ECONOMY
The Republic of Korea's economic growth over the past several decades has been spectacular. Per capita GNP, only $100 in 1963, is over $20,000. South Korea is now the United States' seventh-largest trading partner and is the 13th-largest economy in the world.
In the early 1960s, the government of Park Chung Hee instituted sweeping economic policy changes emphasizing exports and labor-intensive light industries, leading to rapid debt-financed industrial expansion. The government carried out a currency reform, strengthened financial institutions, and introduced flexible economic planning. In the 1970s Korea began directing fiscal and financial policies toward promoting heavy and chemical industries, consumer electronics, and automobiles. Manufacturing continued to grow rapidly in the 1980s and early 1990s.
In recent years, Korea's economy moved away from the centrally planned, government-directed investment model toward a more market-oriented one. Korea bounced back from the 1997-98 Asian financial crisis with some International Monetary Fund (IMF) assistance, but based largely on extensive financial reforms that restored stability to markets. These economic reforms, pushed by President Kim Dae-jung, helped Korea return to growth, with growth rates of 10% in 1999 and 9% in 2000. The slowing global economy and falling exports slowed growth to 3.3% in 2001, prompting consumer stimulus measures that led to 7.0% growth in 2002. Consumer over-shopping 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, and 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 growth slowed to 2.2%.
Economists are concerned that 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 need for more constructive relations between management and workers, 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). President Lee Myung-bak was elected in December 2007 on a platform that promised to boost Korea's economic growth rate through deregulation, tax reform, increased FDI, labor reform, and free trade agreements (FTAs) with major markets. President Lee’s economic agenda necessarily shifted in the final months of 2008 to dealing with the global economic crisis.
North-South
Economic Ties
Two-way trade between North and South Korea, legalized in 1988, hit almost $1.82 billion in 2008, much of it related to out-processing or assembly work undertaken by South Korean firms in the Kaesong Industrial Complex (KIC). A significant portion of the total through 2007 included R.O.K. Government aid, but that assistance stopped in 2008, except for energy aid (heavy fuel oil) under the Six-Party Talks. Thus, in 2008, about 94% of the total trade consisted of commercial transactions, much of that based on processing-on-commission arrangements and the light industry operations in KIC. The R.O.K. is North Korea's second-largest trading partner, after China.
Since the June 2000 North-South summit, North and South Korea have reconnected
their east and west coast railroads and roads where they cross the DMZ and have
improved these transportation routes. North and South Korea conducted tests of
the east and west coast railroads on May 17, 2007 and began cross-border freight
service between Kaesong in the D.P.R.K. and Munsan in the R.O.K. in December
2007, but the connection remains symbolic rather than commercial. Much of the
work done in North Korea has been funded by South Korea. The west coast rail and
road are complete as far north as the KIC (just north of the DMZ), but little
work is being done north of Kaesong. On the east coast, the road is complete but
the rail line is far from operational. Since 2003, tour groups used the east
coast road to travel from South Korea to Mt. Geumgang in North Korea, where
cruise ship-based tours had been permitted since 1998. Since then, more than a
million visitors have traveled to Mt. Geumgang. The R.O.K. suspended tours to
Mt. Geumgang in July 2008, however, following the shooting death of a South
Korean tourist at the resort by a D.P.R.K. soldier. As of February 2009, 101
South Korean firms including apartment-type factories were manufacturing goods
in the KIC, employing more than 39,000 North Korean workers. Most of the goods
are sold in South Korea; a small quantity is being exported to foreign markets.
Ground was broken on the complex in June 2003, and the first products were
shipped from the KIC in December 2004. Initial plans envisioned 1,500 firms
employing 350,000 workers by 2012, but expansion has been slowed because of
tense inter-Korean relations.
GDP (purchasing power parity in 2008): $1.278 trillion.
GDP growth rate: 2004, 4.6%; 2005, 4.0%; 2006, 5.2%; 2007, 5.1%; 2008, 2.2%.
Per capita GNI (2008): $19,231.
Consumer price index: 2004, 3.6%; 2005, 2.8%; 2006, 2.2%; 2007, 2.5%; 2008, 4.7%.
Natural resources: Coal, tungsten, graphite, molybdenum, lead, hydropower potential.
Agriculture, including forestry and fisheries: Products--rice, vegetables, fruit, root crops, barley; cattle, pigs, chickens, milk, eggs, fish. Arable land--16.58% of land area.
Industry: Types--Electronics and electrical products, telecommunications, motor vehicles, shipbuilding, mining and manufacturing, petrochemicals, industrial machinery, steel.
Trade (2008): Exports-- $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%).
