Economical overview
Through extensive industrialization, high
savings, large investments and export-based growth,
South Korea has developed into one of the world's
leading economies. But in recent years, the economy has
lost momentum, partly due to reduced domestic
consumption.
Few countries have made such a leap from widespread
poverty to fully developed industry as quickly as South
Korea. As early as 1996, the country was able to join
the developed countries' cooperative organization
OECD, and South Korea is considered by the IMF
as one of the world's "advanced economies".
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During this development, private enterprise has been
directed by five-year plans in South Korea's mixed
economy. Among other things, through tightly controlled
loan policies, companies have been driven towards the
overall goal of increasing export production, with
industry as the fastest growing industry. The huge
industrial associations, chaebol, have served as the
engine of the economy, but the lack of competition has
hindered business renewal and concentrated the loan
capital to business groups such as Hyundai, Samsung and
LG (see Industry).
At the end of the 1990s, four decades of high growth
were broken. In 1997, South Korea was hit by the Asian
financial and currency crisis and entered the most
severe economic crisis in the country's post-war
history.
Repeated bankruptcies burdened the banks, the need
for loans increased and interest rates rose, while
foreign investment was withdrawn, home consumption fell
and the currency, won, collapsed in value. South Korea
was on the brink of bankruptcy when, during the
Christmas holiday of 1997, the country was forced to
accept the terms of the largest loan and aid package
paid by the IMF to date: $ 58.4 billion. Not only
the IMF contributed to the loan, but also a
number of countries, including Sweden. The counterclaims
were, among other things, reduced budget deficits,
lowered inflation, liberalization of the economy and
less power and greater transparency in the giant
companies. In the wake of the tightening, bankruptcies
for small businesses and mass redundancies from the big
companies followed, a hitherto unknown phenomenon in
South Korea. In 1998, GDP fell by about 6 percent
and unemployment reached a record high of 8 percent.
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Abbreviationfinder.org: Check this abbreviation website to find three letter ISO codes for all countries in the world, including SKR which represents the country of South Korea.
In 1999, there was a real recovery in the economy,
with increased demand abroad and at home, and growth of
over 10 percent. In 2001, South Korea was able to repay
the IMF loan.
There were also long-term problems behind the acute
causes of the crisis. South Korea had lagged behind in
switching to high-tech production, and rapid wage
increases in the 1990s had moved competitiveness to
low-wage countries such as China and some of the states
of Southeast Asia.
A significant problem was the close and often corrupt
links between government, banks and large corporations (chaebol).
Large loans went to companies that were market-driven.
The regulations for the companies were bureaucratic and
foreign investors were discouraged. President Kim Dae-Jung's
(1998–2003) attempts to reform the large business
complexes and make them less dependent on loans found
little success. The opposition in business and political
opposition was strong. Even during President Park
Geun-Hye (2013–2016), attempts were made to break the
dominance of large business groups through various forms
of support to small businesses without leading to any
profound change. At the end of the 2010s, the Liberal
administration under President Moon Jae-In has also
reformed the big corporations and the system that favors
them as one of their main goals.
Exports are an important engine of the South Korean
economy and South Korea is one of the world's largest
exporting countries. Since the financial crisis, the
country has sought to open up and further liberalize its
trade. South Korea has since the first half of the 2010
trade agreements with both the EU and the US as well as
with China.
Information and communication technology products
such as data chips, LCDs and mobiles have become
increasingly important for South Korea's exports. Trade
since the first decades of the 2000s has shown a
considerable surplus that has risen in recent decades.
The United States has long been South Korea's largest
export market, with Japan in second place. But in 2003,
China became South Korea's leading export market.
Imports from China have also grown at the same time as
South Korean corporate investment in China has increased
strongly. Despite its political disputes, South Korea,
China and Japan have been negotiating a joint free trade
agreement since 2012.
In 2001–2008, annual economic growth averaged over 4
percent. In the wake of the global financial crisis at
the end of 2008, the currency collapsed in value, and
banks and companies had problems with their foreign
loans. The state then assisted with loans in foreign
currency and provided funds for crisis companies.
However, the economy recovered relatively quickly and in
2010 it grew by over 6 percent. But in the following
years, growth of and during the second half of the 2010s
stopped at an annual average of around 3 percent.
An important reason for mediocre growth in recent
years is the low domestic consumption, which in turn is
linked to the weak development in the labor market. For
a long time, high youth unemployment has been a growing
problem. Households are also highly leveraged, which is
another factor that dampens South Koreans' willingness
to open their wallets.
At the end of the 2010s, the government tried a new
strategy, "income-generated growth", to accelerate
growth and consumption. The government introduced a
comprehensive stimulus package that included various
measures to create jobs, but also increased
contributions to maternity leave and health care for the
elderly. The measures were largely financed by tax
revenue. At the same time, the minimum wage was also
increased, while the state budget for 2018 included
investments in job creation and increased social
contributions.
The government has also tried to overcome the high
indebtedness of the South Koreans by tightening the
regulations on borrowing.
The South Korean economy's dependence on trade with
the outside world and the importance of some individual
industries, in particular the production of high-tech
products, make it sensitive to external changes such as
trade wars or reduced demand in the outside world.
READING - read more about Korea in
the UI's online magazine Foreign Affairs
magazine :
Hard tug of war on economic policy in South Korea
(2019-05-29)
FACTS - FINANCE
GDP per person
US $ 31,363 (2018)
Total GDP
US $ 1 619 424 million (2018)
GDP growth
2.7 percent (2018)
Agriculture's share of GDP
2.0 percent (2018)
Manufacturing industry's share of GDP
27.2 percent (2018)
The service sector's share of GDP
53.6 percent (2018)
Inflation
0.5 percent (2019)
Government debt's share of GDP
37.9 percent (2018)
Currency
South Korean won
Assistance per person
- US $ 1 (1999)
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