Economy

Unemployment Hits Record 7.9 Pct in Dec.

The country's unemployment rate rose to record levels in December, as recent university graduates desperately searched for jobs, the National Statistical Office (NSO) said. About 1.66 million people were out of work in December, with unemployment reaching 7.9 percent, up from 7.3 in November. December's rate is the highest since July 1983, when the office began compiling labor statistics on a monthly basis. The previous monthly record was set at 7.6 percent last July. The yearly unemployment rate for 1998 was tallied at 6.8 percent, its highest level since 1966, and a stark contrast to the 2.6 percent of 1997, the NSO said.

Korean Economy to Grow 4 Pct in 1999: J.P. Morgan

J.P. Morgan, the U.S.-based investment firm, has forecast a 4 percent growth for the Korean economy this year. In a recent report on financial markets, J.P. Morgan said the Korean economy is on the road to recovery. The projected growth rate is much higher than the 2-3 percent set by the government and private institutes. The Korean government predicted a 2-percent economic growth for 1997, while the Bank of Korea estimated a 3.2-percent rise. Some private research institutes expect only a modest 1 to 2 percent growth. J.P. Morgan expects the Korean economy to expand 4 percent in 1999 in terms of gross domestic product (GDP), noteworthy in light of the estimated 5.7 percent contraction for 1998. The firm predicts the economy to grow 4.5 percent in 2000.

More Upgrades for Korea's Credit Ratings

Moody's Investors Service lifted Korea's foreign currency ceiling for long-term bonds and notes to Baa3 from Ba1 and the foreign currency ceiling for bank deposits from Caa1 to Ba2. The new ratings show that Korea has become "eligible for investment." Regarding the government's currency obligations, the U.S.-based rating agency has assigned a grade of Baa1 with a "stable outlook." The shift by Moody's came hard on the heels of up grades by international credit rating agencies Standard & Poor (S&P) and Fitch IBCA. S&P put Korea's sovereign credit rating back at the investment level in January, boosting Korea's long-term foreign currency debt rating from BB plus to BBB minus, its lowest investment-grade rating.

The U.S. agency also upgraded Korea's short-term foreign currency rating to A-3 from B, and the long-term local currency rating from BBB plus to A minus. The country's A-2 short-term local currency rating was re-affirmed.

S&P kept a positive outlook on Korea's long-term and short-term ratings, noting that "Korea's credit standing could continue to improve over a one- to three-year time period." S&P's review followed a similar move by British-based Fitch IBCA. On Jan. 19th Fitch IBCA upgraded its sovereign rating for Korea by one notch to investment grade, becoming the first major rating agency to do so. The recent wave of upgrades was not accompanied without caution. Moody's stressed that although tangible progress has been recorded over the last year, Korea's pace of financial reform should be accelerated without delay. Moody's also noted that Korea's restructuring of its large corporations is lagging behind reforms in the financial sector, and urged the government to increase market pressure for further chaebol reform. Despite favorable ratings, domestic adjustments will be long and difficult and there is some danger of "external shocks," the agency warned.

Usable FX Reserves Exceed $50 Bil.

Korea's usable foreign currency reserves have surpassed the $50 billion mark for the first time in history. The Bank of Korea (BOK) said that forex reserves hit an all-time high of $50.09 billion on Jan. 31st, up 3.25 percent from $48.51 billion at the end of last year. "The increase was due to the fact that financial institutions were active in repaying emergency foreign-exchange loans extended by the central bank at the peak of a currency crisis in late 1997," a BOK official said.

IMF Eyes Growth of 2 Pct or More

The International Monetary Fund (IMF) agreed on a growth target of 2 percent for Korea this year and pledged to minimize new demands for economic restructuring. Simultaneously, the Washington-based agency accepted a Korean request to turn quarterly policy reviews into twice-yearly ones, an indication that the Korean economy is no longer considered to be in a state of emergency. 

Korea will host the APEC (Asia-Pacific Economic Cooperation) Investment Mart at the Convention and Exhibition (COEX) Center in southern Seoul June 2-5. Approximately 1,000 potential investors from all over the world are expected to attend, as well as participants from 21 APEC member countries, according to the Ministry of Commerce, Industry and Energy (MOCIE). Held under the theme of "The New Asia-Pacific: Investors' Choice for the 21st Century," the four-day exhibition will showcase the latest developments in economic and business opportunities in Korea.

Foreign Investment to Hit $15 Bil. Next Year

Foreign direct investment is expected to reach $15 billion next year after hitting a record $8 billion this year, according to Ministry of Commerce, Industry and Energy projections. According to ministry officials, inward investment has been increasing at a rapid pace, mainly because of what is perceived as increasingly favorable conditions in the Korean market despite the economic recession. "The fact that we have received $8 billion in foreign direct investment this year is indicative of the improving environment for foreign investment," one MOCIE official said.

Foreigners Buy W222 Bil. of Land in December

Foreign individuals and companies purchased a total of 1,586,780 square meters of land worth nearly 222 billion won in December 1998, officials from the Ministry of Construction and Transportation said Jan. 7th. Foreign entities have been increasing their purchases of domestic land and property, with the December figure 3.7 times greater than the average amount purchased by foreigners in the months prior to market liberalization. The Korean government introduced sweeping deregulations to the real estate market at the end of June 1998, giving foreigners virtually the same benefits as those afforded Korean nationals.

According to statistics, 68 percent of the purchases were for industrial purposes, with 100 percent foreign-owned companies accounting for 69 percent of the sales. Interestingly, individuals and companies from Southeast Asian countries such as Singapore and Malaysia were the leading purchasers of land despite continuing financial difficulties in the region. Of the total, 66 percent of land bought is intended for the construction of private residential properties, with foreigners of Korean descent accounting for 66 percent of the transactions. Meanwhile, ministry officials said, the total amount of land and property bought up by foreigners since the market was liberalized June 26th reached 1,223 billion won as of the end of December.

France Lists Korea Among Top-Priority Markets

The French Assurance Company of External Commerce, France's national-risk appraising institute, has listed Korea among the world's top-priority markets. In an annual report, the organization's appraisal stated that Korea would be able to see its state-risk grade decrease considerably in the long term, although it currently runs higher risks than Japan, Singapore, China and India.

LG Energy Draws $210 Mil. British Investment

LG Energy, responsible for attracting foreign direct investment in the power generation field, announced Feb. 9th a $210 million equity investment from Powergen of Britain. The British firm purchased 49.9 percent of LG Energy's shares for $60 million and the remaining $160 million came in the form of a loan, according to LG officials. With the equity investment, LG Energy will be able to build a power generation facility, the first by a private company. The plant will be in commercial operation in July, 2000. LG Energy was established in 1996 with a paid-in capital of 50 billion won. Powergen, which explores gas fields, and generates and distributes electricity, is Britain's second-largest private power generation company and has 19.5 percent share of the British market.

Foreign Investment Pattern Diversifies

The pattern of foreign investment in Korea has diversified radically since the nation was put under the International Monetary Fund (IMF) financial control program. Part of the attraction of Korea is that it is a link to business opportunities in other Asian nations, while others are planning investments through mergers and acquisitions, expansion of existing investments and introduction of long-term loans. Volvo of Sweden took over the construction equipment division of Samsung Heavy Industries last year to set up a massive supply center in Korea aimed at the global market. Bowater of the United States, which took over Halla Pulp & Paper in Korea, is also looking to gain a solid foothold in the Asian market, China in particular.

The Ministry of Commerce, Industry and Energy (MOCIE) said foreign investment reached $8.852 billion last year, up 27 percent from 1997 while maintaining a six-year growth trend. Korea ranked 20th last year in attracting foreign direct investment, up from 32nd in 1997. Mergers and acquisitions (M&As) accounted for 53.1 percent of total foreign direct investment at $4.7 billion last year, accelerating the corporate restructuring of domestic enterprises and banking institutions. Fresh investment from already-invested foreign enterprises reached 41.1 percent, and investment through long-term loans also increased 17-fold last year to reach $1.08 billion. Investment in the manufacturing sector surged 144.2 percent, breathing life into the ailing industrial production area. By region, investment from the European Union increased 25.3 percent last year amid active M&A attempts by leading companies like BASF, Intercrew and Volvo. Investment from Japan, increased 89.1 percent from 1997. Investment from the United States dwindled 6.7 percent, but investments from U.S. branch firms based in tax-havens like Bermuda increased remarkably.

The government is planning to complete a second-stage restructuring of the financial sector, involving insurance, securities and mutual trust funds companies by June of this year. The Finance and Economy Ministry also hopes to abolish the so-called "special-purpose taxes," such as transportation and education taxes. These and other economic initiatives were included in the ministry's 1999 report to President Kim Dae-jung. In the report, Minister Lee Kyu-sung stated that the government will, as planned, pay 23 trillion won from public funds for financial sector restructuring estimated to cost 64 trillion won. "The ministry is pushing second-stage financial sector restructuring by shareholders but intervention is warranted for financial institutions highly at risk," Lee said.

FX Deregulation Back on Track

The government is holding firm in its plans to implement a foreign exchange liberalization program announced last June, despite potential risks of the broad-based deregulation process, a ranking Ministry of Finance and Economy official said Feb. 8th. "As the implementation date for the first-phase of deregulation draws near, anxieties are being heard about the rapid pace of liberalization, but the government won't back down from its original plan," said Kim Ho-shik, assistant minister for planning and management at the MOFE. Under the first phase of the program, which goes into effect April 1st, the government will lift restrictions on most bank and company foreign exchange transactions. In particular, companies will be able to secure foreign currency loans with maturities of one year or less. The second phase of the forex liberalization program, which will go into effect from 2001, will lift capital controls on individuals.

Foreign Corporations Take Initiative in Retailing Changes

Foreign companies have been at the forefront of change in Korea, particularly in the retail distribution area and the seed industry. Prompted by the easing of foreign capital restrictions, retail discounters like Wal-Mart Stores of the United States and Carrefour of France are taking a leading role in a rapidly-changing domestic market. The Center for Free Enterprise (CFE), a think tank established under the aegis of the Federation of Korean Industries, recently issued a report analyzing the changes in the domestic market in 1998. It notes that drastic cuts in income since the nation was put under the financial control program of the International Monetary Fund (IMF) have prompted a sizeable shift in consumer sentiment, with consumers increasingly opting for lower-priced commodities.

Internet Shopping Explodes

A growing number of businesses are building "shopping malls" in cyber space, encouraged by the burgeoning sales of existing Internet enterprises. As more consumers are opting to shop in the comfort of their homes and offices rather than to fight the crowds at "real" department stores and supermarkets, an increasing number of firms are elbowing for room in the cyber retail market. "In Korea, there are a total of 20 Internet shopping malls that offer delivery services, including sites run by the four department stores," said an industry official. "While the cyber market was worth only 1.4 billion won in 1996, it is estimated to be worth 35 billion won this year," he added.

Daewoo Telecom is seeking capital from U.S. investment firm Newbridge Capital Co. and the two companies have signed a letter of intent to this effect, a Daewoo spokesman said. He added that his company plans to attract $200-300 million, and that the two parties will be on equal footing in shareholdings but that Daewoo will retain the management rights. Late last year, Newbridge Capital committed to purchasing a 51 percent stake in Korea First Bank in a consortium with General Electric.

Strategic Partnership for Hansol PCS-MS

Hansol PCS and Microsoft Corporation agreed on a strategic tie-up Feb. 2nd to jointly develop a variety of value-added systems for wireless data communications and the Internet. The agreement was signed Jung Yong-moon, President of Hansol PCS, Kim Jae-min, President of Microsoft Korea and Stephen Wu, an Internet Business Microsoft executive. PCS users will be able to get information on individuals and corporations as well as access the Internet through wireless handsets, according to a Hansol spokesman.

SK-Enron Joint Venture Launched

SK Enron Company Ltd., a joint venture between Korea's SK Corp. and Enron Corp. of the United States, was launched Jan. 12th in a foundation ceremony in Seoul. "The joint venture will specialize in natural-gas distribution, but later plans to make forays into new gas-related ventures," an SK Group spokesman said. Under terms of the December 1998 agreement, Enron will invest $243 million in the new joint-venture company and SK Corp., the flagship company of the SK Group will contribute the assets of five city distribution companies equal in value to Enron Corp.'s investment. SK Corp. and Enron will have joint managerial control over SK Enron Company. For Enron Corp. based in Houston, Texas the venture marks its first significant presence in the Asia-Pacific region.

Hanwha Sells Auto Parts Unit

The Hanwha Group sold off its auto parts unit to Tesma of Canada for $23 million Dec. 27th. A Hanwha spokesman said it handed over all manufacturing facilities, assets, debts and sales rights of Hanwha Automotive Components Corp. along with 194 employees. The auto parts unit, jointly established by Hanwha Machinery and Ford Motor Co. in September, 1987, under a 51/49 percent equity split, produces oil and water pumps, air and fuel suppliers, and pollutant blockers. It produced an estimated 23 billion won worth of auto parts last year and has assets of 39.5 billion won. Tesma's output for 1998 is estimated at 500 billion won.