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ECONOMY

GDP grew 9.6 percent in 2nd quarter

Korea's gross domestic product (GDP) surged 9.6 percent year-on-year in the second quarter, due mainly to a sharp increase in exports and capital investment, the central Bank of Korea (BOK) said Aug. 23rd.

However, the second-quarter data from the BOK indicated growth was down from a 10.8-percent gain in the year-earlier period and from the 12.8-percent advance in the first three months of the year, signaling a slowing pace of growth. It also followed a four consecutive quarters of double-digit GDP increase that sparked a debate over whether the economy is overheating.

Central bank officials said it is difficult to conclude that the economy is overheating. "The pace of growth this year is slowing down because last year the economy expanded very fast," Bank of Korea assistant governor Lee Seong-tae told reporters. "It indicates that we are on the right track."

"Second-quarter GDP exhibited a desirable growth as its was supported mostly by the recovery of exports and capital investment. Also, it is too early to be concerned about over-consumption as consumption and construction investment represented a relatively small portion of the GDP increase. " said Choi Choon-shin, director of the BOK's statistical bureau.

Exports of goods and services surged 22.9 percent year-on-year in the second quarter on strong overseas demand for computers, communications equipment and semiconductors and on foreign tourism, the central bank said. Imports of goods and services also rose 19.8 percent year-on-year in the second quarter.

IMF urges Seoul to step up reform momentum

The International Monetary Fund (IMF) Aug. 24th urged the Korean government to persevere with sweeping reforms in the corporate and financial sectors and stimulate the market's role in the economy.

Approving a final loan installment for Korea, which the Seoul government no longer needs, the IMF praised the swift and robust recovery of the Korean economy from crisis in late 1997. It also offered a positive outlook on the Korean economy.

At the same time, however, it stressed the need for Korea to step up the reform momentum. "The framework for restructuring is generally in place, and looking ahead, the key issues are implementation and ensuring a stronger role for markets to drive the process," said IMF acting managing director Stanley Fischer, following the conclusion of the IMF's final review on Korea by its executive board.

Under its standby agreement with Korea of December 1997, the IMF approved a $21 billion loan, of which Korea has drawn $19.5 billion and paid back $13.5 billion. Given the accelerated pace of recovery, Korea is not expected to draw on the remaining $720 million it has available.

Meanwhile, the IMF maintained its stance on key macro economic indicators, projecting 8.5 percent GDP growth in 2000, 6 to 6.5 percent growth in the medium term and a narrowing by 2 percent of the current account surplus.

POLICY

Seoul unveils reform schedule for four sectors: February set as deadline for completing framework for reform

The government unveiled its master plan Aug. 22nd on how it will go about restructuring the economy, vowing to complete the major framework for reform of four key sectors - financial, corporate, public and labor - by next February. This marked the first major economic policy coordination meeting by the nation's top policymakers since the recent cabinet reshuffle, with participants including Finance and Economy minister Jin Nyum and 16 other economy related ministers. The meeting was presided over by President Kim Dae-jung at Chung WaDae. As a result, the government pledged in the corporate sector to complete the privatization of state-invested companies such as Pohang Iron and Steel Co. and Korea Heavy Industries and Construction (HANJUNG) by next February.

In addition, the government vouched for the finalization of all workout programs by next February. Furthermore, it will also begin monitoring credit extension to the top 60 borrowers on a consolidated basis starting September and supervise their combined financial statements in the third quarter in order to reform their finances. The second phase of financial restructuring is scheduled to take a more tangible form this fall when local banks will submit their normalization plans to an independent management evaluation committee by the end of September. Upon receipt of the committee's report, expected between October and November, the government's plans to have failing banks absorbed into financial holding companies will be put into full gear.

In the labor sector, the government will work to improve working conditions by seeking to reduce the current 44-hour working week to 40 hours by next February. However, officials said that the government has yet to study how the reduced working hours will affect employees's wages and vacation time.

President urges ministers to encourage local, foreign businesses to invest in NK

President Kim Dae-jung called on economic ministers Aug. 22nd to encourage South Korean and foreign companies to invest in North Korea. He also urged the ministers to conclude inter-Korean cooperation agreements on investment guarantee, double taxation avoidance as well as open accounts to facilitate South Korean and foreign investment in the North.

"We should ensure that South Korean and foreign investors engage in investment activities in North Korea with a sense of security," Mr. Kim said in a meeting with economic ministers at Chong Wa Dae.

It was the first such conference Mr. Kim presided over since he reorganized his economic policy team in a cabinet shakeup Aug. 7th. The president said the Seoul government should pave the way for foreign businesses to invest in North Korea. "In addition, we should devise ways for foreigners to invest in North Korea in joint ventures with South Koreans," he said.

The president said recovery of the North Korean economy is essential to easing tensions on the Korean Peninsula and reducing the burden on the South when the two Koreas finally achieve reunification.

INVESTMENT

Seoul bourse seeking to attract foreign firms

The Korea Stock Exchange (KSE) said Aug. 21st that it would step up efforts to attract foreign companies to list on the local bourse, following the introduction of new regulations allowing foreign entry.

The KSE completed a mailing Aug. 30th outlining listing information to CEOs of 730 major corporations, including 300 listed on the New York Stock Exchange, 200 on NASDAQ, 200 on the London Stock Exchange, and 30 on the Tokyo bourse.

The list of invited companies includes world-class corporate names such as 3M, Dupont, Qualcomm, Intel, Bayer, Sony and Toyota. The KSE will confirm by October which companies are willing to list on the KSE.

A KSE official said he expects some foreign companies to list at least part of their shares on the Seoul bourse in an effort to boost their corporate image and promote their public relations profile in Korea.

To file for a Seoul listing, foreign firms must have been in existence more than three years, and have over 10 billion won (around $9 million) in capitalization. Companies that have 300,000 shares or more on the Seoul bourse are required to report a profit of over 2.5 billion won in the most recent year and a combined profit of 5 billion won over the previous three years.

Japanese investors to put $1 billion in Hyundai's NK projects

The Hyundai Group has successfully attracted over $1 billion from Japanese investors which will be used to further its projects in North Korea, group officials said Aug. 27th.

"Japanese businesses expressed an intent to aggressively invest in our North Korea projects, including an industrial park planned for Gaeseong and the proposed Mt. Geumgang tourism complex," a Hyundai official said.

Earlier in the week, Hyundai Asan chairman Chung Mong-hun and Hyundai Engineering and Construction president Kim Yoon-kyu visited Japan specifically to attract investments in their North Korea projects. The projected investment from Japan is expected to be a significant boost to Hyundai's North Korean initiatives.

It appears that the ongoing improvement of relations between Japan and the North have encouraged Japanese businesses to look positively on investing in the North. Hyundai also earlier secured a promise from the North that it will abide by an investment guarantee treaty if and when Hyundai introduces Japanese investment. It is expected that details of the Japanese investment will be announced soon as they are confirmed.

TRADE & MARKETS

 Daewoo seeks early graduation from workout programs

Daewoo Electronics said it is working on a plan for early graduation from its workout program and a return to normal operations next year. Company president Chang Ki-hyung told reporters that its creditors have been working towards an early graduation by attracting foreign capital as well as selling assets.

The company plans to step up its operations next year through the development of new products promoted by an aggressive management style. He said the company's production lines are in full operation with a number of company products recouping their old market shares, especially washers and refrigerators whose market shares each shot up to 20 percent.

Korea/U.S. trade levels hit record high in June

Both South and North Korea's exports and imports to and from the U.S. hit record highs in June, the Korea Trade-Promotion Investment Agency (KOTRA) said Aug. 21st.

In its analysis of trade data released by the U.S. Department of Commerce Aug. 18th, June¡¯s exports to the U.S. hit a monthly record of $3.5 billion, up 13 percent from the $3.13 billion recorded the month prior. The prior record was set last December, when exports to the U.S. hit $3.133 billion.

June's imports from the U.S. also hit a record monthly high of $2.6 billion, up from the prior record of $2.5 billion set in April 1997.

For the first half of the year, Korea's exports to the U.S. totaled $18.5 billion, up 33 percent from the same period last year, while total imports during the year's first half accrued to $13.9 billion, up 29 percent from figures posted in the first six months of 1999. The figures also indicated that Korea ranked first in export growth among top exporters to the U.S.

Consequently, Korea's trade surplus with the U.S. for the first six months stood at $4.6 billion, up 44 percent from the same period last year. The agency added that this ranked Korea fourth among countries with the highest trade surplus growth with the U.S., trailing Venezuela, Canada and France, respectively.

Furthermore, the figures indicated that Korea ranked as the eighth largest exporter to the world's largest import market , with a 3.2 percent share of the $585 billion U.S. market. KOTRA also pointed out that Korea was the sole exporting country among non-NAFTA members to increase its U.S. market share.