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South Korea PowerPoint Presentation
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South Korea

South Korea

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South Korea

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  1. South Korea A Toothless Tiger Suzana Karim And Ryan Songerath

  2. Historical Perspective 1950’s • Adopt Japanese Model • Zaibatsu in Japan • Chaebol in Korea • (chay bol)

  3. The Chaebol’s • Family controlled • Market share over profits • Poor investments • High debt-to-equity ratios • 300%-400% • Corruption

  4. Fight for Reform • Chun Doo-hwan 1980 • 1987 Democratization • Market Liberalization • Pace and Sequence? • Freedom for labor union formation • Wages increase 60% from 1986 - 89 • 1993 acceleration of liberalization • Open most protected sectors by 97-98

  5. Why Overvalue Currency?

  6. Politics 96-97 • Failed to push through reforms • Lame duck President • Son involved in scandal

  7. Problems Begin • January 97 Hanbo steel Manufacturing Co. collapses • Soon after Kia and several other mid-sized Chaebol’s file for bankruptcy • August 97 won begins rapid depreciation

  8. Balance of Payments

  9. The Crisis

  10. Recovery (1998-1999) • Main Objectives: • Stabilize currency market • Stop the outflows of capital • Increase foreign reserve • Contained the downward spiral in credit market

  11. Currency Market stabilization • IMF announced a bailout package of $58.4 billion(13% of Korean GDP) (Figure 2) • Government Intervention • Temporary agreement with private creditors to maintain exposure • Voluntary rescheduling of short term debt- $24 billion of short term private debt turned into claims of one to three year maturity. • Tight Monetary Policy (Figure 1) • Reduced Consumption and investment • Reduced demand for import and surplus in current account-$50 billion

  12. Credit Market Stabilization Governments role as moderator in the financial market (Table 1) • Public funds to restructure private institutions • Two major banks were nationalized • Government has more say over their operation (because it is providing fund) • Forced banks to roll over loans to small firms • Encouraged banks to provide new loans with govt. guarantee

  13. Capital Market Stabilization • Diversified fund resource (Figure 3) • Issued commercial paper • In 1998, net commercial paper issues jumped 154 percent from the year before and outpaced the decrease in bank loans • Revived equity market • Foreign ownership of Korean equity reached 76.6 trillion won in December 1999 and increased to 87.7 trillion won by June 2000

  14. Labor Market Improvements • Some layoffs to cut costs (8.6% unemployment rate from around 2%) • Temporary workers instead of permanent workers • Wage cuts • Increased productivity and large decrease in unit labor costs of 20% (97-2000)

  15. After Recovery • Some pre-crisis problems were unresolved • Chaebols remained unprofitable • Government debt increased to 40% of GDP • Nonperforming loans were 14% of all loans • Korea retained pegged exchange rate

  16. Questions And Comments

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