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South korea final


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South korea final

  1. 1. South Korea’s Economy
  2. 2. Agenda AsianMiracle on Industrial Sectorial FinancialHan River Policies Analysis Crisis Macro Expenditures Monetary Economic Fiscal Policy and Policy Indicators RevenuesBanking and Foreign Financial Currency Policy Structures
  3. 3. Miracle on the Han River
  4. 4. ReasonsExport fuelled economic growthIndustrialization, education boom, rise in living standardsUrbanization, modernization, 1988 Seoul OlympicsTransformed from ashes of Korean war to a trillion dollareconomy
  5. 5. Revenue Growth
  6. 6. Some Figures Real GDP 1960 1989US$30.3 billion 8.7% per year US$340.7 billion 1960 GDP per capita 1989 US$1226 US$8029
  7. 7. GrowthOutward looking strategy in 1960Counter - poor natural resource endowment, highsavings rate, tiny domestic rateInflow of foreign capital was encouragedConservative monetary policy and tight fiscal policyin 1980’s
  8. 8. Financial StabilityGovernment Intervention reducedLiberalization of imports and foreign investment policiesHigh investment in public projectsDouble digit inflation bought under controlFirst surplus in 1986, US$7.7 billion in 1987 and US$11.4 billionin 1988
  9. 9. GDP GDP (officialGDP (purchasing GDP - real growth exchange rate): power parity): rate: $947 billion (2008 est.) $1.335 trillion 2.2% (2008 (2008 est.) est.) $1.306 trillion 5.1% (2007 Rank: 15 (2007 est.) est.) $1.243 trillion 5.2% (2006 (2006 est.) est.)
  10. 10. Labor ForceLabour force• 24.35 million (2008 est.) [Total Population of 50.06 million]
  11. 11. Labor Force Ranking
  12. 12. Other DetailsPoverty Line• Total population below poverty line: 15%Household income or consumption bypercentage share:• Lowest 10%: 2.7%• Highest 10%: 24.2%
  13. 13. 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
  14. 14. Asian Financial Crisis
  15. 15. Asian Financial Crisis It • a shortage of foreign exchange ininvolves Asian countries • inadequately developed financial four sectors in the troubled Asian economies basic • effects of the crisis on both theproblems United States and the world • the role, operations, and or replenishment of funds of the International Monetary Fund. issues:
  16. 16. Impact on South KoreaIn return for IMF emergencyloans, Korea agreed to severalconditions and reforms: upgrading Reducing Increasing accounting Control current international and inflation deficit reserves disclosure standards
  17. 17. Industrial Policies of South Korea
  18. 18. 1960-2000 • Emphasis on exporting products from Light Industries e.g.1960’s textiles • Export promotion measures e.g. tax deductions and export finance schemes • Focus shifted from LI to the build-up of high value-added HCI1970’s sector • Preferential policy loans, selective protection, entry regulations, and corporate tax deductions • Direction of industrial policy changed toward R&D in economic development1980’s • Export-led growth strategy was continued in sectors Semi- conductors, automotives, shipbuilding, metal, and small-sized aircrafts • Promotion of IT and biotechnology and development of SMEs1990’s • Enactment of the Special Law on Innovation of Science and Technology in 1997
  19. 19. R&D Expenditure in Billion won6000500040003000 R&D Expenditure in Billion won20001000 0 1980 1990 2000 2003
  20. 20. 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
  21. 21. Sector-wise analysis
  22. 22. Energy sectorEnergy used in power generation consists primarily ofoil, coal, nuclear & LNGLimited domestic energy resourcesOil supplies 50 % of South Korea’s total energy consumptionSouth Korea is the 5th largest net importer of oil in the worldHydropower & other renewable energy sources make up a smallfraction
  23. 23. Agriculture sectorHeavily dependent on imported agricultural commoditiesAgricultures share of GDP has steadily declined to about 3% in thepast two decadesTotal imports of agricultural, fishery and forest products in 2008 totaled$22 billionKorea is the 5th largest market for U.S. agricultural productsIn 2008, agriculture trade deficit was $17 billion
  24. 24. Tourism sector1988 : a boom year for tourism industryContinuation of trend in subsequent years & the 2002FIFA World CupIncheon International Airport, rated the best airportworldwide consecutively since 2005In 2007, South Korea had 6.4 million visitors making it the36th most visited country in the world
  25. 25. Industrial sectorHyundai Kia Automotive Group is the worlds fourth largestautomaker, after Toyota, GM and VolkswagenAfter recession country’s auto sales posted a combined 2.7%Y-O-Y increase in 2009Worlds leading producer of computer memory chips &electronic productsWorlds largest shipbuilder
  26. 26. Macro Economic Indicators
  27. 27. GDP and Growth RateDefinition • 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.
  28. 28. GDP and Growth Rate(contd…..)
  29. 29. Inflation RateDefinition: Well known measures:• A general increase in prices • Consumer Price Index (CPI) measured against a standard level of purchasing power. • GDP DeflatorJanuary 2010 figure Recent trend:• 3.7 Percent. • 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.
  30. 30. Inflation Rate (Contd…..)
  31. 31. Unemployment RateLabour 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.
  32. 32. Unemployment Rate (Contd….)
  33. 33. Fiscal Policy
  34. 34. Pre 1997 eraThe average growth rate in Korea had been wellabove 7% before 1997The government had a very low external debtBut the privately owned debt for the country wasquiet significantIt worked on “high-debt, high growth model”
  35. 35. External Debt External Debt in $Bn450400350300250200150100 50 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
  36. 36. Present policiesThe fiscal policy for 2010 is at 2.9% of the GDPIn order to fight recession the Korean governmenthas decided to Frontload 70% Of 2010 Budget InFirst HalfPresently defense and social welfare constitute thehighest chunk of budget
  37. 37. Monetary Policy
  38. 38. Key PointsStock prices Pace of and Banks’ South Korea growth was exchange deposit and producer Increase in Expanded not as rates lending price Open the supply of expected exhibited rates inflation hit a market Korean won. and shows a very remained 10-month Operations. very slow unstable low high. pace.movements.
  39. 39. Interest Rates
  40. 40. Critical QuestionsTwo Critical Questions StillRemains• When will South Korea tighten up its monetary policy?• How Current Monetary policy will tackle with ever rising Inflation?
  41. 41. Expenditure and Revenue
  42. 42. ExpenditureGovernment Spend is relatively very less comparedto rest of the countries.Mainly the expenditure is intoInfrastructure, R&D, national defence, and education.Mainly defence which accounts for 24% ofexpenditureNow recently it was observed that focus is shiftingfrom defence to health care.
  43. 43. 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
  44. 44. Banking and Financing structure
  45. 45. Central Bank 2 parts of financial system: Central bank:• Monetary institutions: Central • Established on June 12, 1950 bank & deposit taking banks • Purpose: price stability• Other financial institutions • Issuing banknotes and coins, formulating and implementing monetary and credit policy, serving as the bankers bank and the governments bank. • Governor, the Senior Deputy Governor, and 5 Deputy Governors, manage departments in the head office and 16 domestic branches
  46. 46. Financing History : A timeline1960s:• Foreign credit based which decreased towards 1980s• Generated need for domestic savings• Nationalization of banks1980s:• Current account became surplus fuelling shortage of domestic savings• De-regulation of interest rates• 3 new commercial banks and 13 financial institutions
  47. 47. History.. continuedCommercial banks focused on short term loansNewer sources of funding for commercial banksRelaxation of FOREX controlsForeign investors: trust funds, convertiblebonds, bonds with warrants
  48. 48. 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 Foreign investments Retail banks shrunk to 11 in number
  49. 49. Other indicators : energyscenario Hydropower Oil: fifth: and other largest net Coal : 24 % renewable importer of primary energy oil in the energy sources : world small fraction
  50. 50. Currency - won
  51. 51. All @WonThe won (원) (sign: ₩; code: KRW) is the currency of SouthKoreaSubunit: 1 Won= 100jeonTheoretical (not used)Coins₩1, ₩5, ₩10, ₩50, ₩100, ₩500Banknotes₩1000, ₩5000, ₩10000, ₩50000
  52. 52. First South Korean wonThe won was first used between 1902 and 1910Japanese invasion in 1910 : The won was replaced at par by the yen, madeup 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 by the Bank of Joseon (1946)Central bank: Bank of Korea (1950)
  53. 53. Pegs for the first South Koreanwon Date introduced Value of U.S. dollar in wonOctober, 1945 15July 15, 1947 50October 1, 1948 450June 14, 1949 900May 1, 1950 1800November 1, 1950 2500April 1, 1951 6000
  54. 54. HwanFirst South Korean won was replaced bythe hwan on February 15, 1953In 1959, coins were introduced in denominations of 10, 50 and 100 hwan1 hwan = 100 wonThe hwan also suffered from inflation and a series of devaluations occurred
  55. 55. Second South Korean wonThe won was reintroduced on June 9, 19621, 5, 10, 50, 100 and 500 won notes were introduced by the Bank of KoreaValue was pegged at 125 won = 1 U.S. dollarIt became the sole legal tender on March 22, 1975 with the withdrawal of the last circulating hwancoins.ISO 4217 code : KRW.Won was allowed to float on December 24, 1997 after an agreement with IMFWon 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
  56. 56. FX Rates Wednesday, February 03, 2010 1 KRW in KRWAmerican Dollar 0.00087184 1147Australian Dollar 0.000982502 1017.81British Pound 0.000546271 1830.59Chinese Yuan 0.00595169 168.019Euro 0.000623455 1603.96Hong Kong Dollar 0.00676948 147.722Indian Rupee 0.0400826 24.9485Japanese Yen 0.0790105 12.6566Swiss Franc 0.000918849 1088.32Malaysian Ringgit 0.00296384 337.4
  57. 57. S. Korean Won to US DollarCurrency Exchange Rate Past Trend Present Value S. Korean Won per One U.S. Dollar
  58. 58. South Korea:FOREX and GOLD reserves
  59. 59. FOREX and GOLD reservesrankings 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 %
  60. 60. South Korea in News forFOREXSouth korea’s National Pension Service(NPS)announced that official foreign reserves stood atrecord high as of January endAccording to BOK, Forex amounted to $273.69billionIncrease is attributed to operating profits on forexreserves and redemptions at maturity by NPS of itscurrency swaps with BOK
  61. 61. Foreign Economic Policy
  62. 62. Exports
  63. 63. Exports
  64. 64. Imports
  65. 65. Imports
  66. 66. International Involvement APEC – Asia-Pacific Economic Cooperation Relationship with US • KORUS FTA 2006 North-South Economic Ties FTA with EU
  67. 67. Thank You