Economy

External Debt Down 2 pct. in April

Korea's total external liabilities stood at $142.74 billion as of the end of April, down 1.91 percent from the previous month, the Ministry of Finance and Economy (MOFE) announced June 10th. The April figure is smaller than the $164.3 billion recorded at the end of 1996 and the $158.06 billion recorded at the end of 1997, but still large compared with the $96.93 billion marked at the end of 1994 and $127 billion at the end of 1995.  Long-term liabilities fell 12.5 percent to $112.31 billion, while short-term debts edged down 0.7 percent to $30.33 billion, accounting for 21.2 percent of the total debt. Net external debt, the difference between assets and liabilities, is estimated at $8.62 billion for the end of April, down 41.2 percent from March. By sector, total external debt owed by domestic financial institutions dropped 22.8 percent month-on-month to $53.78 billion. Public sector external debt declined 7.8 percent to $33.44 billion, while private sector external debt rose 8.5 percent to $4.13 billion mainly due to increases in credit imports, according to a ministry official. Meanwhile, total external credit increased 13.6 percent month-to-month to $134.12 billion as of the end of April. Compared with a year ago, it represented an increase of 43.2 percent. The ministry official attributed the snowballing external credit to rising foreign exchange reserves. Korea's total usable foreign exchange reserves, which sank to $7.26 billion at the height of the 1997 currency crisis, reached $56 billion at the end of April.  

KOSPI Predicted to Break 1,000-point Barrier by 2000

Stock market professionals are predicting the Korea Stock Exchange Price Index (KOSPI) will exceed the 1000-point level by the end of the year or the first half of 2000. According to a survey by the Korea Management Association, out of 24 of the chief executive officers of leading securities companies, 10 said the benchmark KOSPI would overtake the 1,000 mark during the third quarter of 1999, while four said it would happen in the fourth quarter. The other eight forcast the stock index will surpass the 1,000 mark during the first half of next year. Fifteen accorded the improvement of the stock market to the recovery of local industry after the sharp economic downturn sparked by the crisis of November 1997.
In a survey by Daewoo Securities of 1,259 subscribers to its Chance Millennium Fund that it began selling in May, 60 percent forecast   that the stock index will be in the 900-999 range on the first trading day of the year 2000. According to the survey, 30.2 percent predicted the 900-949 range as the location of the KOSPI and 28 percent chose the 950-999 range. Those who projected the index will be at the 1,000-point level amounted to 12.2 percent of the poll. The highest forecast put the index at 1,690, while the lowest was 670.

BOK Governor says Korea Needs Forex Reserves of $60 bil.

Bank of Korea (BOK) Governor Chon Chul-hwan said recently that the correct level of foreign exchange reserves for Korea is $60 billion. Mr. Chon said that normally, a country's minimum level of foreign exchange reserves should equal the value of its imports for the preceding three months. "But for a country like Korea, which has a huge amount of foreign debt, some suggest the proper level is twice the total of its short-term foreign debts," Mr. Chon said upon arrival in Basel, Switzerland, to attend the annual meeting of the Bank for International Settlements (BIS). As of the end of April, Korea's total foreign debt stood at $142.74 billion won, of which short-term debts with a maturity of one year or less accounted for $30.33 billion. The nation's usable foreign exchange reserves reached $58.73 billion as of the end of May. "Given these figures, I believe Korea needs to build its foreign exchange reserves at least up to $60 billion," Mr. Chon said.

The first-ever investment mart put together by all 21 member nations of the Asia-Pacific Economic Cooperation (APEC) drew to a close June 5th 1999, drawing over 5,000 visitors during its four-day run. Around 4,000 representatives of foreign companies from around the world attended the APEC Investment Mart in Seoul, the Ministry of Commerce, Industry and Energy said. Over 1,000 business representatives and government officials from APEC nations also came in search of investment opportunities. Although an exact figure for the amount of foreign investment attracted to Korea was not provided, the ministry said in a statement that the results of the investment mart were far better than expected, with successful agreements reached on several large-scale investment projects. British Aerospace agreed to invest $165 million in an aircraft manufacturing project in Korea, while France's Contiko Group announced it would invest $100 million in a distribution venture here, according to news reports by local economic dailies. Each of the 21 APEC nations operated individual pavilions at the mart, and hosted country-specific investment seminars which drew a total of 2,800 interested investors. The Korea pavilion drew 800 potential investors, organizers said. Highlighting the investment mart were keynote speeches by international figures such as Claude Smadja, managing director of the World Economic Forum, and Wilbur Ross, executive managing director of Rothschild Recovery Fund. Combined, the speeches drew an audience of 3,000. The featured speakers examined the on-going structural flaws of Asian economies, while mapping out possible ways they might emerge from the economic crisis. The investment mart was also featured in cyberspace through a web site that listed 1,502 assets from 18 countries. Some 37,000 guests logged on to the "Cyber Mart," the ministry said. About 63.3 percent of the potential foreign investors who participated   in the APEC Investment Mart 1999 in Seoul  June 2nd to 5th said they have plans to invest in Korea over the next one to two years, a poll showed. In a poll of 190 foreign fair participants by mart organizer, the Korea Trade-Investment Promotion Agency (KOTRA), 93.9 percent also said that they would be willing to attend next year's investment exposition. The host country of the APEC Investment Mart 2000 will be chosen at an APEC ministerial meeting this fall.

Gov't Sets June 30th a deadline for KOGAS Foreign Investment Deal

State-owned Korea Gas Corp. (KOGAS) is facing difficulties in its current negotiations to introduce foreign investment. However, at the time of going to press, the government expressed its resolve not to let current negotiations drag on beyond the end of June. Negotiations have neared their final stages with Osaka Gas, British Gas and GIC,  a multinational consortium, officials of the Ministry of Commerce, Industry and Energy said June 13th. However, officials at both the ministry and at KOGAS said they did not expect negotiations to be completed soon. "Although negotiations are in their final stages, differences over the price of individual shares and the degree of management participation by the foreign investors have yet to be resolved," a KOGAS source close to the negotiations said. If negotiations are not concluded by the end of June, the state-owned company is prepared to postpone all efforts to attract investment from abroad. Instead, the company will focus its attention  on forging investment partnerships with domestic companies, the KOGAS source said. The state-owned company is aiming to attract 250 billion won ($214 million) worth of investment from both foreign and domestic investors. Since October of last year, it has been in the process of selling off 25 percent of  its equity to foreign investors, with the goal of raising approximately 100 billion won.

A top economic policy planner June 10th called on leading chaebol to step up efforts to further cut their debt and focus on core activities. Minister of Finance and Economy Kang Bong-kyun said that the top-five chaebol's restructuring efforts so far have fallen short of expectations in the areas of financial health and business line specialization. "Unfortunately, the five conglomerates have already missed their debt-to-equity ratio target of 320 percent by 66 points at the end of last year," said Kang, while meeting with  chaebol leaders at the Federation of Korean Industries' monthly chairmen's meeting. However, the minister lauded the five groups for following through on commitments to improve managerial transparency, eliminate cross-subsidiary debt guarantees and make chaebol owners more accountable for erroneous business decisions. "On corporate reforms being completed successfully this year, the Big Five chaebol will be allowed to branch out into new business lines, starting next year," he said. Kang stressed that the government will keep lowering interest rates to international levels and offer more tax breaks to help speed up chaebol restructuring. Stressing that adherence to market principles will be the government's watchword, he said that regulators shall abstain from meddling in individual firms' affairs.

Seoul Urged to Stick to Policies for Expansion, Low Interest Rates

The International Monetary Fund June 5th asked the Korean government to hold fast its current expansionary and low interest rate policies. John Dodsworth, the IMF representative based in Seoul, said it is premature for Korea's policy planners to cut back fiscal spending plans for 1999. "With unemployment still high, there is a continuing need to ensure adequate social safety net spending and to implement job-creating expenditures," said Mr. Dodsworth, speaking at a seminar organized by the Korea Economic Research Institute to evaluate the economic crisis over the past one-and-a-half years. Mr. Dodsworth stressed that sustaining reform efforts, structural changes, and demand for Korean exports as well as the global environment will be crucial factors in determining year-to-year economic growth rates beyond 1999. "Despite the rapid recovery, there is still a sizable output gap from Korea's current level and its potential, and with inflation subdued, the government still has scope to continue with expansionary macroeconomic policies," the IMF economist said. "With no signs of generalized inflation and the external position remaining comfortable, there is no compelling argument to deviate from the present low interest rate policy." He forecast Korea'sGDP growth in 1999 to be in the 4 percent to 4.5 percent range with potential for even further growth, and foreign exchange reserves to advance beyond the present level of more than $58 billion.

"Korea Venture Fund" to be Launched in July

The nation's first government-private fund designed to support venture businesses is likely to be established as early as next month, officials said June 5th. The Small and Medium Business Administration (SMBA) said it plans to launch the fund, dubbed the "Korea Venture Fund," next month or in August at the latest. The 100 billion won ($84.4 million) fund will make direct investments in promising local venture companies and help them tap overseas export markets, the administration said. Since early this year, the administration has been working on establishing the fund to be financed by the government and foreign investors.  A total of 50 billion won will be funded from the government coffer, while the remainder will be borne by foreign investors, it said. The administration has received proposals for investment from nine foreign companies to handle the fund and planned to select one within June. "The establishment of the fund is expected to revive the formation of cooperatives specializing in investment in venture businesses and help foreign institutions resume their investment in Korea," an SMBA official said. Foreign institutions were active in investing in domestic venture firms until the onset of the nation's financial crisis in late 1997, although their activity in this regard has since waned.  

SK Telecom, Hansol PCS Forge Ties with Yahoo

Cellular carrier SK Telecom and personal communication service (PCS) provider Hansol PCS have forged separate strategic partnership agreements with Yahoo! Korea to provide mobile Internet services. SK Telecom said it has recently agreed with Yahoo! Korea to cooperate on the development of content for a wireless Internet service and its joint marketing. Under the partnership, subscribers of SK Telecom will gain access to about a dozen online information services, including news and sports, offered by Yahoo! Korea via mobile phone from July. In a separate statement, Hansol PCS said it had agreed with Yahoo! Korea to cooperate in the mobile computing sector.

Automakers Moving to Expand Sales Outlets in North America

Encouraged by the recent upsurge in sales in North America, Korean automakers will step up their local marketing efforts by expanding sales outlets. Industry sources said June 11th that Daewoo Motor, which debuted in the U.S. market last year, expanded its marketing effort to Canada by setting  up Daewoo Auto Canada in April. Daewoo plans to expand the number of its outlets from the current 11 to 20 by the end of this month and to more than 40 in Canada this year. The number of its outlets in the U.S. will rise to 290 from the current 50. Daewoo is currently marketing three models in the U.S. market - the Leganza, Lanos and Nubira. However, it is poised to introduce additional models such as the Korando sports-utility   vehicle while a new model intended for the market is still under development.

Meanwhile, Kia Motors is taking an aggressive stance to the Canadian market by setting up its own dealerships there. The firm has been exporting its cars through Ford Canada under Ford brand names. Kia plans to increase the number of sales outlets in Canada to 120 from the current 40 to achieve its sales target of 20,000 cars this year. Kia will also introduce additional models such as the latest Avella in addition to Sephia and Sportage that are already being marketed in Canada. Last month, Kia and Daewoo set monthly sales records since their entry into the U.S. car market. Hyundai Motor also saw its EF Sonata break a 10-year monthly sales record in May.

Following the restructuring of the bloated chaebol business groups, the next target of corporate reform will be the overhaul of Korea's industrial structure, - a task the government hopes to complete by year-end.

"Beginning next year, the government will implement a 'second restructuring,' or series of industrial structure reforms, to change the basic characteristics of our economy," said Chung Duck-koo, Minister of Commerce, Industry and Energy, at a speech to 300 Korean business leaders June 5th. While the Korean economy is recovering, the minister stressed the need to strengthen industrial competitiveness by completing corporate sector restructuring, improving conditions for raising capital and focusing on high value-added industries. The minister added that the government would revamp Korea's current system of guaranteeing credit, while placing greater emphasis on the allotment of venture capital and nurturing a large number of small, but promising export companies.