Koreas Economy Past Present and Future Prospects SangHyop

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Korea’s Economy: Past, Present, and Future Prospects Sang-Hyop Lee Professor, Economics UHM Senior Fellow,

Korea’s Economy: Past, Present, and Future Prospects Sang-Hyop Lee Professor, Economics UHM Senior Fellow, EWC Infusing Korean Studies, July 2019, EWC

Economy of Korea at a Glance (2018 estimates) • Data Sources – http: //kosis.

Economy of Korea at a Glance (2018 estimates) • Data Sources – http: //kosis. kr/index. do (Korean) – http: //kosis. kr/eng/ (English) • GDP – $1. 619 T (nominal) (11 th), $2. 136 T (PPP) (14 th) • GDP per capita – $31, 345 (nominal) (28 th), $41, 350 (PPP) (29 th) • Industry – Service (58. 3%), Manufact. (39. 3%), Agri. (2. 2%)

External Economy of Korea at a Glance (2018 estimates) • Exports: $605. 2 billion

External Economy of Korea at a Glance (2018 estimates) • Exports: $605. 2 billion • Export goods: electrical machinery equipment, machinery and computers, vehicles, semiconductors, petrochemicals, automobile/auto parts, ships, … • Main export partners: China (26%), US (13%), Vietnam (6%), Hong Kong (6%), Japan (5%), Singapore (3%) • Imports: $535. 2 billion • Import goods: crude oil/petroleum products, electrical machinery equipment, machinery and computers, optical and medical apparatus, vehicles, iron & steel, plastic… • Main import partners: China (20. 5%), Japan (11. 5%), US (10. 5%), Germany (4. 2%), Saudi Arabia (4. 1%)

Socio-Economic Indicator • Population – 51. 7 million (28 th) – Labor force: 28.

Socio-Economic Indicator • Population – 51. 7 million (28 th) – Labor force: 28. 5 million – % of 65+: 14. 9% (most rapidly growing) • • • Total fertility rate: 0. 977 (1 st) (lowest) Life expectancy: 82. 7 (11 th) College enrollment rate: 94% (gross) (5 th) Elderly poverty rate: 49. 6% (OECD 1 st) Suicide rate: 17. 7 (100, 000) (10 th, OECD 1 st)

0 -10 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972

0 -10 1961 1962 1963 1964 1965 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 GDP Growth Rate (real) 15 10 5 -5 KOR JPN PRC

Achieving economic success & democratic transition • Transformation of Korean economy: Industrialization and Globalization

Achieving economic success & democratic transition • Transformation of Korean economy: Industrialization and Globalization - Total trading volume : 10% of GDP (1950 s) to 90%(2000 s) - OECD member(1996), FTA with many countries. - Economic development open the way to political democratization

Change of Industry Structure 1950 Manufacturing 2000 Service Primary Manufacturing Service Primary 3% 17%

Change of Industry Structure 1950 Manufacturing 2000 Service Primary Manufacturing Service Primary 3% 17% 41% 37% 42% 60%

Issues too • Government–led growth strategy produced many problems – Serious misallocation or resources,

Issues too • Government–led growth strategy produced many problems – Serious misallocation or resources, and concentration of economic power (Chaebol). – No sound worker-management relationship established until mid-1980 s.

Financial Crisis of 1997 • Worked as catalyst in addressing many of these problems

Financial Crisis of 1997 • Worked as catalyst in addressing many of these problems – Strengthened prudential regulation and competition policy – Restructuring of Chaebol and banking sector – External liberalization (capital market) • Modern economic system came into operation

Growth potential of the Korean economy weakened in 2000 s • Economic growth began

Growth potential of the Korean economy weakened in 2000 s • Economic growth began to slow in the 1990 s with the decelerating growth of the working age population. • Steady decline in domestic market share. • Income distribution also started to deteriorate in the early 1990 s, with the expansion of the knowledge-based economy and globalization. • Productivity gaps are widening between sectors and access to quality jobs is becoming more difficult.

Ø A decrease in GDP growth rate Ø A steady decline in the domestic

Ø A decrease in GDP growth rate Ø A steady decline in the domestic market share

Socio-Economic Issues

Socio-Economic Issues

Some Questions from Korea’s Development Experience • What are the main characteristics that distinguished

Some Questions from Korea’s Development Experience • What are the main characteristics that distinguished Korea from other developing countries? • What are the commonalities and disparities between Korea and other East Asian countries that achieved similar economic success? • Were distorted resource allocation, the HCI drive, and oppressive labor market policies inevitable choices for Korea? • How Korea’s economic development is related to its socio-economic phenomenon?

Initial Conditions • Korea was war-torn and divided, and was one of the poorest

Initial Conditions • Korea was war-torn and divided, and was one of the poorest country with per capita GNP of $89 in 1961 – 101 st out of 125 countries – “Korea’s prospect for development is anything but bright!” (World Bank report) – “No hope for democratization” (The Times) • Capital and technology shortage • Abundant labor

President Park Chung Hee (1962 -79) • Prosperity and independence by pursuit of a

President Park Chung Hee (1962 -79) • Prosperity and independence by pursuit of a economic growth strategy • Export-led industrialization strategy • Market economy, but strong government intervention - led a military coup in 1961 - launched the first Five-Year Economic Development Plan in 1962 - became president in 1963 - imposed martial law in 1972 - assassinated in 1979 by the head of KCIA

5 Year Economic Development Plans • State-led Planning (1962 -76); 1 st, 2 nd,

5 Year Economic Development Plans • State-led Planning (1962 -76); 1 st, 2 nd, and 3 rd Five-year Economic Development Plans – Suitable for an under-developed, small-sized economy with a relatively simple structure – Focused on setting up sectoral investment plans and mobilizing and allocating domestic and external resources to support the implementation of the plans – Supplemented by annual Economic Management Plans

5 Year Economic Development Plans • Indicative Planning (1977 -91); 4 th, 5 th,

5 Year Economic Development Plans • Indicative Planning (1977 -91); 4 th, 5 th, and 6 th • To cope with the growing size and sophistication of the economy – Giving a greater role to private initiatives – Reflecting a growing concern on equity issues – Medium-term Fiscal Plan introduced in the early 1980 s to bridge the gap between EDPs and annual budgeting • Not published to the public • Not tightly linked to annual budgeting

5 Year Economic Development Plans • Strategic Planning (1992 -96); 7 th Five-year Economic

5 Year Economic Development Plans • Strategic Planning (1992 -96); 7 th Five-year Economic and Social Development Plan – Addressing strategic issues to be tackled through a concerted effort by the government and the private sector – Replaced by the Five-year Plan for New Economy in 1993 • Setting out various reform agenda -- fiscal, financial, and regulatory reforms, accelerated external liberalization, improved social equity • “Planning” effectively abandoned

Economic Planning Board (1961 -94) – “Super ministry” in charge of both planning and

Economic Planning Board (1961 -94) – “Super ministry” in charge of both planning and budgeting – Preparing Five-year EDPs and annual EMPs – Coordinating economic polices • Head of EPB holding the post of Deputy Prime Minister and chairing Economic Ministerial Meetings – Allocating domestic and external resources for economic development

Economic Take-Off < Working Mechanism of Outward-looking Development Strategy > Economic Growth Foreign Capital

Economic Take-Off < Working Mechanism of Outward-looking Development Strategy > Economic Growth Foreign Capital Inducement (Economic Aids External Debt) tio uc n od r ep R Manufacturing Processing Capital Good Imports Export Promotion Private Enterprises Raw Material Imports Financial Tax Support Foreign Technology Imports Technology Development Well-educated Labor force Government 20

Major Tools - Export targets set by the government. - Financial support for exporters

Major Tools - Export targets set by the government. - Financial support for exporters at preferential rates. - Tax concessions - Allowance for retaining foreign exchange earnings. - Exempted from import controls and tariffs. - Fiscal policy in favor of key industrial firms. - A sliding-peg system of exchange rate adjustment. - Awards from the president !

Outward Looking Development • Policy shift from “Import Substitution” to “Export Promotion” in the

Outward Looking Development • Policy shift from “Import Substitution” to “Export Promotion” in the early 1960 s – Export-promotion policy focused on labor-intensive industries in view of abundant and well educated labor force – Key steps: Implementation of foreign exchange policy (1964) and export incentive system such as export financing

International Coordination with Japan and United States • Relations with Japan were normalized in

International Coordination with Japan and United States • Relations with Japan were normalized in 1965 despite fierce objection from Korean Citizens. • Dispatched Korean troops to the Vietnam War during 1965 -1973 to support the US forces.

Japanese Reparations Fund • 300 mil $: for free (Japanese grants), 200 mil $:

Japanese Reparations Fund • 300 mil $: for free (Japanese grants), 200 mil $: governmental loans (maturity: 20 years with 7 -year grace period, interest rate: 3. 5%) • Use of the funds: construction of POSCO (Grant: 30. 8 mil $, Loans: 88 mil $), Gyeongbu [Seoul-Busan] Express Way (6. 9 mil $), and Soyang River Dam, etc. • Burma, Philippines, Indonesia, Vietnam also received reparations from Japan.

Normalization of relations with Japan on June 3 rd, 1964

Normalization of relations with Japan on June 3 rd, 1964

Continued Development • Export-driven policy focused on promoting heavy and chemical industries (HCIs) in

Continued Development • Export-driven policy focused on promoting heavy and chemical industries (HCIs) in the 1970 s

Economic Take-Off with Export-led Growth Strategy 【 Top 10 export items of Korea (%)

Economic Take-Off with Export-led Growth Strategy 【 Top 10 export items of Korea (%) 】 1970 Rank Item 1980 Shar e Item 1990 Shar e Item 2000 Shar e Item Shar e 15. 1 Semiconduct or 12. 8 7. 0 Computer 8. 5 Automobile 9. 5 5. 2 Footwear 6. 6 Automobile 7. 7 Wireless telecom 8. 3 5. 9 Vessel 3. 6 Video Apparatus 5. 6 Petrochemic al products 5. 3 Vessel 8. 2 Electronic goods 3. 5 Audio Apparatus 3. 4 Vessel 4. 9 Petrochemic al products 4. 2 6 Confectione ry Man made 2. 3 filament fabrics 3. 2 Computer 3. 9 Wireless telecom Steel Plate 4. 6 rolled Products 3. 9 7 Footwears 2. 1 Rubber Products 2. 9 Audio Apparatus 3. 8 Synthetic Resin 2. 9 Computer 3. 9 8 Tobaccos & 1. 6 Woods Wood items Steel Plate 2. 8 rolled Products Steel Plate 3. 8 rolled Products penal 2. 8 Flat display 3. 9 9 Iron products 1. 5 Video Apparatus Man made 2. 6 filament fabrics 3. 6 Garments 2. 7 Synthetic Resin 3. 4 1. 5 Semiconduct or 2. 5 Automobile 3. 0 Video Apparatus of 2. 1 Parts Automobile 3. 3 1 Textiles 40. 8 Garments 2 Plywood Steel Plate 11. 0 rolled Products 5. 4 Semiconduct or 3 Wigs 10. 8 Footwear 4 Iron ores 5 Metal Source : products KOTIS 10 16. 0 Garments 11. 7 Semiconduct or 2006

Economic Take-Off with Export-led Growth Strategy 【 Top 10 export markets for Korea (%)

Economic Take-Off with Export-led Growth Strategy 【 Top 10 export markets for Korea (%) 】 1970 Rank 1 2 3 4 5 6 7 8 9 10 Country U. S. Japan Hong. Kong Germany Canada Netherlands U. K. Vietnam Singapore Sweden Source : KOTIS Total 1980 % 47. 3 28. 1 3. 3 2. 3 1. 6 1. 5 1. 3 0. 9 91. 4 Country U. S. Japan Saudi. Arabia Germany Hong Kong Iran U. K. Indonesia Netherlands Canada 1990 % 26. 3 17. 4 5. 0 4. 7 3. 5 3. 3 2. 1 2. 0 71. 6 Country U. S. Japan Hong. Kong Germany Singapore U. K. Canada Taiwan France Indonesia 2000 % 29. 8 19. 4 5. 8 4. 4 2. 8 2. 7 1. 9 1. 7 72. 9 Country U. S. Japan China Hong. Kong Taiwan Singapore U. K. Germany Malaysia Indonesia 2006 % 21. 8 11. 9 10. 7 6. 2 4. 7 3. 3 3. 1 3. 0 2. 0 68. 8 Country China U. S. Japan Hong Kong Taiwan Germany Singapore Mexico U. K. India % 21. 3 13. 3 8. 2 5. 8 4. 0 3. 1 2. 9 1. 7 64. 0

15 Educating Manpower • It was during the Korean War that compulsory primary education

15 Educating Manpower • It was during the Korean War that compulsory primary education was declared in the Korean constitution. • Why so strong education fever in Korea? There also was strong demand for education, motivated by the unusual homogeneity of Korean society. 1) The dissolution of traditional hierarchical social status system through the Japanese colonial occupation and the land reform after the liberation from the Japanese occupation 2) Easy social mobility has made education as a unique important means of individual advancement (Rags to riches) 3) Very high return to education investment 4) Rapid decline in fertiluty

Education (cont’d) • Promoting engineers and skilled workers – In the area of mechanical

Education (cont’d) • Promoting engineers and skilled workers – In the area of mechanical engineering, a total of 11 technical high-schools were established in each province – Korea excelled in International Vocational Training Competition (the Vocational Olympics), wining 9 times in a row during 1977 -1991.

Education (cont’d) • Composition of Engineer : technician : simple unskilled worker (graduate from

Education (cont’d) • Composition of Engineer : technician : simple unskilled worker (graduate from elementary school) as of 1969 * Korea 1 : 2 : 15 * US 1 : 25 : 5 • Korean government, with a top priority, promoted technical high school education (practical techinic). * Target: producing 50, 000 technicians every year nationwide

What is the role of government in South Korea’s economic growth? • Conventional explanations:

What is the role of government in South Korea’s economic growth? • Conventional explanations: – Culture (How about N. Korea? ) – Geography – Institutions – Policy – Leadership – Human capital

Alternative explanation, Convergence from an unusual starting point • Perhaps irreproducible initial conditions (see

Alternative explanation, Convergence from an unusual starting point • Perhaps irreproducible initial conditions (see handout) • So poor, but very high level of human capital which is unusual endowment • Land reform

Differences with Japan • • Colonial experience: Colonizer vs. Colony Industry vs. Agriculture as

Differences with Japan • • Colonial experience: Colonizer vs. Colony Industry vs. Agriculture as of 1945 Existence of external threat Authorization regime vs. democracy Explicit vs. implicit government interventions Five year economic planning Reliance on foreign capital

Similarities with Japan • • • High emphasis on education and low fertility Gender

Similarities with Japan • • • High emphasis on education and low fertility Gender role Labor market Openness toward foreign market Chaebol vs. Keiretsu – Ownership – Economic and political roles – Government influence – Moral hazard

Similarities with Taiwan • • • Neighboring a communist nation Relationship with U. S.

Similarities with Taiwan • • • Neighboring a communist nation Relationship with U. S. Complex relationship with Japan and China High growth and export Industrialization China is the largest trading partner

Differences with Taiwan • • More dependency in lending for Korea More government roles

Differences with Taiwan • • More dependency in lending for Korea More government roles in Korea Chaebol Much less reliance on foreign capital for Taiwan (much more domestic financing). More FDI for Korea • More active labor unions in Korea

Chaebol – A conglomerate of many companies – Family-based – Centralized control and management

Chaebol – A conglomerate of many companies – Family-based – Centralized control and management – Lack of monitor or sanction by shareholders – Companies hold shares in each other – Concentration of national economy – Spreads across industries—octopus companies (even unrelated business) – Some of them went global after 1987 (in part due to labor dispute) – gained global brand

Korea Trade Commission Definition (conglomerates) • Commonly use term “conglomerate” based on assets (above

Korea Trade Commission Definition (conglomerates) • Commonly use term “conglomerate” based on assets (above 10 trillion won). • Restriction on cross or circular investment

Number of affiliated companies for top 10 (600 companies in 2017) Samsung Hyundai Motors

Number of affiliated companies for top 10 (600 companies in 2017) Samsung Hyundai Motors SK LG Lotte Posco GS Hanwha Hyundai Heavy Industries Hanjin 2007 59 36 57 31 44 23 48 34 2012 81 56 94 63 79 70 73 53 2016 59 51 86 67 93 45 69 57 2017 62 53 96 68 90 38 69 61 7 25 24 45 26 38 26 34

How big?

How big?

Family Owned (e. g. Hyundai)

Family Owned (e. g. Hyundai)

Cross Shareholding Structure (e. g. Samsung, 2012)

Cross Shareholding Structure (e. g. Samsung, 2012)

Origin of Chaebol • Heyday of chaebol growth – mid-1960 s to mid-1980 s

Origin of Chaebol • Heyday of chaebol growth – mid-1960 s to mid-1980 s • Park’s economic policy – – – – hands on to EPB/MOF/MCI promotion of export-oriented industries promotion of heavy industry suppression of labor movements protection of domestic market allocation of resources to chaebol copied from both Japan (heavy emphasis fro politics) and USA (bureaucrats) – day to day contact with businessmen

Chaebol and banks • Park nationalized all the Korean banks • Reinforced the system

Chaebol and banks • Park nationalized all the Korean banks • Reinforced the system of chaebol – a few specially selected large companies – encouraged to tailor their growth and production targets to meet government objectives – dependent on those state-owned banks for the credit they needed to operate and grow

Outcome of cross shareholding • The more efficient, the faster the groups grew –

Outcome of cross shareholding • The more efficient, the faster the groups grew – Concentration of economic power of a few leading groups like Samsung, Hyundai etc. has been accelerated • The chaebol founders practiced whole-hearted devotion for the growth of the groups with support of the government • The diversification and concentration of chaebol were thus, at its initial stage, aided and abetted by the government

Why denounced? The social anti-chaebol feeling runs deep (or the way Korea has developed)

Why denounced? The social anti-chaebol feeling runs deep (or the way Korea has developed) • Domestic debates have been mostly focused on the negative aspects of chaebols: – – – excessive concentration (too big to fail) tax evasion, real estate speculation the collusion between government and chaebols the lack of transparency as ethical background unfairness of owner-managers’ running the group affiliates with small stakes (the large number of minority shareholders do not have any effective means to monitor and discipline the arbitrary and dogmatic management). – imbalance of growth between chaebol and SMEs

Why denounced (cont’d) • Unlawful internal trading (inter-affiliate deals with favors) • Excessive diversified

Why denounced (cont’d) • Unlawful internal trading (inter-affiliate deals with favors) • Excessive diversified management • Lack of transparency (infringing the interests of minor share holders) • People believe that too little of chaebols’ growth is trickling down to the public and SMEs • Lack of rule of law in favor of chaebol (acquittal with money, guilty with no money) • Encroaching into SME’s territories (bakeries etc. )

Some criticism may be far-fetched • Some of the charges against the chaebol are

Some criticism may be far-fetched • Some of the charges against the chaebol are true but some of them are far-fetched • At the fledgling stage of Korean growth, government favors helped them grow fast, but now it is the consumers who make the chaebol strong • Too-big-to-fail and collusive ties between business and government were by-products of government-guided development model and served as one of the major causes of economic crisis in late 1990 s • But the economic reforms and increased foreign investments during and after crisis redressed them

Concentration, Innovation, diversification and Chaebol • Classical theory blames monopoly (oilgopoly) on the ground

Concentration, Innovation, diversification and Chaebol • Classical theory blames monopoly (oilgopoly) on the ground that monopolized producers neglect the technological innovation because they can control the prices • Aggregate concentration does not necessarily lead to the increase of market concentration • Domestic market shares of chaebols are often oligopolistic and highly concentrated but, in global markets, they become only one of the many suppliers • Only gigantic firms can afford the huge amount of R&D investments for some innovation—need more Chaebol! • 80 -90% of profits of Samsung Electronics and Hyundai Motors, who represent champions of monopoly in Korea, come from global markets • Diversifications itself may not harm healthy management. To some extent, diversification was an effective response to the rapidly growing businesses

Powerful ownership and decision making • Big difference between Japanese big business and Korean

Powerful ownership and decision making • Big difference between Japanese big business and Korean chaebol: Any plan that doesn’t ensure the obvious profit is not likely to be endorsed by ruling council in Japan; even risky investment decisions evident of lowering profit have been made in Korean chaebol with powerful owner-managers • Bold decisions based on long-term perspective are made promptly: Samsung’s success is an exemplary • The chairman Lee Keun-hee’s philosophy is “Serve consumers with quality” and encourages the top managers not to worry about the losses, assuring them if any losses made because of the efforts to improve quality that would be covered by his private funds (100 thousand Galaxy S 3 model were unloaded from the plane bounded for a foreign market)

Cross share holding is a key debate issue • Despite all these merits of

Cross share holding is a key debate issue • Despite all these merits of chaebol, people believe the concentration of a few largest chaebols is excessive • The managerial machine that accelerate the concentration is the cross-share-holding: it has been a hot button of the chaebol controversy • Banning cross-holding may lead a loose control of a owner-manager • Slackening the control of group may face a possibility of it being taken over by rivals or corporate raiders • The cross-share-holding were banned for 62 chaebols as of April 1, 2013

Current Issue: Dwindling tickle-down-effect • After economic crisis of 1997 -98, Korean firms underwent

Current Issue: Dwindling tickle-down-effect • After economic crisis of 1997 -98, Korean firms underwent extensive restructuring and have become competitive considerably • Became competitive through being more efficient, and enlarging global outsourcing and automation, employing less domestic workers • Trickle-down-effect has been dwindled, since employment is the major channel of the trickling-effect • The turnout of Samsung Electronics doubled in the years of 2005 -2011, but the employment increased only 25%

Gap between chaebol and SME (sentiments) • The outcries that chaebols are clobbering SMEs

Gap between chaebol and SME (sentiments) • The outcries that chaebols are clobbering SMEs and reducing them to bare bones – it is true, but only to some extent, because not every chaebol is that bad • Depriving of SME’s trailblazing achievements and high -handedness of chaebol employees against SME • The children of some chaebols opened shops like bakeries at downtown Seoul, and that fueled antichaebol climate and enraged the public • People believe it is nothing more than time-killing hobbies for chaebol families, but it is a matter of life or death to the mom-and-pop store owners

Restructure the financial sector after 1997 • Troubled banks – bankrupt – sold to

Restructure the financial sector after 1997 • Troubled banks – bankrupt – sold to foreign banks – merged • Financial Supervisory Board – power to replace top managers of banks – regulating banking, securities and insurance – Regulating listed companies in the securities market – Staffs are not government officials => Remuneration, recruitment, and training differ from those for the government officials.

Chaebol reforms • Improve chaebol finance – reduce debt-capital ratio – sale of assets

Chaebol reforms • Improve chaebol finance – reduce debt-capital ratio – sale of assets – foreign investors – prohibit cross-investment – prohibit internal trading – consolidated financial statements

Chaebol reforms (Cont’d) • Transform governance structure • Weaken the centralized control and management

Chaebol reforms (Cont’d) • Transform governance structure • Weaken the centralized control and management in chaebol – owner became formal CEO • full legal responsibilities – outside board members – legal right for minority shareholders • Restrict unrelated diversification

Socio-Economics Issues Revisited (Structural? Unique? )

Socio-Economics Issues Revisited (Structural? Unique? )

Some Questions from Korea’s Development Experience: What do you think? • What are the

Some Questions from Korea’s Development Experience: What do you think? • What are the main characteristics that distinguished Korea from other developing countries? • What are the commonalities and disparities between Korea and other East Asian countries that achieved similar economic success? • Were distorted resource allocation, the HCI drive, and oppressive labor market policies inevitable choices for Korea? • How Korea’s economic development is related to its socio-economic phenomenon?

Thank you.

Thank you.

Outbreak of 1997 Financial Crisis IMF Bail Out & Sharp Depreciation of e Absence

Outbreak of 1997 Financial Crisis IMF Bail Out & Sharp Depreciation of e Absence of International Crisis Management System Korean Gov. 's Effort to Defend Exchange Rate Failed Failure to Roll over Short. Term Foreign Debts (kind of Bank run) Losing International Credibility Financial Sector *Mounting Bad Loans Corporate Sector *Losing Competitiveness *Excessive Investment (I>S) *Poor Corporate Governance System External Sector *Current Account Deficits Financed by Foreign Borrowing (carry trade? ) *Unprepared Financial Market Liberalization

Crisis Recovery § Corporate and financial sector restructured - Guidelines - Big deals §

Crisis Recovery § Corporate and financial sector restructured - Guidelines - Big deals § Three party agreement between labor, manager, and government - Social safety net was set up § Export led recovery -> current account surplus - Deregulation, administrative reform, privatization § Exchange rate stabilized § Consumer loans and HH debt increased

Recovery: General Review Domestic Economy Support by Government Budget Financial Sector Restructuring Corporate Sector

Recovery: General Review Domestic Economy Support by Government Budget Financial Sector Restructuring Corporate Sector Restructuring • M&A or Liquidation (Applying BIS criteria) • Lower Debt/Equity Ratio • Liberalization • Improving Corporate Governance • Removing Bad Loans • M&A Establishment of Social Safety Net • Calm Labor Dispute • Create Jobs • Help the Unemployed Attracting Foreign Capital External Economy • FDI • Portfolio Investment • Increase Foreign Exchange Reserve • Decrease Foreign Debt Current Account Surplus Recovery of Korean Economy