2. Agenda
Asian
Miracle on Industrial Sectorial
Financial
Han River Policies Analysis
Crisis
Macro Expenditures
Monetary
Economic Fiscal Policy and
Policy
Indicators Revenues
Banking and
Foreign
Financial Currency
Policy
Structures
4. Reasons
Export fuelled economic growth
Industrialization, education boom, rise in living standards
Urbanization, modernization, 1988 Seoul Olympics
Transformed from ashes of Korean war to a trillion dollar
economy
6. Some Figures
Real GDP
1960 1989
US$30.3 billion 8.7% per year US$340.7 billion
1960
GDP per capita 1989
US$1226 US$8029
7. Growth
Outward looking strategy in 1960
Counter - poor natural resource endowment, high
savings rate, tiny domestic rate
Inflow of foreign capital was encouraged
Conservative monetary policy and tight fiscal policy
in 1980’s
8. Financial Stability
Government Intervention reduced
Liberalization of imports and foreign investment policies
High investment in public projects
Double digit inflation bought under control
First surplus in 1986, US$7.7 billion in 1987 and US$11.4 billion
in 1988
9. GDP
GDP (official
GDP (purchasing GDP - real growth exchange rate):
power parity): rate: $947 billion (2008
est.)
$1.335 trillion 2.2% (2008
(2008 est.) est.)
$1.306 trillion 5.1% (2007
Rank: 15
(2007 est.) est.)
$1.243 trillion 5.2% (2006
(2006 est.) est.)
12. Other Details
Poverty Line
• Total population below poverty line: 15%
Household income or consumption by
percentage share:
• Lowest 10%: 2.7%
• Highest 10%: 24.2%
13. High tech industries
Samsung Group
• Worlds largest conglomerate
• High Tech Electronics
Hyundai-Kia
• South-Korea: In top 5 Automakers
Display-Electronics
• Worlds largest maker of LCD, Plasma, LED, CRT
Shipbuilding
• Worlds largest Shipbuilding industry
• Hyundai and Samsung Heavy Industries
15. Asian Financial Crisis
It • a shortage of foreign exchange in
involves Asian countries
• inadequately developed financial
four sectors in the troubled Asian
economies
basic • effects of the crisis on both the
problems United States and the world
• the role, operations, and
or replenishment of funds of the
International Monetary Fund.
issues:
16. Impact on South Korea
In return for IMF emergency
loans, Korea agreed to several
conditions and reforms:
upgrading
Reducing Increasing accounting
Control
current international and
inflation
deficit reserves disclosure
standards
18. 1960-2000
• Emphasis on exporting products from Light Industries e.g.
1960’s textiles
• Export promotion measures e.g. tax deductions and export
finance schemes
• Focus shifted from LI to the build-up of high value-added HCI
1970’s sector
• Preferential policy loans, selective protection, entry regulations,
and corporate tax deductions
• Direction of industrial policy changed toward R&D in economic
development
1980’s • Export-led growth strategy was continued in sectors Semi-
conductors, automotives, shipbuilding, metal, and small-sized
aircrafts
• Promotion of IT and biotechnology and development of SMEs
1990’s • Enactment of the Special Law on Innovation of Science and
Technology in 1997
19. R&D Expenditure in Billion won
6000
5000
4000
3000
R&D Expenditure in Billion won
2000
1000
0
1980 1990 2000 2003
20. 2000’s
Exports of semi-conductors increased
• Increase was from US$4.0 billion in 1989 to US$26.5 billion in
2004 -10.4 percent of total exports
Supporting international marketing activities and
exhibitions abroad
Tax benefits to R&D activities and FDI inflows
Recent policy to develop Eco-friendly industriesby
investing $84.4 bn for next five years
22. Energy sector
Energy used in power generation consists primarily of
oil, coal, nuclear & LNG
Limited domestic energy resources
Oil supplies 50 % of South Korea’s total energy consumption
South Korea is the 5th largest net importer of oil in the world
Hydropower & other renewable energy sources make up a small
fraction
23.
24. Agriculture sector
Heavily dependent on imported agricultural commodities
Agriculture's share of GDP has steadily declined to about 3% in the
past two decades
Total imports of agricultural, fishery and forest products in 2008 totaled
$22 billion
Korea is the 5th largest market for U.S. agricultural products
In 2008, agriculture trade deficit was $17 billion
25. Tourism sector
1988 : a boom year for tourism industry
Continuation of trend in subsequent years & the 2002
FIFA World Cup
Incheon International Airport, rated the best airport
worldwide consecutively since 2005
In 2007, South Korea had 6.4 million visitors making it the
36th most visited country in the world
26. Industrial sector
Hyundai Kia Automotive Group is the world's fourth largest
automaker, after Toyota, GM and Volkswagen
After recession country’s auto sales posted a combined 2.7%
Y-O-Y increase in 2009
World's leading producer of computer memory chips &
electronic products
World's largest shipbuilder
28. GDP and Growth Rate
Definition
• The sum of the value of new, final goods produced within the domestic borders of an
economy.
Expanded 6% over the past 4 years.
Worth 929 billion dollars or 1.50% of the world economy.
Two main reasons for increased GDP growth are:
• Competitive education system.
• Highly skilled and motivated workforce.
Shift from centrally planned economy to a more market oriented one.
Major concerns
• Rapidly ageing population.
• Structural inefficiencies.
30. Inflation Rate
Definition: Well known measures:
• A general increase in prices • Consumer Price Index (CPI)
measured against a standard
level of purchasing power. • GDP Deflator
January 2010 figure Recent trend:
• 3.7 Percent. • Agriculture, livestock and fishery
products have gained strength in
recent years.
• Domestic oil prices have come
down and prices of non ferrous
metals has continued to increase.
32. Unemployment Rate
Labour force v/s non labour force:
• Labour force: The number of people employed plus the number
unemployed but seeking work.
• Non labour force: Those who are not looking for work, those who are
institutionalised and those serving in the military.
Recent trends:
• Hiring in the agriculture, forestry & fishery dropped significantly in
November 2009.
• Sluggish exports led to decreased unemployment in manufacturing
sector.
• Hiring in private sector remained weak due to downward trend in
construction sector.
• Employment in services sector soared due to Government’s job
creation policies.
35. Pre 1997 era
The average growth rate in Korea had been well
above 7% before 1997
The government had a very low external debt
But the privately owned debt for the country was
quiet significant
It worked on “high-debt, high growth model”
37. Present policies
The fiscal policy for 2010 is at 2.9% of the GDP
In order to fight recession the Korean government
has decided to Frontload 70% Of 2010 Budget In
First Half
Presently defense and social welfare constitute the
highest chunk of budget
39. Key Points
Stock prices
Pace of
and Banks’ South Korea
growth was
exchange deposit and producer Increase in
Expanded not as
rates lending price Open
the supply of expected
exhibited rates inflation hit a market
Korean won. and shows a
very remained 10-month Operations.
very slow
unstable low high.
pace.
movements.
41. Critical Questions
Two Critical Questions Still
Remains
• When will South Korea tighten
up its monetary policy?
• How Current Monetary policy will
tackle with ever rising Inflation?
43. Expenditure
Government Spend is relatively very less compared
to rest of the countries.
Mainly the expenditure is into
Infrastructure, R&D, national defence, and education.
Mainly defence which accounts for 24% of
expenditure
Now recently it was observed that focus is shifting
from defence to health care.
44. Revenue
Tax, mainly indirect taxes
Disinvestment in Electrification, banking, communication
and Manufacturing, but still remain major stockholder
Four Public Enterprises
• Government Enterprise
• Government invested Enterprise
• Government Subsidiaries
• Government Backed Enterprise
46. Central Bank
2 parts of financial system: Central bank:
• Monetary institutions: Central • Established on June 12, 1950
bank & deposit taking banks • Purpose: price stability
• Other financial institutions • Issuing banknotes and
coins, formulating and
implementing monetary and
credit policy, serving as the
bankers' bank and the
government's bank.
• Governor, the Senior Deputy
Governor, and 5 Deputy
Governors, manage
departments in the head office
and 16 domestic branches
47. Financing History : A timeline
1960s:
• Foreign credit based which decreased towards 1980s
• Generated need for domestic savings
• Nationalization of banks
1980s:
• Current account became surplus fuelling shortage of
domestic savings
• De-regulation of interest rates
• 3 new commercial banks and 13 financial institutions
48. History.. continued
Commercial banks focused on short term loans
Newer sources of funding for commercial banks
Relaxation of FOREX controls
Foreign investors: trust funds, convertible
bonds, bonds with warrants
49. Banking sector today
Banks are largely no longer handmaidens to
the chaebol
Big Four
• Kookmin Bank (KB )
• Shinhan Financial Group (SHG )
• Woori Financial Group (WF )
• Hana Bank -- 70% of the market
Foreign investments
Retail banks shrunk to 11 in number
50. Other indicators : energy
scenario
Hydropower
Oil: fifth:
and other
largest net Coal : 24 %
renewable
importer of primary
energy
oil in the energy
sources :
world
small fraction
52. All @Won
The won (원) (sign: ₩; code: KRW) is the currency of South
Korea
Subunit: 1 Won= 100jeon
Theoretical (not used)
Coins₩1, ₩5, ₩10, ₩50, ₩100, ₩500
Banknotes₩1000, ₩5000, ₩10000, ₩50000
53. First South Korean won
The won was first used between 1902 and 1910
Japanese invasion in 1910 : The won was replaced at par by the yen, made
up of the Japanese currency and banknotes of the Korean yen.
Post world war II:
• Division in Korea (North and south)
• Won replaced the yen at par
• Only bank notes were issued by the Bank of Joseon
(1946)
Central bank: Bank of Korea (1950)
54. Pegs for the first South Korean
won
Date introduced Value of U.S. dollar in won
October, 1945 15
July 15, 1947 50
October 1, 1948 450
June 14, 1949 900
May 1, 1950 1800
November 1, 1950 2500
April 1, 1951 6000
55. Hwan
First South Korean won was replaced by
the hwan on February 15, 1953
In 1959, coins were introduced in denominations of 10, 50 and 100 hwan
1 hwan = 100 won
The hwan also suffered from inflation and a series of devaluations occurred
56. Second South Korean won
The won was reintroduced on June 9, 1962
1, 5, 10, 50, 100 and 500 won notes were introduced by the Bank of Korea
Value was pegged at 125 won = 1 U.S. dollar
It became the sole legal tender on March 22, 1975 with the withdrawal of the last circulating hwan
coins.
ISO 4217 code : KRW.
Won was allowed to float on December 24, 1997 after an agreement with IMF
Won was devalued to almost half of its value, as part of the East Asian financial crisis.
On June 23, 2009, the Bank of Korea released the 50,000 Won note
57. FX Rates
Wednesday, February 03, 2010
1 KRW in KRW
American Dollar 0.00087184 1147
Australian Dollar 0.000982502 1017.81
British Pound 0.000546271 1830.59
Chinese Yuan 0.00595169 168.019
Euro 0.000623455 1603.96
Hong Kong Dollar 0.00676948 147.722
Indian Rupee 0.0400826 24.9485
Japanese Yen 0.0790105 12.6566
Swiss Franc 0.000918849 1088.32
Malaysian Ringgit 0.00296384 337.4
58. S. Korean Won to US Dollar
Currency Exchange Rate
Past Trend Present Value
S. Korean Won per One U.S. Dollar
61. South Korea in News for
FOREX
South korea’s National Pension Service(NPS)
announced that official foreign reserves stood at
record high as of January end
According to BOK, Forex amounted to $273.69
billion
Increase is attributed to operating profits on forex
reserves and redemptions at maturity by NPS of its
currency swaps with BOK
Korea is heavily dependent on imported agricultural commodities due to limited domestic agricultural capacity.Total imports of agricultural, fishery and forest products in 08 totaled $22 billion, of which $6.3 billion (or 28.5%) was from the United States. Korea is the fifth largest market for U.S. agricultural products. Key U.S. exports to Korea include corn ($2.4 billion), wheat ($660 million), hides and skins ($300 million), pork ($209 million), beef ($165 million) and soybeans ($240 million).Agriculture's share of GDP has steadily declined to about 3 percent as the amount of agricultural land and the rural population has decreased in the past two decades. This trend is expected only to accelerate in the future. People are leaving the rural areas because of a lack of jobs, income, educational opportunities, medical support and modern housing. Those involved in agriculture account for only 6 percent of the labor force and 63 percent are over the age of 60.2
South Korea's hosting the 1988 Seoul Olympics made 1988 a boom year for tourism. More than 2 million tourists spent US$3.3 billion, an increase in the number of tourists and the dollars spent, respectively, of 24.9 percent and 42.2 percent over 1987 Japanese visitors accounted for 48 percent of the total; tourists from the United States made up 14.9 percent.This trend continued in subsequent years, with 2.95 million foreign visitors arriving in 1990 and 3.8 million in 1995. After the FIFA World Cup in 2002, tourism to South Korea was much promoted throughout the world
The growth of the industrial sector was the principal stimulus to economic development.MS Oasis of the Seas, the world's largest passenger ship, was built in Finland by South Korean shipbuilding group STX Europe. South Korea is the world's largest shipbuilderSouth Korea's KTX-II is the world's fourth high-speed train to surpass the 350km/h mark.
"Won" is a cognate of the Chinese yuan and Japanese yen. All three names derive from the Chinese character 圓(원), which means "round shape." The won was subdivided into 100 jeon (Hangul: 전; Hanja: 錢; RR: jeon; MR: chŏn), which means "money"; this word is also of Chinese origin and refers to the bronze and copper coins of old.. After the Japanese invasion in 1910 and subsequent occupation, the won was replaced at par by the yen, made up of the Japanese currency and banknotes of the Korean yen.In 1945 after World War II, Korea became divided, resulting in two separate currencies, both called won, for the South and the North. Both the Southern won and the Northern won replaced the yen at par. The first South Korean won was subdivided into 100 jeon. Only banknotes were issued, initially circulating alongside banknotes of both the Japanese and Korean yen and Japanese coins.BanknotesIn 1946, the Bank of Joseon introduced 10 and 100 won notes. These were followed in 1949 by 5 and 1000 won notes. The designs were similar to those of the yen notes from the Japanese occupation period. However, there were two subtle and important differences. The new notes replaced the paulownia, the badge of the government of Japan, with the five-petalled Rose of Sharon, South Korea's national flower. The clause referring to exchangeability with the Japanese yen was also removed.A new central bank, the Bank of Korea, was established in 1950, and assumed the duties of Bank of Joseon. Notes were introduced (some dated 1949) in denominations of 5, 10 and 50 jeon, 100 and 1000 won. 500 won notes were introduced in 1952. In 1953, a series of banknotes was issued which, although it gave the denominations in English in won, were, in fact, the first issues of the hwan.
Only bank notes were issuedalongside banknotes of both the Japanese and Korean yen and Japanese coins.
The South Korean won was initially pegged to the U.S. dollar at a rate of 15 won = 1 dollar. A series of devaluations followed, the later ones in part due to the Korean war.
ISO 4217 is the international standard describing three-letter codes (also known as the currency code) to define the names of currencies established by the International Organization for Standardization (ISO). On February 27, 1980, efforts were initiated to lead to a floating exchange rate. The won was finally allowed to float on December 24, 1997 when an agreement was signed with the International Monetary Fund.[2] Shortly after, the won was devalued to almost half of its value, as part of the East Asian financial crisis.In 1982, with inflation and the increasing popularity of vending machines, 500 won coins were introduced on June 12, 1982In 1962, 10 and 50 jeon, 1, 5, 10, 50, 100 and 500 won notes were introduced by the Bank of Korea. The first issue of 1, 5, 10, 50, 100 and 500 won notes were printed in the U.K.With the economic development from the 60s the value of the 500 won notes became lower, resulting in a greater use of cashier's checks with higher fixed denominations as means of payment, as well as an increased use of counterfeited ones.[3] In 1970, the 100 won notes were replaced by coins, with the same happening to the 50 won notes in 1972.Higher denomination notes of 5000 won and 10,000 won were introduced in 1972 and 1973 respectively.
ISO 4217 is the international standard describing three-letter codes (also known as the currency code) to define the names of currencies established by the International Organization for Standardization (ISO). On February 27, 1980, efforts were initiated to lead to a floating exchange rate. The won was finally allowed to float on December 24, 1997 when an agreement was signed with the International Monetary Fund.[2] Shortly after, the won was devalued to almost half of its value, as part of the East Asian financial crisis.In 1982, with inflation and the increasing popularity of vending machines, 500 won coins were introduced on June 12, 1982In 1962, 10 and 50 jeon, 1, 5, 10, 50, 100 and 500 won notes were introduced by the Bank of Korea. The first issue of 1, 5, 10, 50, 100 and 500 won notes were printed in the U.K.With the economic development from the 60s the value of the 500 won notes became lower, resulting in a greater use of cashier's checks with higher fixed denominations as means of payment, as well as an increased use of counterfeited ones.[3] In 1970, the 100 won notes were replaced by coins, with the same happening to the 50 won notes in 1972.Higher denomination notes of 5000 won and 10,000 won were introduced in 1972 and 1973 respectively.
South Korea's reserves of major currencies last hit a record high in November but fell in December as the yen and euro weakened, reducing their value in dollar terms. The reserves are largely invested in securities and deposits, according to the central bank. A small component is a notional currency called Special Drawing Rights which are overseen by the International Monetary Fund. Gold accounts for the smallest portion. South Korea's reserves had peaked at $264.25 billion in March 2008 but declined to $200.51 billion in November. In October of that year they recorded their biggest monthly decline on record $27.4 billion as authorities dipped into the pool of cash to battle the effects of the global credit crisis. The reserves steadily rose again as the global financial system stabilized. As of the end of December 2009 the reserves remained the world's sixth largest behind those of China, Japan, Russia, Taiwan and India. The country's foreign reserves had declined for the eighth straight month in November as the foreign exchange authorities tapped their dollar holdings to bolster the sliding local currency and ease a dollar crunch.
This entry gives the dollar value for the stock of all financial assets that are available to the central monetary authority for use in meeting a country's balance of payments needs as of the end-date of the period specified. This category includes not only foreign currency and gold, but also a country's holdings of Special Drawing Rights in the International Monetary Fund, and its reserve position in the Fund.Source:CIA World Factbook
