A WOUNDED ASIAN TIGER
December 4, 1997
With the recent currency crisis and instability in the Asian markets, the South Korean economy has fallen on hard times and just this week accepted a bail-out from the International Monetary Fund. Following a background report, Elizabeth Farnsworth explores the cause for the crisis, the recovery plan and what the future may hold for the country with four experts.
ELIZABETH FARNSWORTH: South Korea's double digit economic growth of the 70's and 80's was known as the Miracle on the Han River, because much of the boom took place along that river in and near Seoul. It's the same river that refugees fled across in the early days of the Korean War as invading North Korean troops pushed South. The war left the capital city and the economy of South Korea in ruins, but rebuilding began as soon as fighting ended in 1953.
A RealAudio version of this segment is available.
December 4, 1997:
A discussion of the bail-out plan for South Korea.
November 26, 1997:
What did the APEC summit accomplish?
November 25, 1997:
Asia's leaders search for answers at the APEC meeting in Vancouver.
November 24, 1997:
The APEC shows a grim economic forecast for Asia.
October 28, 1997:
The instability of Asian stocks causes worldwide fluctuations.
October 23, 1997:
The Hong Kong stock market drops 10 percent.
February 11, 1997:
U.S. Ambassador James T. Laney discusses the labor strikes and rallies in South Korea.
November 25, 1996:
APEC agrees to eliminate tariffs on computers and telecommunications equipment.
November 21, 1996
A panel of experts discuss President Clinton's Asia-Pacific Tour.
December 28, 1995:
A report on the arrest of two former South Korean presidents and the bribery charges against the country's top business leaders.
Browse the NewsHour's coverage of Asia.
The Web site for the South Korean embassy in Washington, D.C.
International Monetary Fund
The Miracle on the Han River.
The economy picked up steam in the 1960's, and then took off. By 1994 South Korea, with 43 million people, was the world's largest producer of home appliances, the second largest producer of semi-conductor chips, and the second largest ship builder, more semi-conductors by last year, Korea was the 11th largest economy in the world, as large as Thailand, Indonesia and Malaysia combined. Kim Hyung Won is a former ambassador to the U.S..
KIM KYUNG WON: Personally, looking back upon my own life, I feel as if I have lived through several centuries. Korean society went from the 18th century to the 21st century in a matter of three decades. Just, we jumped through history at a dizzying pace.
The economic slow-down.
ELIZABETH FARNSWORTH: The dizzying pace slowed at the end of the 80's. Economic growth dropped from ten percent or more a year to around 6 percent as Korea struggled to adapt to the rise of other Asian economies with lower labor and other costs. By the mid 90's--in the Southern Korean City of Pusan, only four Nike factories remained of the 16 that had in earlier years produced 2 million pairs of shoes per month. Nike, like many companies, has moved on to Vietnam and other low-wage Asian countries.
Other problems began to emerge from the close relationship among the government, banks and conglomerates known as "chaebol." These are the huge companies like, Daewoo, Hyundai, and Samsung that dominate Korea. Partly because of their clout, the government has been unwilling to open up the economy to much foreign competition. A visitor to Seoul sees almost no foreign cars, for example.
This year Korea's problems multiplied. Several conglomerates went bankrupt, leading to ballooning bad loans at the nation's banks, which then tightened credit, causing more failures. Seven chaebol have now sought protection from creditors. The situation was exacerbated by the currency slides and bank and business failures in southeast Asia--which had been a major market for Korean goods. At the Asia-Pacific Economic Cooperation Summit late last month, Korea's foreign minister explained his view of the crisis.
YOO CHUNG-HA, Foreign Minister, South Korea: I would like to emphasize that the current foreign exchange instability has been triggered by the cases of some insolvencies of large companies. I have emphasized within the APEC meeting that there is an essential health of the Korean economy. Now we have been taken, more or less, by surprise by the speculative winds, and we believe this is because of some contagion effect that's very much psychological.
The bail-out plan.
ELIZABETH FARNSWORTH: In the past two and a half weeks, Korea's currency, the won, has lost nearly 30 percent of its value and the stock market has fallen to half its value two years ago and is now at its lowest level in more than 10 years. Two weeks ago President Kim Young Sam and other leaders said they would not seek help from the International Monetary Fund, which had just given large loans to Thailand and Indonesia. But last week, the government began negotiations with the fund, and yesterday a $57 billion agreement--the largest IMF loan package ever--was announced jointly by the IMF and the Korean Finance Minister.
LIM CHANG-YUEL: (speaking through interpreter) Today's agreement will open a new door for the South Korean economy to enter into a new era.
MICHEL CAMDESSUS, Managing Director, IMF: I am confident that this program will also contribute to the needed return of stability and growth in the region.
ELIZABETH FARNSWORTH: The loan deal, which must still be approved by the IMF board, reportedly includes $21 billion from the IMF; $10 billion from the World Bank; $4 billion from the Asian Development Bank; and, if necessary, $22 billion more from other countries, including the United States.
In return, Korea apparently agreed to target next year's economic growth rate at 3 percent, down from 6 percent this year; to raise interest rates, and to rein in the large conglomerates. Korea's finance minister promised to "make their management transparent and refrain from excessive borrowing." Yesterday, the Korean government also ordered nine merchant banks to suspend operations, giving them until March 1st to restructure their finances. Finance Minister Lim Chang Yuel told the Korean people he was sorry.
LIM CHANG-YUEL: (speaking through interpreter) I apologize on behalf of the staff of the finance ministry to the people. The conglomerates have declared bankruptcies due to the debts they acquired. And the financial sector has become inefficient and also heavily in debt. The currency crisis in the Southeast Asian countries led to our own foreign currency crisis. We did not respond wisely. I apologize for having to take the bailout package from the IMF.
ELIZABETH FARNSWORTH: The bailout package comes just two weeks before presidential elections in South Korea, the third since the end of military rule a decade ago.