1. Economic Study of South Korea
-Group 5
Sreedhar G.
Mayank Tripathi
Poonam Khaitan
Shivam Mehrotra
Shaurya Vikram Singh

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. US- South Korea Ties
Graphs
Findings
[Contents contd.]

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. 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. 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. United States' sixth-largest trading partner and is the 12th-
largest economy in the world

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. 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. Destruction Ratios:
Textile Industry 70%
Chemical Industry 70%
Agricultural Machinery Industry 40%
Rubber Industry 10%
Power Plants 80%
Overall Industry Destroyed 51%

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. 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. 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. 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

16. 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%

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. 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

24. 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

25. 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

26. 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

27. 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.

28. 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

29. 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

30. 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

31. 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

32. 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

33. 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

34. 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

35. 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.

36. Graphs

45. Phillip Curve for South Korea

46. Won and USD Exchange Rate

47. 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).