kei koreaseconomy 02 pyohak-kil

7/30/2019 Kei Koreaseconomy 02 Pyohak-kil

1/6

OVERVIEW AND MACROECONOMIC ISSUES - 7

THE POLITICAL ECONOMY OF SOUTH KOREA UNDERTHE NEW INTERNATIONAL ORDER

By Pyo Hak-kil

AbstractThe political economy in South Korea changed immensely through a series of internal and external events in 2011 and 2012.$W WKH VDPH WLPH DFWXDO HFRQRPLF SHUIRUPDQFH ZDV GLVDSSRLQWLQJ DQG IDU OHVV WKDQ Whad envisioned. The economic picture also worsened for households and businesses as households saw consumer prices rise by4 percent, while businesses faced increasingly higher prices for oil. At the same time, household debt surpassed 900 trillion won and all of the indicators of income inequality worsened. The National Assembly elections saw both political parties push for increased welfare spending. However, the proposals put forward by both parties may not be feasible due to constraints on theJRYHUQPHQWV WRWDO EXGJHW :LWK WKH JOREDO HFRQRPLF FRQGLWLRQ FRQWLQXHG VFDO WURXEgrowth in China, Korea also faces reduced expectations for economic growth in the year ahead.


2/6

8 - KOREAS ECONOMY 2012

IntroductionIn 2011, the landscape of the political economy in SouthKorea changed immensely through a series of internal andH[WHUQDO HYHQWV 7KH HDUWKTXDNH DQG LWV DIWHUPDWK LQ -DSDQDQG WKH VFDO FULVLV LQ (XURSH ZHUH WZR H[WHUQDO HYHQWVwhile the new political syndrome after the election of a new

progressive mayor in Seoul and the sudden death of Kim

-RQJ LO ZHUH WZR UHPDUNDEOH HYHQWV ZLWKLQ WKH .RUHDQ SHQ-insula. In early 2012, U.S.-North Korea bilateral talks wereLQLWLDWHG E\ 3UHVLGHQW 2EDPD DQG 1RUWK .RUHDV QHZ OHDGHU.LP -RQJ XQ ZLWK DQ DFFRUG PDGH RQ )HEUXDU\ WR OLPLW

North Koreas nuclear activities. But on April 14, less thansix weeks after the accord was signed, the new North Koreanregime launched a long-range missile equipped with a satellitewithout regard for a U.N. resolution and paying no heed tothe United States and even to its biggest patron, China.

The timing of the missile launch was deliberately chosento inaugurate Kim Il Sungs 100th birthday on April 15;

WR FHOHEUDWH WKH DSSRLQWPHQW RI .LP -RQJ XQ DV WKH )LUVW6HFUHWDU\ RI WKH UXOLQJ :RUNHUV 3DUW\ WKH GH IDFWR OHDGHUof the regime at a special conference on April 11; and todisturb general elections in South Korea on the same day.But the missile launch failed in the early morning of April14, and there is wide-spread speculation this failure wouldincrease the likelihood of a follow-up nuclear detonation as aface-saving effort. South Korea must face the new realities of this international political order. Instability in the NorthKorea regime as demonstrated by the failed missile-launchmay signal violent confrontation ahead.

,Q 6RXWK .RUHD WKH JRYHUQLQJ 1HZ )URQWLHU 3DUW\ KDV ZRQ WKHJHQHUDO HOHFWLRQ ZLWK D QDUURZ PDUJLQ VHDWV DJDLQVW WKHRSSRVLWLRQ FRDOLWLRQ RI 'HPRFUDWLF 8QLWHG 3DUW\ VHDWVDQG 8QLWHG 3URJUHVVLYH 3DUW\ VHDWV :KHQ LQGHSHQGHQWZLQQHUV DUH LQFOXGHG WKH QXPEHU RI FRQVHUYDWLYHV VHDWVLV VOLJKWO\ ODUJHU WKDQ WKH QXPEHU RI SURJUHVVLYHV VHDWVThe opposition coalition gained many more seats in thisgeneral election than the previous one in 2008 which was held MXVW DIWHU WKH LQDXJXUDWLRQ RI 3UHVLGHQW /HH 0\XQJ EDN 7KHLee government lost popularity, particularly among younger generations and voters in the Seoul metropolitan area. Whilethe government has claimed that South Korea has escaped

IURP WKH JOREDO QDQFLDO FULVLV RI ZLWK UHODWLYHO\ better recovery than most other nations, public sentiment has been against the claim.

Macroeconomic Performance During2008-20117KH DFWXDO HFRQRPLF SHUIRUPDQFH SHUFHQW DYHUDJH JURZWKRI UHDO *'3 DQG SHUFHQW DYHUDJH JURZWK RI UHDO LQYHVWPHQWduring 2008-2011 has been disappointing and far less thanWKH FDPSDLJQ YLVLRQ RI SHUFHQW UHDO *'3 JURZWK 7KH RQO\

bright side of the economic performance was a strong export performance. The f.o.b.-based export amount increased at theaverage annual rate of 11.7 percent while the c.i.f.-based importamount increased by 12.8 percent. It was largely due to thedepreciation of won from 938.2 won per dollar at the end of 1997 to 1,257 won per dollar at the end of 2008 after theJOREDO QDQFLDO FULVLV DQG WRwon per dollar at theHQG RI 7KH 2(&' (FRQRPLF 6XUYH\V1 state

that the sharp depreciation of the won helped to trigger .RUHDV UHERXQG E\ VLJQLFDQWO\ LPSURYLQJ LWVcompetitiveness, and thus raising Korea from the worlds12th largest exporter in 2008 to ninth in 2009. In summary,WKH DYHUDJH *'3 JURZWK UDWH RI SHUFHQW GXyears of the Lee government was maintained by export

performance through the depreciation of won against thedollar and yen. But the extra export earnings were not fullychanneled to the non-exporting sectors and therefore, the growthRI *1, DIWHU EHLQJ DGMXVWHG E\ XQIDYRUDEOHeffects through increased oil prices remained stagnant. Oneof the reasons is the concentration of high export performancein a few IT-related products. During the period of 2000-2009, higher IT-intensity manufactures real exports haveLQFUHDVHG DW WKH DQQXDO UDWH RI SHIT-intensity manufactures real exports increased at theannual rate of 4.09 percent. During the same period, theDQQXDO JURZWK UDWHV RI UHDO *'3 LQ WZR VHFWRUand 3.78 percent respectively, which implies that export-outputratio was much larger in higher IT-intensity sectors than inlower IT-intensity sectors.

$FFRUGLQJ WR 1DWLRQDO $FFRXQWV SUHOLPLQMarch 30, 2012 by the Bank of Korea, 2011 was a disappointingyear for both businesses and households. The per capita Gross 1DWLRQDO ,QFRPH *1, LQ ZDV HVWLPDWHG Wwhich is only a 1.5 percent increase due to the worseningWHUPV RI WUDGH E\ LQFUHDVHG RLO SULFHV DQG &reduced semiconductor prices. The net savings rate by house-holds continued to decline from 4.1 percent in 2009 to 3.9 SHUFHQW LQ DQG SHUFHQW LQ *Uformation declined by 1.1 percent from 2010 with constructionLQYHVWPHQW SHUFHQW DQG HTXLSPHQW SHUFHQW ZKLFK UHFRUGHG D GUDVWLF GHFOLQ SHUFHQW 7KH JURZWK UDWH RI UHDO *'3 LQZLWK PDQXIDFWXULQJ SHUFHQW FRQVWUXFWDQG VHUYLFHV SHUFHQW

:KLOH WKH &RQVXPHU 3ULFH ,QGH[ &3, LQFUH SHUFHQW ODVW \HDU WKH SULFH RI DJULFXOWXULQFUHDVHG E\ SHUFHQW $V D FRQVHTXHQFRHIFLHQW ZKLFK PHDVXUHV WKH SURSRUWLRQexpenditure on food and non-alcoholic beverages in totalhousehold expenditure, increased from 13.8 percent in 2010WR SHUFHQW LQ DFFRUGLQJ WR WKH 12IFH RI .RUHD 7KH (QJHO FRHIFLHQW RI WKH


3/6


WKH ORZHVW SHUFHQW LQFRPH JURXS LQFUHDVHG IURP percent to 23.5 percent which is a record high and ten SHUFHQWDJH SRLQWV DERYH WKH DYHUDJH (QJHO FRHIFLHQW IRU WKHentire household.

Household Debt Overhang and Growthwith Inequality The Bank of Korea announced that total household debt hadsurpassed 900 trillion won by the end of 2011, which reached EH\RQG SHUFHQW RI QRPLQDO *'3 DQG SHUFHQW RI WRWDOwages and salaries. The switch of commercial loans from theindebted corporate sector to the mortgage-backed householdsector by both the primary and secondary banking sectorsDIWHU WKH QDQFLDO FULVLV RI KDV EHHQ WKH PDLQcause of the households debt overhang. Fueled by the lowinterest rate policy by the government, the real estate markethad a boom and a bust during the last decade. The governmentintroduced a set of regulations on real estate loans in order toFXUE KRXVLQJ LQDWLRQ DQG PDQ\ KRXVHKROGV DUH VTXHH]HG

by inactive real estate transactions and mortgage-backedKRXVHKROG ORDQV $FFRUGLQJ WR D UHSRUW E\ WKH 6HRXO 3ROLF\Development Institute, the household debt of Seoul residentsis estimated at about 204 trillion won DQG DERXW SHUFHQW RISeoul households are currently indebted. The ratio of householdGHEW ZDV ORZHU SHUFHQW ZKHQ DQQXDO KRXVHKROG LQFRPHZDV DERYH PLOOLRQwon, compared to household income of 20-30 million won SHUFHQW

$FFRUGLQJ WR WKH 1DWLRQDO 6WDWLVWLFDO 2IFHV UHSRUW RQ +RXVH-KROG ([SHQGLWXUH 6XUYH\ LQ DOO RI WKH LQGLFDWRUV RIincome inequality have worsened. The relative poverty ratio,ZKLFK LV GHQHG DV WKH UDWLR RI KRXVHKROGV LQFOXGLQJ RQH PDQhouseholds and farm households whose income is less than50 percent of the median household income, has increasedfrom 14.9 percent in 2010 to 15.2 percent in 2011. The decileGLVWULEXWLRQ UDWLR ZKLFK LV GHQHG DV WKH UDWLR RI WKH WRS

percent income to lowest 20 percent income, has increasedIURP WR ,Q WHUPV RI PDUNHW LQFRPH WKH UDWLR UHDFKHGLWV KLJKHVW OHYHO RI VLQFH WKLV VWDWLVWLF UVW ZDV FRPSOLHGLQ 7KH *LQL FRHIFLHQW KDV DOVR VOLJKWO\ GHWHULRUDWHGfrom 0.310 to 0.311. However, the report points out some mixedevidence on income inequality by non-farm households withtwo-persons and above. The monthly household income

in 2011 reached 3,842,000 won which increased by 5.8 SHUFHQW IURP %XW EHFDXVH RI D KLJK LQDWLRQ UDWH SHUFHQW WKH UHDO DYHUDJH PRQWKO\ LQFRPH RQO\ LQFUHDVHG E\1.7 percent. On the other hand, the average monthlyconsumption expenditure was 2,393,000 won, an increase of

SHUFHQW IURP EXW RQO\ E\ SHUFHQW LQ UHDO WHUPVwhich indicates very little incremental real consumption.

$ UHFHQW VWXG\ E\ 2(&' UHYHDOV WKDW LQFRPH LQHTXDOLW\DPRQJ HOGHUO\ FLWL]HQV DJH DQG ROGHU LQ 6RXWK .RUHD LV WKHWKLUG KLJKHVW DPRQJ PDMRU HFRQRPLHV DQG WKDW WKH FRXQWU\V

SHQVLRQ V\VWHP UHPDLQV UHODWLYHO\ LQVXIUHWLUHHV 7KH *LQL FRHIFLHQW IRU WKRVH D.RUHD LV ORZHU WKDQ 0H[LFR D EXW KLJKHU WKDQ WKH 8 6 -DSDQ*HUPDQ\ DQG WKH &]HFK 5HSXEOLFFRHIFLHQW IRU WKH DJH JURXS WR LQ .R EH ORZHU WKDQ PRVW RI FRXQWULHV &K

7XUNH\ 8 6 ,VUDHO

$XVWUDOLD DQG -DSDQWKH *LQL FRHIFLHQWV EHWZHHQ .RUHDV ZRUNLsenior citizens indicates that there is lack of post-retirement SHQVLRQ IXQG DQG WKHUHIRUH WKHUH LV D P,W UHHFWV WKDW SDUHQWV RI WKH EDE\ ERRPmuch money on their childrens education, and saved too littlemoney for their own retirement.

Welfare Expenditure Spree and Vision

7KH ZHOIDUH H[SHQGLWXUH OHYHO LQ MJRYHUQPHQW ZDV DERXW WULOOLRQwon which accounted

for 25.9 percent of total government expenditure. However,ZHOIDUH H[SHQGLWXUH LQ ZLOO LQFUHDVHwon 28.5 percent of total government expenditures. The govern-ments third Welfare Task Force forecasts a total minimum of

WULOOLRQwon WULOOLRQwon SHU \HDU ZLOO EHWR IXOOO ZHOIDUH YLVLRQV PDGH E\ ERWK WKHopposition party before the general election. Since the totalgovernment budget in 2012 is 325.4 trillion won and the wel-IDUH EXGJHW LQ LV WULOOLRQwon, the next governmentwould need about 82.4 percent of the total budget in 2012 over WKH QH[W YH \HDU SHULRG ,W DOVR LPSOLHV-ment budget and the welfare budget need to be increased

E\ SHUFHQW DQG SHUFHQW UHVSHFWthe welfare vision simply unfeasible. The Korea Institute of 3XEOLF )LQDQFHV UHSRUW RQ WKH LPSDFW RI DUHGXFWLRQ RQ SXEOLF QDQFH IRUHFDVWV WKDWZRXOG UHDFK SHUFHQW RI *'3 E\ HYHQa welfare budget increase. The only options available to theincoming government would be to increase welfare taxes or to issue government bonds but both of these options wouldundermine the economys long-term potential and increase theOLNHOLKRRG RI D HXUR ]RQH W\SH VFDO FULVLV

,Q D UHFHQW UHSRUW SXEOLVKHG E\ WKH 1DWLR,QVWLWXWH 3\R .LP DQG /HH2, we analyzed the national

pension system in Korea which was introduced in 1998 andnow has over 18 million subscribers. South Korea has becomeRQH RI WKH IDVWHVW DJLQJ QDWLRQV DPRQJ 2(& SURSRUWLRQ RI SRSXODWLRQ DJH DQG DERYH2010, but is estimated to reach 38.2 percent by 2050. During theVDPH SHULRG WKH HOGHUO\ GHSHQGHQF\ UDWLRWKH DJH DQG DERYH SRSXODWLRQ GLYLGHG

population, is estimated to increase from 15 percent to 72 per-FHQW E\ DOPRVW YH WLPHV 7KH UHYLVHG 1D


4/6


of 2007 stipulates a target to reduce the income substitutionratio by half a percentage point from 50 percent in 2008 to reach40 percent by 2028. We have recommended three policy optionsWR PDNH WKH QDWLRQDO SHQVLRQ SODQ VHOI VXVWDLQDEOH UHGXFHLQFRPH VXEVWLWXWLRQ UDWLR HYHQ DIWHU LQFUHDVH WKHQDWLRQDO SHQVLRQ WD[ UDWH DQG WKH JRYHUQPHQW VXEVLG\6LQFH RWKHU VRFLDO VDIHW\ QHW SURJUDPV DUH VWURQJFKLOGFDUHHGXFDWLRQ DQG SRYHUW\ UHGXFWLRQQRQH RI WKHVH WKUHH RS-

tions seems politically feasible. However, the only way of ensuring feasible welfare programs in a fast aging society isto increase welfare-related taxes or reduce the coverage and EHQHWV RI GLYHUVH ZHOIDUH PHDVXUHV $QRWKHU FRQVLGHUDWLRQin many discussions is the contingency welfare plan whenXQLFDWLRQ ZLWK 1RUWK .RUHD RFFXUV (YHQ WKRXJK WKH FXUUHQWZHOIDUH VWDQGDUG ZHOIDUH H[SHQGLWXUH *'3 UDWLR RI 6RXWK.RUHD LV UHODWLYHO\ ORZ DPRQJ 2(&' QDWLRQV WKH VSHHGof aging in South Korea and the potential burden of the con-WLQJHQW XQLFDWLRQ UHTXLUH PRUH SUXGHQW ZHOIDUH SROLFLHV LQthe times ahead. Marcus Noland stated that standard models of WKH FRVWV RI XQLFDWLRQ VXJJHVW WKDW WKH DPRXQW RI LQYHVW-ment needed to raise North Korean per capita incomes to

SHUFHQW RI WKH 6RXWK .RUHDQ OHYHO DUH LQ H[FHVV RI WULOOLRQor roughly equal to South Koreas annual national income. 3 5HJDUGOHVV RI WKH HVWLPDWHV QR GRXEW WKH FRVW RI UHXQLFDWLRQwill be huge, and South Korea will be unable to absorb theeconomic cost itself. 4

Saving Rates and Motives in Korea

I have examined the motives of household savings from theGDWD RI .RUHD /DERU ,QFRPH 3DQHO 6WXG\ ./,36LQ D UHFHQW SDSHU 3\R5 I have found that retirement,

education and medical concerns due to illness, are the mostVLJQLFDQW PRWLYHV IRU VDYLQJV WKURXJKRXW DOO DJH JURXSV 6HH

7DEOH DQG )LJXUH 7KH FRQFHUQ IRU LOOQHsavings motivation for medical expenses are the largest for WKRVH LQ WKHLU V DQG V DQG UHHFWV D SSaving for education was strong during the 30s and 40s. Onthe other hand, the savings motivation for retirement came onVWURQJ UDWKHU ODWH DJH DQG DERYH IRU KR

This survey data indicates that the high burden of educationcosts fell on those in their 30s and 40s, which in turn hasPDGH WKHP OHVV SUHSDUHG IRU WKHLU RZQ UHWinvestment in education and under-investment in retirement.The high medical cost sits in the middle, inducing householdsto save little for their retirement. When I estimated returns toschooling and examined the savings rate and motives of house-holds, I found that there is a likelihood of over-investmentin education and under-investment in retirement, causing awelfare-related social issue. The estimated marginal returnsWR \HDUV RI HGXFDWLRQ XVLQJ ./,36 .RUHD /DE

3DQHO 6WXG\ GDWD LV SHUFHQW LQ KRXSHUFHQW LQ LQGLYLGXDO LQFRPH

Table 1 7KH 3URSRUWLRQ RI +RXVHKROGV 6DYLQJ IRU 6HOHFWHG 0RWLYHV E\ WKH $JH *URXS

20-24 25-29 30-34 35-39 40-44 45-49 50-54 55-59 60-64 65-69 70-74 75-

(1) Education 0.0 2.7 11.4 16.9 21.9 19.2 9.7 2.2 1.8 3.3 3.7 10.2

(2) Housing 21.4 19.2 26.5 13.4 7.8 4.4 3.3 2.5 2.3 3.3 1.2 8.2

(3) Consumer durables 0.0 0.0 0.5 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

(4) Marriage 71.4 31.5 9.0 2.5 1.0 3.9 10.8 24.3 19.8 16.0 11.1 10.2

(5) Illness 0.0 33.6 31.9 46.8 45.2 51.6 54.6 53.6 48.4 45.3 51.9 38.8

(6) Retirement 0.0 8.2 15.8 16.5 20.4 19.5 19.2 15.8 25.3 26.0 28.4 26.5

(7) Leisure 7.1 1.4 0.2 0.2 0.0 0.5 0.0 0.0 0.0 2.7 2.5 0.0

(8) Business 0.0 0.0 0.7 0.4 1.0 0.2 0.8 0.3 0.5 0.7 0.0 0.0

(9) Debt 0.0 0.7 1.2 1.9 1.3 0.5 0.5 0.3 0.5 0.0 0.0 0.0

(10) Other 0.0 2.7 2.7 1.0 1.5 0.2 1.0 0.9 1.4 2.7 1.2 6.1

Sources: KLIPS Data

Figure 1 3URSRUWLRQ RI +RXVHKROGV 6DYLQJ IRUMotives by Age Group of Household Head

80.0%

70.0%

60.0%

50.0%

40.0%

30.0%

20.0%

10.0%

0.0%

(1) Education

(2) Housing

(3) Consumer durables

(4) Marriage

(5) Illness

(6) Retirement

(7) Leisure(8) Business

(9) Debt

(10) Other 2 0

- 2 4

2 5

- 2 9

3 0

- 3 4

3 5

- 3 9

4 0

- 4 4

4 5

- 4 9

5 0

- 5 4

5 5

- 5 9

6 0

- 6 4

6 5

- 6 9

7 0

- 7 4

7 5

-

Sources: KLIPS Data


5/6


WKDQ WKH ZRUOG DYHUDJH DQG WKH $VLDQ DYHUDJH SHU -FHQW .RUHDV HVWLPDWHG UHWXUQV WR VFKRROLQJ LQ HDUOLHU VWXGLHVwere 0.09-0.14 for high school graduates. It was mainly dueto the baby boom factor, but it calls attention to the role of pri-vate versus public education. While Koreas educational attain-ment is remarkable, the resulting issue of how to support theretirees in a fast-aging society remains as a challenging issue.(VWLPDWHV RI UHWXUQV WR VFKRROLQJ LQGLFDWH WKH PDUJLQDO

returns to schooling have started to decline. There was alikelihood of over-investment in education and under-invest-ment in retirement by baby boom parents in Korea. Since there isa strong motive for savings to prepare for large medicalexpenses, the private pension system needs to be combinedwith the private medical insurance system.

Trend in Savings Rates and ItsDecompositionI have examined the overall savings rate and its trend in Koreato identify simultaneous effects of education and householdsavings. As shown in Table 2 and Figure 2, the gross savingsUDWH ZDV RQO\ SHUFHQW LQ ZLWK D SULYDWH VDYLQJVrate of 5 percent and government savings rate of 4 percent.But both gross savings rate and private savings rate increasedsharply to reach their peaks of 37.5 percent and 29.2 percentrespectively in 1990. The increase in private householdsavings rate has been instrumental to educational expansion

because the role of private education has dominated that of public education in Korea.

$FFRUGLQJ WR +RULRND -DSDQ UHDFKHG D QHW QDWLRQDOVDYLQJV UDWH RI SHUFHQW LQ UDQNLQJ WKLUG DPRQJ

2(&' FRXQWULHV DQG D QHW KRXVHKROG VDYLQJV UDWH RI SHUFHQW LQ UDQNLQJ IRXUWK DPRQJ 2(&' FRXQWULHV +HFRQFOXGHV WKDW -DSDQV VDYLQJ UDWH ZRXOG VWLOO EH KLJKHU WKDQaverage even if all measurement problems such as the treatmentof capital consumption allowances could be resolved. KoreaVHHPV WR KDYH UHDFKHG -DSDQV OHYHO GXULQJ WKH V HDUOLHUthan 1990. However, Koreas private household savings ratestarted to fall rather rapidly after 1990 and returned in 2010 to

WKH VDPH OHYHO SHUFHQW DV LW ZDV LQ E\ WKH FRUSRUDWH VDYLQJV UDWH SHUFHQreasons behind Koreas rather rapid household savings rateduring the 1980s seems to lie in the need to save for childrenseducation. On the other hand its rather rapid decline during theODWH V DQG V VHHPV WR UHHFW KLH[SHQVHV DQG HGXFDWLRQ WKURXJK WKH WZof 1997-1998 and 2007-2008.

In addition, there are two other factors which have worked MRLQWO\ WR LQFUHDVH KRXVHKROGV FRQVXPWKHLU VDYLQJV 2QH LV WKH GHYHORSPHQWwhich provided wider choices of payment methods, includingcredit cards and debit cards, so that households consumptionhas been rapidly increasing, including internet bankingtransactions. The other factor was the cumulative effectsRI PDUNHW RSHQLQJ IRU IRUHLJQ JRRGV VLQFHDQG 2(&' LQ WKH PLG V 7KH LQX[ RI IRthrough large retail chain stores have opened up consumptionopportunities of the households and their conspicuousFRQVXPSWLRQ 7KH QDQFLDO FULVHV KDYH DOVretain more savings crowding out household savings.

South Korea and the United States launched a ministerialconsultation channel on implementing their bilateral free tradeDJUHHPHQW E\ IRUPLQJ D MRLQW FRPPLWWHH R

Table 2 7UHQG LQ 6DYLQJ 5DWHV LQ .RUHD

1953 1960 1970 1980 1990 2000 2010

Gross saving rate 13.1 9.0 19.0 24.4 37.5 33.0 32.0

Private 11.1 5.0 11.9 19.1 29.2 21.4 25.2

(Individual) (8.3) (16.7) (8.6) (5.0)

(Corporations) (10.8) (12.5) (12.8) (20.2)

Government 2.0 4.0 7.1 5.2 8.3 11.6 6.8

:V\YJLZ! ;OL )HUR VM 2VYLH 5H[PVUHS (JJV\U[Z ZLSLJ[LK `LHYZ

Figure 2 7UHQG LQ 6DYLQJ 5DWHV LQ .RUHD

40

35

30

25

20

15

10

5

0

(1) Individual

(2) Corporations

(3) Government

(4) Gross saving rate

1953 1960 1970 1980 1990 2000 2010

Sources: The Bank of Korea, National Accounts, (selected years)


6/6


7KH MRLQW FRPPLWWHH LV PDQGDWHG XQGHU WKH .2586 )7$which took effect in March 2012. The ministerial mechanismis tasked with supervising the operations of 19 subcommitteesand working groups aimed at the smooth implementation of the accord, including solving disputes over interpretationsof the terms. South Koreas opposition parties claim thisinvestment safeguard mechanism undermines South Koreaslegal independence by allowing U.S. companies to take action

against Seouls policy decisions. They demand Seoul addressthe concern by altering relevant clauses that they argue un-IDLUO\ IDYRU $PHULFDQ UPV ZLWK ORQJ H[SHULHQFH LQ OHJDO

battles against a foreign government. On the investor-statedispute clause in the KORUS FTA, Korean Trade Minister Bark Taeho said it will be handled in the service and invest-ment committee. In early May, South Korea announced thestart of FTA talks with China. At a trilateral summit meeting in%HLMLQJ WKH OHDGHUV RI 6RXWK .RUHD &KLQD DQG -DSDQ DJUHHGto launch negotiations on a three-way FTA this year.

Prospect for Sustainable Growth(FRQRPLF IRUHFDVWV IRU WKH .RUHDQ HFRQRP\ LQ E\ JOREDOLQYHVWPHQW EDQNV -3 0RUJDQ 'HXWVFKH %DQN DQG 1RPXUDKDYH EHHQ DGMXVWHG GRZQZDUG IURP WKHLU IRUHFDVWV RI UHDO*'3 JURZWK RI SHUFHQW DW WKH HQG RI WR SHUFHQW LQ 0DUFK 7KLV LV EDVHG RQ WKHLU SURMHFWLRQV RIVOXJJLVK H[SRUW GHPDQGV GXH WR WKH FRQWLQXLQJ (XURSHDQ V-cal crisis, higher oil prices and reduced Chinese economicgrowth. Citigroup forecasts Korean export growth as limitedWR SHUFHQW DQG SHUFHQW GXULQJ WKH UVW WZR TXDUWHUV RI2012, and Goldman Sachs forecasts a yearly export growth of 5 percent. The most recent forecast by the Asian Develop-

ment Bank released in April 2012 is 3.3 percent, which islower than the governments target economic growth rateof 3.7 percent. They also point out that domestic demandincluding both household consumption and corporateinvestment will be sluggish due to household debt, as wellas the uncertain investment environment in 2012 with

both the assembly general election in April and the presidentialelection in December.

The public has been disappointed by the failed vision bythe Lee Government and the net consequence of veryminimal increase in their real earnings. It has created roomfor increasing welfare demands and a progressive agendaIRU ELJ FRQJORPHUDWHChaebol UHIRUPV 7KH UHVXOW RI WKHJHQHUDO HOHFWLRQ RQ $SULO ZLOO LQXHQFH WKH SUHVLGHQWLDOelection in December 2012 and many experts are predicting avery tight presidential race. In addition, if North Korea attemptsanother nuclear detonation or military adventure, it will alsoaffect the presidential election in South Korea. In this respect,the political economy of South Korea will inevitably dependon the prospect of the new international political order in

Northeast Asia.

1 OECD, OECD Economic Surveys: Korea 2010 2(&' 3XEOLVKLQJ

2 3\R .LP DQG /HH 7KH ,PSDFWV RI &KDQJHV LQ (FRQRPLF (QYLURQPHQWV3HQVLRQ 6\VWHP 8VLQJ 6RFLDO $FFRXQWLQJ 0DWULFHV 1DWLRQDO 3HQVL,QVWLWXWH 3URMHFW 5HSRUW

3 0DUFXV 1RODQG D FRPPHQWDU\ 6HOI QDQFLQJ XQLFDWLRQ RU IRROV

.RUHD :LWQHVV WR 7UDQVIRUPDWLRQ 7KH 3HWHUVRQ ,QVWLWXWH IRULFV 5HWULHYHG 0D\ KWWS ZZZ SLLH FRP EORJV QN "S4 &RJKODQ 'DYLG3URVSHFWV IURP .RUHDQ 8QLFDWLRQ7KH 6WUDWHJLF 6WXGLHV ,QVWLW

3\R +DN NLO Estimates of Returns to Schooling and Retirement Motives of PrivateSavings in Korea 'LVFXVVLRQ 3DSHU IRU &HQWHU IRU (FRQRPLF ,QVWLWXWL RI (FRQRPLF 5HVHDUFK +LWRWVXEDVKL 8QLYHUVLW\ IRUWKFRPLQJ

6 +RULRND &KDUOHV

kei koreaseconomy 02 pyohak-kil

Documents