1. ‘THE HISTORICAL DEVELOPMENT OF
THE ECONOMY’
Presented by: Lisberth
Ifediora
Patrice
Susan

2. 1. Stages of growth for South Korea
2. The 1997 Asia financial crisis and the 2008
US recession compared. Where South Korea
stood and measures taken by the
government.
3. Types of industries in South Korea
4. The investment climate

3.  Located on the southern half of the Korean
peninsula.
 A nation in 1948, after the division of Korea by USSR
and US.
 Has seen several changes in economy areas and its
growth has never stopped since 1950s.
 Today it is listed as N11 in the world among others
like Bangladesh, Vietnam, Nigeria, Mexico, Pakistan
etc.
Euromonitor.com,2010; Asiarooms.com, 2010

4. nationencyclopedia.com, 2010
1950s
Agro-based
1960s-1980s
Export led
Light-heavy
industries)
1990s
High-tech
based
2000s
Services-based
To-date
K-Based

5. Add value to agricultural raw materials through
their processing into marketable, edible products,
while enhancing the income and profitability of the
producers.
 Provided employment
 Food
Eventually pressure for arable land led to its
scarcity.
 Only served the domestic market until 1960s when
the government encouraged massive industrialization
unescap.org,2003

6. South Korea chose an export led
industrialization strategy.
Light consumer and labor intensive products
were produced in 1960s hence being
competitive and exportable in markets like North
America and Western Europe. Example, fabric
and clothes
Later, in 1980s light industries were
supplemented by heavy industries with
assembly-line production of electronic
products like TV sets, auto-mobile, ships, steel.
(cbo.gov,1997; sjsu.edu)

7. A sharp decrease in exports and foreign
orders drove the downturn of the economy
in 1989.
Resulted in increased inventories and severe
cutbacks in production at electronics,
automobile, and textile manufacturers.
1990s, a significant shift in future production
towards high tech industries.
countrystudies.us,2005

8. Panels of government officials, scholars,
business leaders held sessions on
production in R&D intensive industries.
Reasons:
 Innovation, hence gaining market share, creation of
new product markets and using resources
productively.
 High value added production and success in foreign
markets thus higher compensation to workers.
Companies like Samsung, Hyundai, Lucky Gold
star, Daewoo, Kyo spent a lot on their R&D from
the total amount of capital investments.
nsf.gov, 1998

9. Service industry, another targeted
industry by the government and
business leaders in 2000s.
Includes restaurants, hotels, laundries,
insurance, public bath houses,
health related services and
entertainment business.
To meet the demands of a highly diversified
industrialized society it became knowledge
intensive.

10. Using knowledge as a key engine of growth, knowledge
is acquired, created, disseminated, and used to
enhance economic development.
 KE Framework
• A conducive economic incentive and institutional regime.
• An educated and skilled labor force.
• An effective innovation system.
• A modern and adequate information infrastructure.
The government of South Korea through the Ministry of
Knowledge Economy (MKE)- is taking steps to equip the
nation with a cutting edge R&D, advanced information skills
and value added goods & services.

12. With its epicenter in Thailand, erupted suddenly and
viciously after the revelation that many countries in the
region had built unsustainably large piles of short-term
external debt.
International banks played a key role in this debt buildup by
recklessly lending huge sums of money to domestic banks in
Thailand, South Korea, Malaysia, the Philippines and
Indonesia.
This reckless lending was supported by the world's largest
central banks, which compressed investment risk with overly
loose monetary policies.
Asia financial times,2008

13. South Korea’s economy entered crisis, owing largely to structural
problems in its financial and corporate sectors;
 Korean banks were dependent on foreign borrowing
 Korean stock market was underdeveloped, in 1996 its stock market capitalization
was 25% of GDP while Japans was 67%
 Majority of the chabeols were dependent on loans from banks for sustenance and
operations
Capital inflows that helped finance Koreas growth were reversed as
foreign investors reeling from losses in other South East Asian
economies, decided to reduce their exposure to Korea.
Weak regulatory and supervisory arrangements, lack of expertise in risk
management, allowed banks to incur in excessive risk without
building a capital base to withstand shock, a substantial share of South
Korean banks were in financial straits
IMF, 1999

14. The crisis was aided by a speculative attack on the
won in a context of very low foreign exchange
reserve, its foreign exchange rate was in turmoil and
depreciated.
Eight of the top 30 chaebol were insolvent in 1997. Hanbo,
Jinro, a brewery, and Kia, an auto maker became bankrupt
Kia was resurrected by its acquisition by Hyundai and
continues to operate.
South Korea after three decades of growth at an average
rate of 8.6% per year on November 21st, 1997
asked the IMF for $20 billion to handle its short-term
financial needs.
Asia financial times, 2008

15. Intervention in the foreign exchange market.
Monetary policy tightened to stem capital outflows, discourage speculation and curb
inflationary pressures that could stem originate in exchange rate depreciation.
The exchange rate allowed to float freely. Reached a peak of won1,962 per dollar.
After measures were put in place like agreement with foreign creditors, it appreciated
steadily stabilizing around won1200per dollar though it was still high compared to
won800 before the crisis.
Statutory ceiling on interest rates was raised from25% to 40% and call rates reached
32% as of December 1997.
Real interest rates peaked at about 19% in January 1998, and subsequently declined
gradually to below pre-crisis level( about 8% in 1996-1997)
IMF, 1999

16. IMF, 1999

17. Restructuring the economy via corporate and financial reforms.
Prudential regulation via the creation of the Financial Supervisory
Commission to check a weak system of corporate governance, a
dysfunctional financial system.
Surge of foreign direct investment (FDI) in 1998-99, due to foreign firms
buying out their South Korean joint venture partners.
The government injected 155 trillion won into banks and other financial
institutions, while shutting down 498 non-viable financial institutions,
reducing the number of commercial banks from 33 to 11
Asia financial times, 2009

18. The crisis has its roots in real estate and
the subprime lending crisis.
Around the world stock markets fell, large
financial institutions collapsed or were
bought out, and governments in even the
wealthiest nations had to come up with
rescue packages to bail out their financial
systems.

19.  Stock markets and currency dropped more than 30
percent as foreign investors fled in droves
 Banks became stressed, not being able to source
foreign loans
 Slowdown on South Korea's exports and a trade
deficit
 FDI turned negative for the first time since 1980

20.  Loans from the government, which has pumped
tens of billions into banks to prop up the Korean
banking system
 The crunch has begun to ease slightly with some
European banks like Deutsche Bank once again
lending dollars to South Korean banks
 In the third quarter of 2009, the economy began to
recover, in large part due to export growth, low
interest rates, and an expansionary fiscal policy

21.  South Korea has been eyeing the robotics
industry as a future growth engine.
 The government is now putting more
emphasis on developing service robots that
help clean homes and provide entertainment.
 South Korea will spend about US$1.05 billion
to build two robot theme parks. They will be
the world's first robot theme parks by the end
of 2013 in Incheon, a port city west of Seoul

22.  Globally, South Korea is one of the leading
nations in utilizing rubber products.
 Amazingly, over 2,000 rubber industries are
in full fledge operations with production
volume creeping around 5 billion dollars,
which is, equivalent to 1% of the entire
production of the domestic manufacturers.
 Moreover, the Korean rubber industry is
frontiers in tires manufacturing, shoes, and
other rubber products

23.  South Korea relies on external sources
for much of its mineral requirements.
 The country imports as much as 87% of
its minerals and a significant percentage
of its energy resources, including almost
the entire demand for bituminous coal,
ores and concentrates of copper, iron,
lead and zinc.
 However, the country does host small
reserves of gold, molybdenum, silver, tin,
tungsten and zinc.

24.  The global shipbuilding industry is currently dominated by south
Korea , which is by far the world's largest shipbuilding nation.
 In spite of high labor cost , South Korea produced more ships in
2008 than the entire rest of the world's combined output.
 Its preeminence in the industry is largely due to South Korea's
highly advanced shipbuilding technology, the strong work ethic of
the labor force and the high productivity and efficiency of South
Korean shipyards.

25.  Investment climate:
S. Korea has been criticized for imposing a series
of regulations on foreign firms and having
investment procedures that lack transparency due
to dramatic growth without a solid economic
policy.
 South Korea's dependence on un-transparent
chaebols came to a head in the Asian financial
crisis of 1998, when South Korea suffered severe
economic dislocations.

26.  The government of South Korea moved quickly to
crush the largest chaebols, increase transparency,
and move the economy closer to a classically open
Western model.
 David Eldon, a British financial expert and advisor to
South Korean President Lee Myung-Bak, urged Seoul
to work out open and fair rules to lure more foreign
investors.
"In the case of Korea, foreign investors prefer places
where they can do business openly and transparently,"
France-Presse,2009

27.  Korea's economy has long been dominated by the
chaebol, or conglomerates, most of which were
established after the Korean war. Four of the best
known chaebols Hyundai, Samsung, Daewoo and
LG3 (Lucky Goldstar) alone produced 9% of the
GDP in 1995.
 Although government reforms since 1997 have
weakened the chaebol's grip on the economy, they
continue to dominate economic activity even
today.

28.  The chaebol are the large, conglomerate family-
controlled firms of South Korea characterized by
strong ties with government agencies. The name,
which means business association, is properly
pronounced jay BOL.
 Examples :Samsung, Daewoo, Ssangyong, Luck
Gold star, SK, Hyundai, LG, Hanjin, Kia,
Kumho,Donglip, Hankook Glass

29.  There were family-owned enterprises in Korea in
the period before 1961 but the particular state-
corporate alliance came into being with the regime
of Park Chung Hee (1961-1979). Park modeled
this arrangement on the zaibatsu system which
developed in Japan during the Meiji Era. There
were significant differences between the zaibatsu
and the chaebol, the most significant of which was
the source of capital.

30.  The statistics on foreign investment shows that
post-financial crisis high of $15 bil. in 2000, foreign
investment fell to $6.5 bil. in 2003. Although it
rebounded to $13 bil. the following year, it has
recently fallen back to $10 bil
Korea National Statistics office, 2008

31.  According to MOCIE,FDI inflows fell for a third
straight year in 2007, down by 6.5% from2006.
Although FDI from the U.S. increased, FDI from
Japan and the European Union decreased.
 South Korea has now been searching for ways to
attract a wider range of investment.
 The government has created three free economic
zones (FEZs) in Incheon, Busan and Gwangyang.

32.  Exports(2008)$433 billion f.o.b.: electronic products
(semiconductors, cellular phones and equipment,
computers), automobiles, machinery and equipment, steel,
ships, petrochemicals.
 Imports-- $427 billion f.o.b.: crude oil, food, machinery and
transportation equipment, chemicals and chemical
products, base metals and articles.
 Major markets (2008)--China (21.7%), U.S. (11.0%),
Japan (6.7%), Hong Kong (4.7%). Major suppliers (2008)--
China (17.7%), Japan (14.0%), U.S. (8.8%), Saudi Arabia
(7.8%), U.A.E. (4.4%).

33.  http://www.mongabay.com/history/south_korea/south_kore
a-service_industries.html
 http://www.asiarooms.com/travel-guide/south-korea/south-
korea-overview/history-of-south-korea.html
 http://en.wikipedia.org/wiki/South_Korea#High-
tech_industries
 http://www.nationsencyclopedia.com/economies/Asia-and-
the-Pacific/Korea-South-COUNTRY-HISTORY-AND-
ECONOMIC-DEVELOPMENT.html
 http://www.mke.go.kr/language/eng/
 http://www.sjsu.edu/faculty/watkins/chaebol.htm
 http://www.countryreports.org/South%20Korea.aspx
 http://www.atimes.com/atimes/Korea/HF28Dg03.html