Kim South Korea

Challenging Globalisation and the Post-Crisis Reforms
1. Auflage 2008
ISBN: 978-1-78063-251-3
Verlag: Elsevier Science & Techn.
Format: EPUB
Kopierschutz: 6 - ePub Watermark

E-Book, Englisch, 300 Seiten

Reihe: Chandos Asian Studies Series

South Korea: Challenging globalisation and the post-crisis reforms examines the major economic issues flowing from the Korean financial crisis of 1997 and covers such issues as industrial relations, macroeconomic sectors, the role of administrations, and corporates' globalisation process by over-expanded foreign direct investment. The chapters contained in this book are written by a wide variety of contributors, including a former government technocrat, president's advisory board member, plus leading Korean economy specialists. - Includes empirical surveys from the leading academics in Korea - Exclusively research methodology on each topic - First attempt to explain limited but historically important period economic policy

Autoren/Hrsg.

Kim, Young-Chan

Kim, Doo-Jin

Kim, Young

Leseproben

Chapter 1

INTRODUCTION: KOREAN ECONOMY IN THE GLOBALISATION ERA: THE KIM YOUNG-SAM PERIOD

Yoon-Dae Euh

Publisher Summary

This chapter provides an overview of the Korean economy in the globalization era. Globalization has spread across the globe buoyed by institutional changes ranging from the lowering of international trade barriers and the advent of a Multilateral Trade System (MTS) to the abolishment of capital flow controls, and by the development of information and communications technology. Globalization has led to sharp growth in global trades, expansion of capital flow among countries, and integration of financial markets. In particular, globalization was powered by the Uruguay Round Agreements in 1993 and the World Trade Organization (WTO) system introduced in 1995. Under the new trading order, trade liberalization extended to intellectual rights areas such as patents, software, undisclosed information, capital and labor as well as products. The advanced and the developing countries have undergone liberalization of finance and economy, and market opening. The globalization of the economy is one of Korea’s greatest challenges in the 21st century. The globalization of attitudes and mindsets should precede institutional reform. It is needless to say that comprehensive, thorough preparation is the number one priority in globalization.

KOREAN ECONOMY IN THE GLOBALISATION ERA: THE KIM YOUNG-SAM PERIOD (FEB. 1993 ˜ FEB. 1998)

Globalization has spread across the globe buoyed by institutional changes ranging from the lowering of international trade barriers and the advent of a multilateral trade system (MTS) to the abolishment of capital flow controls, and by the development of information and communications technology. Globalization has led to sharp growth in global trades, expansion of capital flow among countries, and integration of financial markets. In particular, globalization was powered by the Uruguay Round Agreements in 1993 and the WTO system introduced in 1995. Under the new trading order, trade liberalization even extended to intellectual rights areas such as patents, software, undisclosed information, capital and labor as well as products. Both advanced and developing countries have undergone liberalization of finance and economy, and market opening. Thus, global trade accounted for 20.5 percent of the international GDP as of February 1998 when former Korean President Kim Young-Sam stepped down from office. The figure contrasts with 18.5 percent posted in the 1980s.

Fund-raising in the global financial market came to US$ 1.77 trillion in 1997, a four-fold increase over US$430 billion recorded in 1990. This rapid growth represents a rate 1.6 times faster than the global trade growth and 1.4 times the growth of global recurring GDP. As such, the global-fund-raising-to-world-GDP ratio rose to 6.2 percent in 1997 from 2.1 percent in 1990. The mounting capital transactions in the global market resulted in the increase in foreign exchange transactions. The daily foreign-exchange volume climbed to over double from US$ 900 billion, standing at an average of US$2 trillion.

The ongoing globalization boosted interdependency among nations and paved the way for the global economy to become a unified single market. Underpinning this is the IT revolution, which created the global-wide communications network with low costs and high efficiency that transcended geographical trade barriers. In such an environment, enterprises became able to do businesses in different countries according to specific product lines, utilizing a global network designed to reduce costs and boost efficiency.

Korea cannot claim to be an exception in the globalization process, but the country was taken up by globalization more rapidly than any other developing country in terms of product trade and capital transactions in 1990s, when the President Kim Young-Sam was in the office. The trade volume expanded at a fast pace, and capital markets opened their doors to foreign investors; furthermore, Korean companies and financial firms began to use global financial markets with more frequency and assertion.

Even so, the globalization index of Korean companies remained low in terms of overseas asset size, sales revenue, and number of employees. In addition, Korea scored the lowest in competitiveness out of the NIEs due mainly to poor globalization in institutions, a reclusive financial environment, and inefficient administration, according to a report on the competitiveness of countries by the International Institute for Management Development (IMD) and World Economic Forum.1

In 1994, the Korean government reshuffled the institutions to cope with the new global economic order. With the WTO in full operation and Korea’s imminent entry into the Organization for Economic Co-operation and Development (OECD), the Korean government created the “Segyewha (globalization) Planning Committee”. According to a report released by the Committee in December 1994, Korea didn’t even have one company ranking within the world’s top 100, despite the fact that it was the world’s 12th largest trading country and boasted the 15th largest GDP. Furthermore, Korea produced just 1.5 percent of total manufacturing abroad out of its total manufacturing production. The comparable figures were 25 percent in the US, 6 percent in Japan, and 17 percent in Germany.2

The Korean government came up with a bold plan to push Korea’s ranking up to the world’s top 5 - 10 in GDP by 2005, record US$860 billion in exports, and lift overseas production to 15 percent of total manufacturing production. In particular, the plan targeted 36 percent overseas production in the automobile industry and 58 percent in the electronics industry. At the time, the automobile and electronics industries produced 2.4 percent and 8.7 percent, respectively, in overseas production out of total production.

In tandem with the government-driven globalization, there was globalization hype in the large business groups. The Samsung Group produced a strategic plan for global business in 1995, under which English was the universal language within the group and employees and management were regularly dispatched to overseas offices. The Daewoo Group was overly ambitious and aggressive in expansion: It reinforced overseas investments, and increased the number of overseas subsidiaries by 122 in 1995. With a new company name to give a gloss to its globalization drives, Sunkyoung was renamed as SK to eliminate the image of “Sunk” in its original name. The Korea Expulsive Group became Hanwha, while Lucky Goldstar became LG.

In order to facilitate entrance into the rich countries’ club, the Korean government stated, in the procedure of OECD entry negotiations, that it would accept any global standards if they were beneficial to the Korean economy. This was qualified with the condition that global standards would be adopted within the limits of assuring stable development of the Korean economy. Despite the caution on paper, ill-prepared globalization contributed to leading Korea down into a currency crisis in 1997 (Amsden and Euh 1998).

In exchange for membership in the OECD, the government agreed to loosen almost all controls on domestic and international financial institutions. Foreign banks no longer barred from buying and selling large amounts of foreign currency, the won. Korea made another mistake by failing to monitor domestic banks as they ventured farther afield. Merchant banks, which can engage in most financial transactions, lent recklessly. They borrowed from international institutions, then made loans to risky ventures such as finance companies in Southeast Asia. When many of these companies went bust in early 1997, Korea’s merchant banks were stuck with bad loans totaling US$3 billion. Since Korean banks remained exposed to a risk of mismatch from borrowing short-term loans in order to lend long-term, they were hard hit by the credit squeeze. In particular, merchant banks became the first victims of the currency crisis as they were most vulnerable to the international finance mechanism. And then the banks followed suit, failing to disburse short-term debts.

The government’s loosened restrictions on manufacturing companies also did damage. Companies were free to take out loans from foreign banks and many overindulged. They borrowed a lot of money but failed to use it for sensible long-term investments. Defaults became common, particularly once the won had weakened. These bad loans helped create a crisis for Korea’s entire commercial banking system. Not only were companies unable to pay back their foreign loans, they also could not pay back their loans to Korea’s commercial banks.

The Financial Supervisory Commission pointed out in an internal document that improvident market opening and liberalization policies both triggered the currency crisis in 1997. Commercial banks sought external extension under the banner of globalization, and merchant banks flocked to borrow foreign currency for harebrained loans. Negligent supervision, cronyism, and reckless business authorization wreaked havoc on the Korean financial system. The situation was aggravated as large business groups, riding on the globalization trend, pursued department store-like business, where expansion lacked coherency that led to a wide variety of sprawling, unrelated affiliates.

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