vast sums of American aid , in
amounts some...
Mishaps of the Korean Government Economic Policies
Korean government was responsible for fostering consumer goods
industry...
After the war
South Korean policymakers set upon stimulating economic growth by
promoting indigenous industrial firms
sele...
Hwan
To counter the inflation the first South Korean currency the
won the hwan was introduced in 1953
This was done at the...
Pegs for the South Korean hwan
Date introduced Value of U.S. dollar in hwan
February 15, 1953 60
15 December 1953 180
Augu...
Events under the Second Republic
The student revolution caused parliamentary election in 1960.
The Democratic Party - the ...
Events under Military Rule
The military coup d'état led by Major
General Park Chung-he on May 16, 1961,
put an effective e...
per capita output doubled in the following decade
South Korea became an industrialized country
the share of agriculture in...
Events under the Third & Fourth Republic
The Third Republic was initiated by announcing the Five Year
Economic development...
Despite social and political unrest,the economy continued to
flourish under the export-based industrialization policy
the ...
Events under the Fifth & Sixth Republic
Started in 1981 with election of Chun Doo-hwan
Tight monetary laws and low interes...
The Sixth Republic began in 1987 and remains the current
republic of South
In the 1990s,liberalization of capital account ...
Economic Crisis of 1997
November 1997, Korea was hit by
a currency-cum-banking crisis
Official assistance from the IMF
Kor...
Causes
In 1990, Korea’s current account balance started to
deteriorate because
rising inflation
appreciation of the Korean...
Remedies
As it was a liquidity crisis, a rapid infusion of hard currency
reserves was critical
The IMF together with other...
Major Reforms
Implemented to achieve the following objectives:
(1) to reduce the likelihood of a similar crisis in the fut...
Reforms Till Date
The contents and significance of the reforms that have been
actually undertaken to date can best be revi...
Won
• Another attempt to control inflation
• In 1962, the second South Korean won was
• reintroduced
• Rate of 1 won = 10 ...
The slowing global economy and falling exports slowed
growth to 3.3% in 2001
Consumer overspending and rising household de...
US- South Korea Ties
As Korea's economy has
developed, trade and investment
ties have become an increasingly
important asp...
Tariffs on 95% of trade were to be eliminated within 3 years
of implementation,
All the remaining tariffs to be removed wi...
Graphs
Phillip Curve for South Korea
Won and USD Exchange Rate
Findings
South Korea's economic growth potential has fallen because
of a rapidly aging population and structural problems ...
Economic Study of South Korea
Economic Study of South Korea
Economic Study of South Korea
Economic Study of South Korea
Economic Study of South Korea
Economic Study of South Korea
Economic Study of South Korea
Economic Study of South Korea
Economic Study of South Korea
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Economic Study of South Korea

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Economic Study of South Korea

  1. 1. Economic Study of South Korea -Group 5 Sreedhar G. Mayank Tripathi Poonam Khaitan Shivam Mehrotra Shaurya Vikram Singh
  2. 2. Contents History Economy Events under the First Republic Events under the Second Republic Events under the Military Rule Events under the Third Republic Events under the Fourth Republic Events under the Fifth Republic Events under the Sixth Republic
  3. 3. US- South Korea Ties Graphs Findings [Contents contd.]
  4. 4. History Also called the Republic of Korea (ROK) Established on 15 August 1948 Its history is marked by alternating periods of democratic and autocratic rule as follows: First Republic(1948-1960) Second Republic(1960-1961) Military Rule(1961-1962) Third Republic(1963-1972) Fourth Republic(1972-1981) Fifth Republic(1981-1987) Sixth Republic(1987-Present)
  5. 5. Economy Today it is a high-tech industrialized economy. Per capita GNP, only $100 in 1963, exceeded $9,800 in 2002. Chaebols a South Korean form of business conglomerate. Samsung, Hyundai and LG Earlier the centrally planned , government-directed investment model Now market-oriented
  6. 6. Economic Overview GDP(PPP) $1,541trillion Real GDP Growth Rate 3.4%(27-10- 2011) GDP per capita $29,997 Unemployment rate 3.1% Inflation rate (CPI): 4.2%(Nov. 2011) Industry Electronics,Telecommunications,Autom obile production,Chemicals Shipbuilding,Steel Trade : Exports Imports 47 Billion USD 43.1 Billion USD Major export markets China (23.2%) U.S. (10.1%) Japan (5.8%) Hong Kong (5.3%) Singapore (3.6%) Major importers China (16.8%) Japan (15.3%) U.S.(9.0%) Saudi Arabia (6.1%) Australia (4.6%).
  7. 7. United States' sixth-largest trading partner and is the 12th- largest economy in the world
  8. 8. Events under the First Republic First Republic of South Korea was South Korea's first independent government, ruling the country from 1948 to 1960-the Rhee administration The government took in vast sums of American Aid in amounts sometimes near the total size of the national budget. Major Events The Korean War Introduction of hwan
  9. 9. The Korean War(June 25, 1950 - July 27, 1953) Broke out when the two Koreas barely managed to maintain socio-economic stability. Damage Estimates: The war destroyed majority of the industries and industrial infrastructure By August of 1951, 44% of factory buildings and 42% of production facilities lay in ruins Power production plummeted down to a miserable level of 11 thousand kHz, about one-eighth of the earlier production level of 80 thousand kHz Foreign trade deteriorated from US$208 million to US$2.9 million All these factors led to serious Inflation
  10. 10. Destruction Ratios: Textile Industry 70% Chemical Industry 70% Agricultural Machinery Industry 40% Rubber Industry 10% Power Plants 80% Overall Industry Destroyed 51%
  11. 11. Hyper Inflation: War expenses were equivalent to 50% of the national budget Temporary increase in taxes could not meet the huge demand in war expenses Hence, during the first three months of the war, the total money in circulation was increased by 72% South Korea also had to provide UN forces with loans in Korean currency according to the Taegue Agreement - an agreement of UN forces expenditure Increase in Money in Circulation June 24, 1950 - July 31, 1953 24 times by December 31, 1953 42 times Result- 79% of the money increased during the 3 year period of war
  12. 12. Distortion of Two Major Economic Reform Policies The Farmland Reform Bill(1950) Farmers who wanted to buy distributed farmland had to pay 150% of the average annual product,30% each in five years with farm products(not in money) The tax rate was applied progressively from a 15% to a 28% level 1/3 of farm products had to be sold to the government at an official set price , according to the newly established Law of Grains Management(1950) Old landlords were forced by law to sell all the farmland that was in excess of 3 chongbo(1 chongbo=0.993 hectares) and received a voucher called Farmland Price Securities However the real value of vouchers plummeted with soaring inflation rate
  13. 13. The Enemy Property Privatization Bill(1950) Sales of the confiscated enemy properties (production facilities or business firms) through auction But landowners were not interested because the real value of vouchers plummeted the difficulty of operating business in times of war By the end of March 1953, less than 7% (20,955 cases) of the enemy properties (29,906 cases) were sold Thus the reform failed to make up fiscal deficits with sales revenue of enemy properties
  14. 14. The Long-term Consequences of the US Aid During the war the government took in vast sums of American aid , in amounts sometimes near the total size of the national budget initial aid items were food, medicine and other necessary consumer goods these caused the fall of domestic farm product prices decreasing the income of farmers Some Korean agricultural products such as wheat and cotton eventually disappeared completely due to the sharp decline of their prices. US destroyed the agricultural industry through aid made the Korean economy dependent on the US economy perpetuated its dependency by controlling the Korean economy through aid, loans and direct foreign investments But the US aid was also very effective in stabilizing the Korean economy The postwar average annual inflation rate was reduced to 20% from 120% of the preceding period
  15. 15. Mishaps of the Korean Government Economic Policies Korean government was responsible for fostering consumer goods industry and later on paving the way for the rise of big-business oriented Chaebol structure Operational production facilities were favored with much lower interest rates for their loans , mostly 10% or lower compared to the general bank loan rate of 18.25% Loans were allocated in favor of big firms This contributed to the establishment of special government-business nexus and corruption Cartels such as the Korea Textile Association were formed , which could monopolize raw material aid However they could establish neither optimum level of production scale, nor competitiveness in international markets the unemployment rate was estimated to be 45%
  16. 16. After the war South Korean policymakers set upon stimulating economic growth by promoting indigenous industrial firms selected firms in targeted industries were given privileges to buy foreign currencies and to borrow funds from banks at low rates erected tariff barriers and imposed a prohibition on manufacturing imports Import-Substitution Industrialization (ISI) set in these Directly Unproductive Profit-seeking activities (DUP) caused efficiency to falter and living standards to stagnate
  17. 17. Hwan To counter the inflation the first South Korean currency the won the hwan was introduced in 1953 This was done at the rate of 1 hwan = 100 won The hwan was nominally subdivided into 100 jeon However the lowest denomination issued was 1 hwan The hwan also suffered from inflation and a series of devaluations occurred
  18. 18. Pegs for the South Korean hwan Date introduced Value of U.S. dollar in hwan February 15, 1953 60 15 December 1953 180 August 15, 1955 500 February 23, 1960 650 January 1, 1961 1000 February 2, 1961 1250
  19. 19. Events under the Second Republic The student revolution caused parliamentary election in 1960. The Democratic Party - the opposition, gained power Union membership and activity grew rapidly Teachers' Union, Journalists' Union, and the Federation of Korean Trade Union were formed The government formulated a five-year economic development plan, although it was unable to act on it prior to being overthrown The Hwan lost half of its value against the dollar between fall 1960 and spring 1961
  20. 20. Events under Military Rule The military coup d'état led by Major General Park Chung-he on May 16, 1961, put an effective end to the Second Republic The Supreme Council was the first South Korean government to introduce economic planning The first South Korean five-year plan was inaugurated in 1962 Shift to a strategy of stimulating growth through export promotion qualification for the special treatment was quantifiable and objective thus the room for DUP became significantly smaller
  21. 21. per capita output doubled in the following decade South Korea became an industrialized country the share of agriculture in GDP fell from 45 percent to 25 percent the share of manufacturing rose from 9 percent to 27 percent
  22. 22. Events under the Third & Fourth Republic The Third Republic was initiated by announcing the Five Year Economic development Plan The core was an export-oriented industrialization policy "Development First, Unification Later” The economy grew rapidly with vast improvement in industrial structure(heavy chemical industries) Capital was needed for such development-foreign aid from Japan and the United States improved the standard for living the government controlled prices the rural economy steadily lost ground
  23. 23. Despite social and political unrest,the economy continued to flourish under the export-based industrialization policy the 3rd and 4th five-year plans focused on expanding the heavy and chemical industries(HCIs) - steel production & oil refining most of the profit went back to repaying the loans and interest large conglomerate Chaebols were continuously receiving preferential treatment and soon came to dominate the domestic market Low interest loans to chaebols -- selected for the task of developing different sectors of HCI Successfully expanding the capital-intensive industries more rapidly than the rest of the economy
  24. 24. Events under the Fifth & Sixth Republic Started in 1981 with election of Chun Doo-hwan Tight monetary laws and low interest rates contributed to price stability Notable growth in the electronics, semi-conductor, and automobile industries. The country opened up to foreign investments GDP rose as Korean exports increased. However, the economic growth widened the gap between the rich and the poor, the urban and rural regions
  25. 25. The Sixth Republic began in 1987 and remains the current republic of South In the 1990s,liberalization of capital account followed causing rapid accumulation of short-term external debts Major Events Financial Crisis of 1997 Re-introduction of won
  26. 26. Economic Crisis of 1997 November 1997, Korea was hit by a currency-cum-banking crisis Official assistance from the IMF Korea has implemented many institutional and policy reforms Today, it has gone far toward strengthening its financial sector Country not likely to become a victim of another financial crisis.
  27. 27. Causes In 1990, Korea’s current account balance started to deteriorate because rising inflation appreciation of the Korean won the recession of the world economy Current account recorded a deficit of $8.7 billion Banks and Business Firms finance long-term investments with short-term foreign borrowings Causing maturity mismatches
  28. 28. Remedies As it was a liquidity crisis, a rapid infusion of hard currency reserves was critical The IMF together with other international financial institutions offered $58.4 billion to bail out Korea Out of this, $23.4 billion was reserved as a second line of defense that would be made available to Korea by G-7 countries
  29. 29. Major Reforms Implemented to achieve the following objectives: (1) to reduce the likelihood of a similar crisis in the future by cleaning up the balance sheets of financial institutions (2) to evolve a financial system that can best help the nation resume growth with stability
  30. 30. Reforms Till Date The contents and significance of the reforms that have been actually undertaken to date can best be reviewed under six headings: I. Reforms designed to strengthen the legal and regulatory infrastructure, II. Reforms implemented to rehabilitate the financial sector, III. Reforms aiming at strengthening prudential regulation, IV. Reforms to reduce moral hazard, V. Reforms to promote capital account liberalization and VI. Reforms to strengthen the corporate governance of financial institutions
  31. 31. Won • Another attempt to control inflation • In 1962, the second South Korean won was • reintroduced • Rate of 1 won = 10 hwan • This finally caused inflation to slow down
  32. 32. The slowing global economy and falling exports slowed growth to 3.3% in 2001 Consumer overspending and rising household debt, along with external factors, slowed growth to near 3% again in 2003 Economic performance in 2004 improved to 4.6% due to an increase in exports Remained at or above 4% in 2005, 2006, and 2007. With the onset of the global financial and economic crisis in the third quarter of 2008, annual GDP growth slowed to 2.3% in 2008 and just 0.2% in 2009. Current Scenario Economic
  33. 33. US- South Korea Ties As Korea's economy has developed, trade and investment ties have become an increasingly important aspect of the U.S.-R.O.K. relationship American firms have long been major investors in Korea Korea's leading firms have begun to make significant investments in the United States The IMF reforms also improved the trade relations Signed a comprehensive FTA that would eliminate virtually all barriers to trade and investment between the two countries, in 2007
  34. 34. Tariffs on 95% of trade were to be eliminated within 3 years of implementation, All the remaining tariffs to be removed within 10 years of implementation The FTA will generate billions of dollars in increased trade and investment between the United States and the Republic of Korea Boost economic growth and job creation in both countries.
  35. 35. Graphs
  36. 36. Phillip Curve for South Korea
  37. 37. Won and USD Exchange Rate
  38. 38. Findings South Korea's economic growth potential has fallen because of a rapidly aging population and structural problems that are becoming increasingly apparent. Foremost among these structural concerns are the rigidity of South Korea's labor regulations, the country's underdeveloped financial markets, and a general lack of regulatory transparency. Korean policy makers are increasingly worried about diversion of corporate investment to China and other lower wage countries, and by Korea's falling foreign direct investment (FDI).
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