KOREA, SOUTH

Republic of Korea

Taehan Min-guk

COUNTRY OVERVIEW

LOCATION AND SIZE.

South Korea occupies the southern half of the Korean Peninsula in eastern Asia. It is bordered by North Korea to the north, the Sea of Japan to the south and to the east, and the Yellow Sea to the west. South Korea has an area of 98,480 square kilometers (38,023 square miles), which makes it slightly larger than the state of Indiana. It has 238 kilometers (148 miles) of land borders with North Korea and 2,413 kilometers (1,499 miles) of coastline. Among its major cities, Seoul, the capital city, and Inchon are located in the northwestern part of the country, while Kwangju and Pusan are in the south, Taegu is in the southeast, and Taejon is in the center.

POPULATION.

The population of South Korea was estimated at 47,470,969 in July 2000. It increased from 35.3 million in 1975 to 46.1 million in 1998, indicating a growth rate of 1.2 percent. At the current estimated growth rate of 0.6 percent, the population will increase to 51.1 million by 2015. In 2000 the estimated birth rate was 15.12 per 1,000 population while the estimated death rate was 5.85 per 1,000 population. The estimated migration rate was 0 percent.

South Korea's population is ethnically homogeneous. With the exception of a small Chinese community of about 20,000, the rest of the population are ethnic Koreans. Some 78 percent of the population falls within the age groups of 15-64 (71 percent) and 65 or older (7 percent). By 2015, 10.6 percent of the population will be older than 65.

South Korea is a highly urbanized society. In 1998, about 84.5 percent of its population lived in urban areas, a significant increase from 1975 when the urban population accounted for 48 percent of the total. The urban population is estimated to reach 92.2 percent by 2015. Seoul, the capital city, is the largest urban area, with a population of 10.4 million, followed by Pusan (3.9 million), Taegu (2.5 million), Inchon (2.5 million), Kwangju (1.3 million), and Taejon (1.3 million).

OVERVIEW OF ECONOMY

The 1945 surrender of Japan in World War II ended about half a century of the Japanese colonization of Korea. In its aftermath, the "temporary" division of Korea led to the creation, in 1948, of the Republic of Korea (South Korea) in the southern half of the Korean Peninsula and the Democratic People's Republic of Korea (North Korea) in its northern half.

South Korea opted for a free-enterprise economy at the time of independence and has since sought to consolidate it with a great deal of success. The mainly agrarian nation began to industrialize in the 1950s, after the Korean War (1950-1953). Its relatively insignificant industries mainly served its domestic market until the early 1960s, when the South Korean government encouraged massive industrialization. Unlike many developing countries, South Korea chose an export-led industrialization strategy to produce labor-intensive products that could be produced more cheaply than in North America and Western Europe and therefore competitive and exportable to those markets. Initially, the emphasis was on light industry products such as fabric and clothing, later supplemented by assembly-line production of electronic products like radios or black-and-white television sets. By the late 1960s, South Korea became a major producer of telecommunication devices and computer parts.

The service sector, consisting of growing industries like retail , tourism, and finance is now South Korea's largest economic sector, accounting for 51.5 percent of gross domestic product (GDP) in 1999, while industry, including construction and mining, claimed a 43.5 percent share. Construction, though still a major industry, is in the process of decline. The industrial sector meets most of the needs of the country, but its manufacturing branch cannot produce without heavy imports of capital goods . Agriculture, which was the main economic activity in the 1960s, accounted for only about 5 percent of GDP in 1999. This sector, including forestry and fishery, was expanded and modernized in the 1950s and 1960s, a process that has continued to this date. The South Korean government has encouraged and generously supported its growth, while protecting it from foreign competition. The agricultural sector produces basic domestic needs in rice, vegetables, and fruits, though South Korea is still dependent on large imports of grains, fish, and forestry products (timber). The World Factbook reported similar, but not the same estimates of each sector's contributions for the same year, noting that services contributed 53 percent, industry 41.4 percent, and agriculture 5.6 percent of GDP.

Trade plays a major role in South Korea's export-oriented economy. In 1999, exports accounted for 45 percent of GDP, a phenomenal increase from the 1970s when it accounted for about 6 percent on average. Apart from a limited trade in fishery products, manufactured goods, including light- and heavy-industry products and high-tech devices and parts, are the major exports.

South Korea's economy grew rapidly from the 1960s through the 1980s, with an average annual GDP growth rate of 8.4 percent during that period. The growth rate fell to about 6.9 percent annually during the 1993-97 period. GDP contracted by 6.7 percent in 1998 alone as a result of the financial crisis, which pushed the unemployment rate to 6.8 percent (1,461,000 workers), a large increase from the 1997 rate of 2.6 percent (556,000). Inflation jumped from 4.5 percent in 1997 to 7.8 percent in 1998. Two factors helped economic recovery in 1999: the growth of the U.S. economy, which is South Korea's largest export market, and large direct foreign investments, made possible by economic liberalization . The latter rose to US$8.9 billion in 1998 and soon soared to US$15.5 billion, exceeding the total foreign investment over the previous 35 years. Data for the first 4 months of 2000 indicate such investment totaled US$3.7 billion, about 33 percent higher than the same period in 1999. South Korea's GDP grew by 10.7 percent in 1999, and continued its growth in the first quarter of 2000. The estimated growth rate for the entire year is about 8 percent. The recovery pushed the unemployment rate down to 4.8 percent (1,353,000 workers) in 1999, and it fell to 3.7 percent (about 800,000) in May 2000. It also brought the inflation rate down to 0.8 percent in 1999, a record low rate over the previous 3 decades. Inflation in 2000 was expected to be about 3 percent, far lower than during the 1980s, when the average inflation rate in the 1980s was 8.4 percent.

The South Korean government has helped the industrialization of its country via protectionist measures (the imposition of import quotas and tariffs aimed at limiting foreign competition in South Korea) as well as generous government financing for emerging industries and subsidization to make their products competitive in international markets. These government measures continued until the 1990s when they provoked criticism on the part of South Korea's competitors and trading partners, including the United States, Japan, and the European Union. Their growing pressure on the South Korean government to open its market to foreign competition and to stop subsidizing South Korean exports forced it to begin addressing these demands. Nevertheless, the South Korean market remained highly protected until 1997 when the financial crisis hit many Asian countries, including South Korea. Heavy borrowing by the public and private sector , especially from foreign banks, created the crisis, as most of the borrowers were unable to repay their large debts. Devastated by the crisis, the South Korean government, which desperately needed foreign financial assistance to stop the wave of bankruptcies and closures of large enterprises, had to accept the conditions outlined by the International Monetary Fund (IMF) in its rescue package: to liberalize its closed and highly protective economy through reforms and make it accessible to foreign competition.

Liberalization has sought to change South Korea's economy from one where the state directs and controls economic activities into one where the private sector, including foreign enterprises, operate with minimum government regulation. This required the nation to embark on a program of privatization designed to minimize the role of the public sector in the economy. This unfinished process has resulted in the sale of government assets in some large corporations to foreign investors, and the privatization of all state-owned banks, except for 2 development banks. By 2000, the government still owns about 108 non-financial enterprises, most of which are planned to be sold. Liberalization has also resulted in the removal of government regulations that restrict the economic activities of domestic and foreign enterprises in favor of a less-regulated economic system. Liberalization has also involved the restructuring of financial institutions and big corporations, most of which have long survived on heavy borrowing from public and private financial institutions, including foreign banks.

By and large, the reform of the financial system has been more successful than that of big corporations known as chaebols (conglomerates). The financial system's reform has justified the closure or merger of many non-viable private and public banks that formerly survived on government assistance, as well as the privatization of most public banks. The government's tight control on fiscal and monetary activities has been loosened in order to facilitate domestic and foreign private investments. In 1998, a Foreign Investment Protection Act was ratified to encourage and to ensure the safety of foreign investments. However, the 1998 corporate reform program called the "Big Deal" has been, so far, less successful. The program aims at turning the weak chaebols into strong corporations capable of offsetting the destructive impact of the financial crisis so that they might grow and compete with large foreign corporations inside and outside the South Korean market. To that end, the South Korean government has tried to reduce excessive competition between big corporations and to encourage their merger to create viable enterprises. It has also sought to encourage them to eliminate economic activities that are not of crucial significance to their main operations. For the most part, the chaebols' reform program is yet to be implemented.

South Korea has a very large foreign debt , which in 1999 was equal to more than 25 percent of its GDP. The debt burden emerged as a major economic problem in the 1990s. Encouraged and facilitated by the South Korean government, banks and large corporations borrowed heavily to finance industrialization, creating a debt that amounted to US$163.5 billion in 1996, a 5-fold increase from 1990. The heavy burden of this debt, most of which was borrowed on floating rates by major private enterprises, created the 1997 financial crisis, which resulted in a series of bankruptcies and closures of major enterprises. This situation also undermined the credit-worthiness of most surviving enterprises and forced the South Korean government to seek IMF assistance to prevent the total collapse of the economy. The IMF arranged a rescue package of about US$60 billion. It also facilitated an agreement between the South Korean government and the foreign banks for rescheduling debts held by South Korean private and public debtors. The IMF-led rescue package prevented the worsening of the situation and contributed to a gradual economic recovery. The recovery and the economic reform with its tough regulations on borrowing by large enterprises have reduced the debt from US$159.2 billion in 1997 to US$148.7 billion in 1998 and to US$136.4 billion in 1999. Statistics from the first 4 months of 2000 indicated a small increase in debt (US$4 billion), pushing its total to US$140.4 billion. Financing of a short-term trade deficit caused by an increase in the prices of imported oil products seems to be the reason for this increase. However, a predictably poor economic performance of South Korea's main trading partners (the United States and Japan) in 2001, which could reduce its exports and create a trade deficit, would likely increase its foreign debt substantially. South Korea's foreign exchange reserves are significant (US$86.8 billion in early 2000), but are still much smaller than its foreign debt.

History and geography have shaped the development of the South Korean economy to a great extent. The division of the Korean Peninsula into 2 different political and economic systems has been a major factor. The Cold War rivalry between the United States and the Soviet Union made them the protectors of South Korea and North Korea, respectively. Each helped its protegé establish a peculiar economic system: free-enterprise in South Korea and a planned economy in North Korea. For South Korea, this situation led to a lack of ties with the 2 major supporters of North Korea: Russia and China, which lasted until the early 1990s when both sides began to normalize relations; South Korea established ties with Russia in 1990 and China in 1992. These ties have since expanded to the point where South Korea now produces some of its labor-intensive export products in China.

Threat of a North Korean military invasion forced the South Koreans to spend a significant amount on defense (US$9.9 billion in 1999, equal to 3.2 percent of GDP). However, South Korea's relations with North Korea have been improving since 1998 when President Kim Dae-jung initiated his "Sunshine Policy" to improve bilateral relations with the north. This policy led to a limited investment of South Korean corporations in North Korea, where local cheap labor is used to produce electronics for exports. South Korea's Hyundai group began tourist cruises to North Korea in 1998, but the trips were suspended after a South Korean tourist was arrested on spy charges. During that period, 80,000 South Koreans visited North Korea.

The South Koreans have backed the idea of peaceful unification of the 2 Koreas. Given the depth of North Korea's economic problems, they are not interested in an immediate unification, which would force them to spend an estimated US$1.2 trillion to rescue the North Korean economy. Instead, South Korea prefers a gradual process of unification in which it would help the economy of North Korea through modernization of infrastructure and by production of labor-intensive export goods in that country.

The bitter memory of the Japanese colonial era has also affected South Korean-Japanese economic relations. Japan has been a major source of equipment, machinery, and technology for South Korea, and has provided its largest source of tourism. Public resentment of the Japanese has limited their official and cultural ties. The situation has been improving since 1998 when President Kim Dae-jung took office. The heavy pressure of the 1997 financial crisis required Japanese economic aid and facilitated better official ties. The 1998 visit of President Kim to Japan broke the diplomatic ice between the 2 countries, and by mid-1999 a ban on Japanese cultural imports was lifted.

The South Korean economy has 2 major weaknesses. First is its heavy reliance on imported fossil fuels (oil and natural gas). South Korea is the second largest importer of liquefied natural gas (LNG), mostly from Malaysia and Indonesia. In 1999, it imported 874 million barrels of oil, 184.4 million barrels of petroleum products, and nearly 16.9 metric tons of LNG. These fuel imports accounted for 97.1 percent of its energy consumption in 1999, a significant increase from 1979 when fuel imports accounted for 73.4 percent of such consumption. Second, the South Korean economy depends heavily on imported capital goods and technology for its industries. Despite its emergence as a major exporter of light and heavy industrial products, its export industries require foreign machinery and equipment for production. While South Korea has surpassed Japan and the United States in selling memory chips, it still needs imported chip machinery to produce them. Another example is its automobile industry's reliance on imported parts and technology. Japan and the United States have been the major source of technology and capital goods for South Korea, constituting 40.5 percent of its annual imports in 1999.

POLITICS, GOVERNMENT, AND TAXATION

South Korea has a presidential system governed by a directly-elected president and a unicameral legislature, the National Assembly, in which various political parties are represented. Cabinet members are accountable only to the president. Parliamentary elections take place every 4 years, in which 227 candidates are elected, while an additional 46 parliamentary seats are distributed among political parties in proportion to their share of the popular vote.

Until 1995, the political system was a unitary one (the central government appointed all governors of provinces and mayors, who acted as its representatives). In 1995, the first elections for these provincial and local offices took place. A year later, there were local elections for councils at all levels: provincial, county, and ward. Still, the central government maintains enormous power at all levels by controlling appointments and by using its economic power, as in the allocation of construction projects.

Democratic regimes are very recent phenomena in South Korea's history, which has been ruled mainly by civilian and military authoritarian regimes. From 1948 to 1988, the country was governed by 1 civilian president (Syngman Rhee, 1948-60) and by 2 consecutive military rulers (Park Chung-hee from 1961-79 and Chun Doohwan from 1980-88). The first semi-democratic transfer of power happened in 1989 when Roh Tae-woo, a military nominee of President Chun Doo-hwan, was elected president in a relatively fair election. In 1993, he agreed to a peaceful transfer of power to a civilian, Kim Young-sam, who had been elected president in another relatively free election. The election of an opposition leader as pres- ident, Kim Dae-jung in December 1997, was of great significance for the South Korean political system in that it marked the first transfer of power by an elected president to an opposition leader. Coming to power in the midst of the 1997 Asian financial crisis, President Kim Dae-jung has since presided over the restructuring of the economy.

The South Korean government has had a major role in the economy since the foundation of the nation in 1948. Through its direct involvement in the economy, it has sought the economic growth and industrialization by which it has turned South Korea from an agrarian society into a highly industrialized one. Various government measures and financial assistance have helped establish enterprises and protect them from foreign competition while helping them expand at home and abroad. The government has also been actively involved in industrial and financial activities through its industries and banks. Due to the IMF and other factors, its role in the economy has been limited since the mid-1990s, but it still plays a significant part in economic affairs as the mastermind of South Korea's economic reform, the director of its large infrastructure projects, and as the entity in charge of paying the country's foreign debt.

Despite the existence of political parties in South Korea, they had no major influence until recently. In practice, the military was the power base of the political system, and directly or indirectly ran the country—a situation that lasted until 1993. In that year, the election of a civilian, Kim Young-sam, as president laid the groundwork for meaningful participation by political parties, which led to the 1997 election of Kim Dae-jung, an opposition leader. Under his leadership, the Millennium Democratic Party (MDP) runs the country in coalition with the United Liberal Democrats (ULD). The opposition includes the Grand National Party (GNP) and the Democratic People's Party (DPP). However, the South Korean political parties have yet to establish themselves as the vehicles of representation of different political and economic interests. Generally speaking, they all lack internal cohesion, reflected in the constant defection of party members and their leaders from one party to another and the frequent formation, renaming, and merger of political parties.

All parties advocate a free-enterprise economy within which the state and the private sector both play a role. However, they also advocate a strong role for the government in economic growth through its policies and regulations. Under IMF pressure, the ruling coalition has significantly reduced the public sector by privatizing many state-owned financial and industrial enterprises and also by removing many economic regulations. Nevertheless, the government still has a major impact on the economy because its economic reforms and the payment of its foreign debt have incurred many new governmental regulations. Until the South Korean government privatizes all its enterprises, it will also remain a large economic player.

The South Korean constitution provides for an independent judiciary, though it is still trying to move toward that goal and away from manipulation by influential individuals. Absence of trial by jury gives judges the power of rendering verdicts in all cases, which makes the system more prone to abuse. Hence, in addition to political and economic liberalization, judicial reform is also necessary for creating a safe business environment. The judiciary provides for the defense of property and contractual rights through laws on economic activities. Commercial disputes can be adjudicated (settled) in a civil court, or may be presented to the Korean Commercial Arbitration Board. South Korea's membership in various international conventions obliges it to observe international commercial laws.

TAXATION.

South Korea's tax system relies heavily on indirect taxes , which account for about 50 percent of tax revenue. Resident and non-resident individuals and corporations are liable for taxation. Real-estate rental income, business income, earned income, temporary property income, and miscellaneous income attributed to a resident are taxed progressively. Interests and dividends are subject to withholding tax. Non-residents are also taxed on income from sources in Korea. Tax rates on individual income range from 10 percent to 40 percent. Taxation applies to all corporations operating in South Korea, whether domestic or foreign. Companies that have been incorporated in Korea are considered to be domestic corporations and are liable for taxation on their worldwide income, whereas foreign corporations pay taxes on their Korean-generated income only. The corporate income-tax rates range between 16 percent and 28 percent.

Taxes, customs duties , and other government-generated revenues (assorted fees, social security contributions, and the income of public enterprises) are the main sources of government revenue. Budget deficits are financed through borrowing, either directly from domestic and foreign banks or through the issuance of bonds. In 1999, total government revenue was US$90.78 billion, of which all taxes and custom duties accounted for 70.1 percent of the revenue. Other government revenues accounted for 29.9 percent of the total revenue. The government spent a total of US$101.77 billion that year and incurred a deficit of US$10.99 billion. Better economic performance in 2000 resulted in a small surplus (about US$11 billion). Of the total revenue of US$118.18 billion, all taxes and customs duties accounted for 69.48 percent (US$82.12 billion) of the revenue, while other government revenues accounted for 30.52 percent (US$36.06 billion).

INFRASTRUCTURE, POWER, AND COMMUNICATIONS

South Korea has a very advanced and modern infrastructure, which has been expanding since the 1960s. Both the South Korean government and the private sector are involved in the financing, construction, and operation of various infrastructure projects and services. Over the first 20 years of the 21st century, the government will spend more than US$300 billion on airports, roads, railways, and mega-resorts. Additionally, it will spend US$60 billion on the construction of more than 100 new power-generation facilities.

South Korea has an extensive and well-kept system of roads. In 1998, it boasted 64,808 kilometers (40,272 miles) of paved roads, including 1,996 kilometers (1,240 miles) of expressways, and 22,182 kilometers (13,784 miles) of unpaved roads. There are several major north-south and east-west highways, but the growing number of vehicles in use puts heavy pressure on the land transport network. The number of private cars rose from fewer than 500,000 in the early 1980s to 7.581 million in 1999 when there were also 2.1 million trucks and 749,000 buses in use. To deal with the growing pressure on roads, the South Korean government has initiated a multibillion dollar project to expand the highways. Land transportation also includes regular train and bus services around the country. The railways consist of 6,240 kilometers (3,878 miles) of standard gauge tracks of which 525 kilometers (326 miles) are electrified.

In 1999, South Korea's air transportation system was served by 103 airports, of which 67 have paved runways. Major international airports are in Seoul (Kimpo), Pusan, and on Cheju Island. A new international airport, Inchon, is scheduled to open in 2001, after which Kimpo will function as a domestic airport for Seoul.

South Korea's sea transportation network includes various ports and harbors, the most important of which are in Chinhae, Inchon, Kunsan, Masan, Mokpo, Pohang, Pusan, Tonghaehang, Ulsan, and Yosu. To meet the needs of its growing economy, the South Korean government is planning billions of dollars' worth of port/harbor expansion projects. In 1999, South Korea's merchant fleet consisted of 461 ships of various size and functions (bulk, cargo, container, passenger, vehicle carrier, and fuel tanker) with a net cargo capacity of 5 million metric tons.

South Korea has a growing power-generation system that provides electricity for private and commercial needs. Originally a state-owned sector, the power system is being privatized. During the 1990s, total production increased from 184,660 gigawatt-hours (gWh) in 1995 to 239,325 gWh in 1999, outpacing demand by a comfortable level. Over time, South Korea's dependency on thermal and hydroelectric generators has been reduced in favor of nuclear-powered generators. The country lacks domestic fossil-energy resources, so the growing cost of imported oil and natural gas has encouraged this shift. Still, thermal generators account for the bulk of generated electricity. In 1998, the percentage of electricity generated by various methods was as follows: fossil fuel generators (59.56 percent), nuclear-powered generators (38.51 percent), hydroelectric generators (1.91 percent), and other (0.02 percent). The share contributed by nuclear-power generators rose to 42.8 percent in 1999.

The South Korean telecommunications system is among the best, the most modern, and the fastest growing in the world. The number of fixed telephone lines increased from 763,200 in 1973 to 20,963,000 in 1999, while the number of cellular telephone lines jumped from 1,641,000 in 1995 to 12,019,000 in 1999, an eightfold increase over a 5-year period. In 1999, there were at least 11 Internet providers. With 14 million Internet users in 2000, South Korea ranked third in the world after the United States and the United Kingdom. Also in 1999, there were at least 106 AM, 97 FM, and 6 shortwave radio stations, and 121 television stations apart from the 8 stations operated by the U.S. Armed Forces in South Korea. In 1997, there were at least 47.5 million radios and 15.9 million television sets in use.

ECONOMIC SECTORS

South Korea's economy has undergone a very impressive development experience. Through economic planning, its government modernized the agricultural sector, established a large industrial sector, and helped create a service sector. Its extensive regulations have largely protected domestic enterprises from foreign competition and helped them grow and consolidate over time. Government polices and practices, including generous loans, have stimulated economic growth. The 1997 financial crisis damaged the South Korean economy as a whole and forced it to contract in 1998, but the economy began its recovery in 1999 and continued it in 2000, an indicator of the strength of its sectors. At the beginning of the 21st century, South Korea's smallest economic sector, in terms of contribution to GDP, is agriculture, including forestry and fisheries. Second largest is the industrial sector, which consists of manufacturing, construction, and mining, a vital sector of which manufacturing accounts for the bulk of South Korea's expanding exports. As with agriculture, industry's share of GDP is declining while the service sector is growing, a phenomenon consistent with the maturity of the South Korean economy. The service sector is now the largest and the fastest growing economic sector, accounting for the largest share of GDP.

AGRICULTURE

FARMING.

Arable land is limited in South Korea. It accounts for 21 percent of the total land (20.7 million hectares), a decrease from its share of 21.8 percent (21.6 million hectares) in the early 1950s. Growing urbanization and road building are the 2 major factors responsible for the decrease. Agriculture's share of GDP, including forestry and fishery, has declined from 6.2 percent in 1995 to 5 percent in 1999. The total output of the sector, including forestry and fishery, grew 4.7 percent in 1999, after a contraction of 6.6 percent in 1998 as a result of the 1997 financial crisis. In 1999, its share of the workforce was 10.09 percent (2,349,000 workers), a decrease from 1995 when its share was about 12.2 percent (2,534,000).

Since the 1950s, South Korea has a well-developed and highly productive agricultural sector, thanks to several factors: government financial assistance (US$8.3 billion in 2000), mechanization, and extensive use of fertilizers. To encourage growth and make the country self-sufficient in its major food item, rice, the government has prohibited rice imports under normal circumstances. It has also paid farmers higher than the world price for their rice while subsidizing consumers to make rice affordable for all. As a result, South Korea is now self-sufficient in rice production and the production of many kinds of fruit and vegetables. In 1999, rice production was 5,975,000 metric tons, a large increase from 1995 (5,060,000 metric tons). South Korea also produces significant amounts of other major items such as barley and wheat (189,000 metric tons in 1999), but it is not self-sufficient in grains. Therefore, it imports agricultural products, mainly cereals and preparations, equal to US$1.716 billion in 1998.

FORESTRY.

Although forests account for 65.7 percent of its total land, the topography makes commercial forestry difficult, so South Korea imports most of its forestry products (timber), mainly from Indonesia and Malaysia. Beginning in the 1950s, the reforestation policy of the government, combined with the rural development program of the 1970s known as the Saemaul Movement, has restored forests, which were massively destroyed during World War II. This resulted in a large increase in the production of timber from 30.8 million cubic meters in 1954 to 363.6 million cubic meters in 1998, mostly used by rural inhabitants as fuel. For its various needs, the country relies heavily on imported timber, which amounted to US$1.886 billion in 1998.

FISHERIES.

The fishing industry has been declining over the last 2 decades, with only 315,000 people so employed in 1999, down from 750,000 in the 1970s. Its role in the economy has declined along with that of agriculture in general as a result of industrialization and the growth of the service sector. In 1999, fishery products accounted for about 1 percent of exports (about US$1.4 billion), a sharp decline from its share of 5 percent in the 1970s. South Korea relies on large imports of fishery products for domestic consumption, although catches increased from 2.4 million metric tons in the late 1970s to 3 million metric tons in the late 1990s. The value of imported fishery products was about US$1 billion in 1996-97, a huge jump from the mid-1970s when they were less than US$20 million annually.

INDUSTRY

The industrial sector, including mining, manufacturing, and construction, has been growing in South Korea since the 1960s. Its share of GDP has remained around 43 percent since 1995. The sector contracted by 6.1 percent in 1998 as a result of the 1997 financial crisis, but it expanded by 11 percent in 1999 when the South Korean economy began to recover. Despite its significant expansion, the overall economic growth pushed its share of GDP a little lower than 1998. In 1999, it accounted for about 25.61 percent (4,026,000 workers) of the work-force, a decrease from 1995 when it accounted for about 23 percent (4,824,000).

MINING.

Mining and quarrying are very insignificant economic activities, accounting for only 0.4 percent of GDP (US$1.47 billion) in 1999. South Korea has few significant mineral resources, and no oil or natural gas. Its available minerals are lead, zinc, and copper, which supply only a fraction of its needs. As a result, it imports all its needs in fuel and almost all its needed minerals, accounting for 50.8 percent of its total imports in 1999. South Korea was once a major exporter of tungsten concentrate, but its output of tungsten ore stopped completely in 1993 when China flooded the world markets with tungsten, sharply decreasing its world prices. The mining industry, including quarrying, grew by 5.2 percent in 1999, a negligible growth for an industry that experienced a 24 percent contraction in 1998.

MANUFACTURING.

Manufacturing has been the engine of growth and development for South Korea, which has emerged as a major supplier of various manufactured products. The sector's contribution to GDP was 31.8 percent in 1999, an increase from 30.9 percent in 1998 and an improvement over the levels during the economic slowdown of 1996 and 1997.

South Korea's manufacturing sector produces a wide range of labor-and capital-intensive products to satisfy domestic needs, but mainly for export. They include light and consumer products (fabrics and clothing); electronic, telecommunication, and computer devices; and heavy industrial products (metals, automobiles, and ships). Since the 1970s, South Korea has become one of the world's major steel producers. The automobile industry began growing in the 1980s for export purposes only, but it eventually expanded to meet domestic demands too. Annual production of automobiles grew from 935,271 in 1990 to 2.2 million in 1999.

The value of South Korea's manufactured goods was US$129.5 billion in 1999, as compared to US$97.9 billion in 1998 during the economic crisis. The best-performing sectors included telecommunications, electronics, industrial machinery, and transport equipment, which grew by more than 30 percent. Heavy industry and chemicals grew by 25.9 percent, and light industry (textile, footwear and food products) by 7.2 percent.

During the financial crisis of 1997, many manufacturers, including large conglomerates, went bankrupt. Corporate restructuring, as part of the conditions for receiving IMF aid, has changed the ownership structure of manufacturing to some extent. This previously closed sector is now open to unlimited investment and acquisition by foreign investors. In 1998 Hyundai Motor, the largest South Korean automaker, acquired the troubled Kia Motors, South Korea's third largest carmaker and its affiliate, Asia Motors. In 2000, Renault, a French automaker, purchased the bankrupt Samsung Motors while Ford, a U.S. company, bought the bankrupt Daewoo Motors.

The manufacturing sector employed 4,006,000 people in 1999, a substantial increase from 1998 (2,324,000 people). The 1999 figure indicates a large increase since the 1980s (15.3 percent), but a phenomenal increase since the early 1970s (169.9 percent). As has happened in most developed economies, the growing cost of labor has forced many South Korean manufacturers to relocate large industries and/or labor-intensive ones to countries with much cheaper wages, such as Thailand, Malaysia, Indonesia, the Philippines, Vietnam, and China. Thanks to better ties between the 2 Koreas since 1998, some South Korean manufacturers have established a few electronics factories in North Korea, but extensive relocation of South Korean industries to North Korea will not be a real option until the 2 countries have further improved their relations.

CONSTRUCTION.

Despite its decades of growth resulting from massive infrastructure projects, the construction industry has experienced a decline since 1995 when its share of GDP was 11.3 percent. With the financial crisis, its share fell to 10.1 percent in 1998 and 8.8 percent in 1999.

In the 1960s and the 1970s, construction prospered as South Korea was entering its industrialization phase. This continued until the housing boom of the late 1980s. The number of residences (houses and apartments) built averaged 196,000 annually from 1973 to 1982 and reached 750,000 in 1990. The boom continued until 1996 when the economic slowdown began. The 1997 financial crisis saw a sharp drop in construction-industry revenues from US$32.4 billion in 1997 to US$9.9 billion in 1998. The limited recovery of 1999 increased the revenues to US$16.7 billion.

Overseas projects have helped the construction industry over time, but their importance has declined since the early 1990s. Taking advantage of cheap labor, South Korean construction companies won contracts in the 1980s for road-building projects, mainly in the rich oil-producing nations of the Middle East.

SERVICES

The service sector has developed substantially over time, accounting for 51.5 percent of GDP in 1999, surpassing agriculture and industry. It is the largest employer, with 64.3 percent share of total workforce in 1999 (13,906,000 workers), a small increase from 1995.

FINANCIAL AND BUSINESS SERVICES.

These services accounted for 19.7 percent of GDP in 1999, an increase of 5.7 percent since 1989. A major reason for its modest growth was the collapse of the Daewoo group with more than US$80 billion of unpaid loans. The collapse damaged the bond market and led to a loss of confidence in the investment trust industry.

Under the directive of the central bank (Bank of Korea), the government-owned banks have manipulated economic activities by providing credits to those enterprises who follow the government's development strategy, while punishing others by denying them credit. The 1997 crisis forced the government to reform the financial system to receive an IMF-led rescue package conditioned on economic restructuring. To minimize its intervention in the financial sector, the government has privatized all public banks with the exception of 2 development banks: the Korea Development Bank and the Export-Import Bank of Korea. They provide medium- and long-term credit for both export industries and the heavy-equipment and chemical industries funded by the South Korean government and foreign investors. In compliance with the IMF demand for the opening of South Korea's financial sector to foreign competition, it has sold one of its privatized banks to foreign bidders, while considering the sale of some others. Banks and insurance companies are still underdeveloped and suffer from various problems, a consequence of years of government mismanagement and especially the continued tight government control of financial services. Years of continued reform will therefore be required to address its underdevelopment.

The 1997 financial crisis forced many financial and business services to consolidate. Between 1997 and 2000, government regulators closed down about 498 financial institutions, including 11 banks, 21 merchant banking corporations, 13 insurers, 16 securities firms and investment trust companies, and 437 other non-banking institutions. In 2000, the financial system consisted of 22 banks and thousands of non-bank institutions, including 5 merchant banking corporations, 43 securities firms, 36 insurers, 28 investment-trust companies, 15 leasing companies, and 7 credit-card issuers. Non-bank institutions consist of several mutual savings and finance companies, credit unions, community credit cooperatives, postal savings plans, and insurance, installment-credit, and venture-capital companies. Assets held by all domestic banks totaled US$440.8 billion in 2000.

In January 2001, there were 44 foreign banks doing business in Korea, and some Korean banks have been taken over by foreign banks. Assets held by foreign banks are estimated at US$36 billion. Foreign banks work under regulatory conditions almost identical to those of domestic banks, but they are exempted from direct control by the South Korean government. However, they are not allowed to have a branch network, and therefore their retail operations are small.

Investment trust companies (ITCs) constitute another component of South Korea's financial and business services sector. The bankruptcy of the Daewoo group in late 1999 inflicted heavy damage on the ITCs, which had purchased a large share of its bonds. This drastic event caused panicked investors to transfer about US$84.2 billion of their investments from ITCs into banks. To restore confidence, the South Korean government has injected large sums (US$25.3 billion in 2000) into the worst-hit ITCs. It has also promised another rescue package of US$41.3 billion for 2001.

The South Korean life-insurance market is the world's sixth largest in terms of premium income. The insurance industry has also suffered from the weaknesses of the financial sector, and some companies have closed as a result. The government now supervises the insurance industry, which has been opened to foreign investors. In 2000, the insurance industry included 23 life-insurance companies, including 7 foreign ones and 3 joint ventures , and 13 non-life insurance companies. In 1999, their assets were estimated at about US$47.2 billion.

TOURISM.

With its ancient historical sites, many Buddhist temples, various opportunities for summer and winter sports, and natural beauty, South Korea has become an important tourist attraction. Government support and private investments have helped the tourist industry grow impressively in the 1990s, after it had been an insignificant industry in previous decades. The number of tourists grew on average by 7.2 percent per year between 1995 and 1999 to reach 3,921,000 in 1999, a large increase over the 2,294,000 visitors in 1995. In 1999, tourist-generated revenue was US$4.615 billion, a significant drop from 1998's figure of US$6.924 billion. The devaluation of the South Korean currency and a sharp decline in the price of many goods and services pushed down the tourist-generated revenues despite an increase in the number of tourists.

Tourists are mainly from the Pacific region. Japan has been the largest source of tourism, followed by the United States and Taiwan, with 1999 figures of 2,174,000, 473,000, and 146,000, respectively. South Koreans residing abroad form a large segment of tourists as well, sending 1,128,000 tourists that year. The tourist industry has a large and expanding infrastructure. In 1998, it included 446 hotels (nearly half of them 5-star) with 46,360 hotel rooms. The hotel industry received a boost in the 1980s with the 1986 Asian Games and the 1988 Summer Olympics. The 2002 World Cup soccer tournament, which will be co-hosted by Japan and South Korea, will give another major boost to the South Korean tourist industry.

TRANSPORTATION.

South Korea's economic growth has contributed to the expansion of land, sea, and air transportation. The transportation industry grew significantly in the 1990s when South Korea began to emerge as a major trading nation. The industry accounted for 7 percent of GDP in 1999, a little more than its share in 1995 (6.6 percent). The South Korean marine commercial fleet has a large cargo capacity, (5,093,620 metric tons in 1999), and is expected to grow in the first decade of the 21st century. Its commercial air fleet grew rapidly in the 1990s, carrying 74,375,000 international passengers and 9,052,000 domestic ones in 1997. The slowdown in South Korea's economy in 1998 sharply reduced passengers to 55,736,000 and 6,877,000, respectively, but a likely recovery is suggested as the economy recovers.

RETAIL.

South Korea has a very large and growing retail sector, whose share of GDP in 1999 was 10.9 percent. The retail industry, which had been dominated mainly by small-scale traditional shops and restaurants, began to diversify and include larger and modern establishments as well as various foreign retailing networks in the 1980s. Nevertheless, most retail units are still small family-run stores, stalls in markets, or street vendors, though this traditional retail network is giving way rapidly to large discount stores. Discount-store chains, including the domestic E-mart, the U.S. Wal-Mart and Price Costco, and the French Carrefour, are growing. The retail sector also includes a growing food service sector with estimated revenue of US$22.7 billion in 1999. Franchise restaurants, including American ones, accounted for about 5 percent of this sector's revenue in 1999. Like all other types of economic activities, the 1997 financial crisis damaged the retail sector in general and slowed growth of the franchised restaurants in particular, but the economic recovery has improved the situation. Retail and wholesale trade recovered 13 percent in 1999, offsetting a similar decline in 1998. Partial statistics for 2000 reflect about 6.9 percent growth of the retail industry and a sharp jump in retail sales of an estimated US$98 billion.

INTERNATIONAL TRADE

South Korea's international trade began in the 1960s when it started its export-led growth development strategy, exporting mainly light and consumer goods and labor-intensive products (toys, footwear, and clothing). Since the 1990s, it has reduced the exports of such items in favor of heavy-industry, capital-intensive, and high-tech products. This has come about for 2 reasons: light and labor-intensive products have lost their competitiveness in international markets where they now face cheaper products from the other Asian nations; and South Korea's industrial growth has enabled it to produce competitive heavy-industry products like automobiles and ships and high-tech products like memory chips and computer products. It is now a major exporter of telecommunications and computer equipment and devices. South Korea's shipbuilding industry now sells ships to Japan, a major global shipbuilder in its own right.

Since the early 1960s, South Korea has targeted developed markets (the United States, Japan, and Europe) for its exports. Since the 1990s, it has also added the growing Pacific market (China, including Hong Kong and Taiwan) to its target list.

South Korea's exports totaled US$143.7 billion in 1999, a growth of 8.6 percent from 1998 (US$132.3 billion) and of about 11 percent from 1995 (US$125.1 billion). An increasing demand for South Korea's semiconductors and telecommunication products pushed the share of semiconductors in total 1999 exports to 13.1 percent, slightly higher than its 1998 share of 12.8 percent. Vehicle exports also rose by 12.3 percent to US$11.1 billion, but textile exports increased only by 6.8 percent to US$5.8 billion. However, its labor-intensive steel exports declined by 13.4 percent to US$7 billion. In 1999, South Korea's major export destinations were the United States (20.5 percent), the European Union (14.1 percent), Japan (11 percent), China (9.5 percent), and Hong Kong (6.3 percent).

South Korea's imports in 1999 totaled US$119.8 billion, a 28.4 percent rise over the 1998 levels of US$93.3 billion. South Korean export industries heavily depend on foreign capital goods (machinery and equipment) for their production. In 1999, South Korea's main sources of imports were the United States (20.8 percent), Japan (20.2 percent), the European Union (10.5 percent), China (7.4 percent), Saudi Arabia (4.7 percent), and Australia (3.9 percent). In the 1990s, its largest trade deficit was in 1996 (US$20.6 billion), while its largest trade surplus was in 1998 (US$39 billion).

MONEY

Four government entities are in charge of foreign exchange activities in South Korea: the Ministry of Finance and Economy (MOFE), the Bank of Korea (BOK), the Financial Supervisory Service (FSS), and the Korea Customs Service (KSS). The ministry sets the overall foreign exchange policy, and the Bank of Korea holds and manages the foreign reserves, while managing all transactions pertaining to foreign trade and capital movements. It also supervises money-changers and foreign-exchange brokers, and provides foreign-exchange banks with foreign currency loans. The FSS supervises financial institutions that are involved in foreign-exchange activities. The KSS has some foreign-exchange regulatory responsibilities towards international trade. Apart from these government regulatory and supervisory institutions, banks involved in foreign exchange have the authority to engage in such financial transactions, including international banking.

South Korea has a free- floating exchange rate (a rate determined by supply and demand). This type of fluctuating exchange rate limits the MOFE's ability to prevent or to minimize the negative impacts of sudden changes of exchange rates. In 1997, for instance, the MOFE temporarily prohibited South Koreans from purchasing foreign currencies for holding purposes.

The rate of exchange of the South Korean won against the U.S. dollar remained more or less stable in the early 1990s. As the economy began to experience problems in the second half of the 1990s, it began to depreciate gradually against the dollar from 771.27 in 1995, to 804.45 in 1996, and to 951.29 in 1997. This relatively small fluctuation did not have a major impact on the pace of economic activities and the purchasing power of the population until the financial crisis of 1997. In early 1998, the exchange rate jumped to 2,000 and gradually fell to average at about 1,401.44. As the economic recovery began, the rate fell to 1,188.82 in 1999 and to 1,130.96 in 2000. Reflecting the depreciation of the won against the

U.S. dollar, the sharp and sudden increase in the exchange rate had a major negative impact on the South Korean economy, which is heavily dependent on large imports of capital goods and energy. The lowering of the exchange rate in 1999 and 2000, which was the result of a gradual economic recovery, contributed to the recovery itself by decreasing the cost of imported goods and fuel.

There have been various restrictions and regulations on foreign-exchange operations since the 1960s. These government-imposed measures were designed to ensure the availability of foreign currencies to South Korean enterprises and to prevent the flight of capital from South Korea. Under foreign pressure, the South Korean government began to liberalize the foreign exchange market in mid-1992. The 1997 IMF-led rescue package required the country to commit itself to liberalizing all aspects of the foreign-exchange system by the end of 2001. In reality, the system has yet to become fully liberalized as the South Korean government has introduced many new direct and indirect regulations in various forms, including restrictions on certain transactions, tax rules, and monitoring regulations, to ensure its control over the financial system.

The Korea Stock Exchange (KSE) in Seoul is the only stock market in South Korea for trading bonds and stocks. It was opened in 1992 to direct portfolio investment from abroad. The reform of the South Korean economy since 1997 has removed restrictions on foreign ownership of South Korean enterprises, and the KSE is now authorized to sell their stocks to foreign buyers without any limit.

POVERTY AND WEALTH

Since the 1960s, South Korea has greatly improved the living standards of its entire population, especially in infrastructures that ensure access to safe water, sanitation, medical services, and adequate diet. According to 1998 statistics, all South Koreans have access to health services and adequate sanitation, while only 7 percent has no access to safe water. The expansion and modernization of

the health-care system has been particularly effective: between 1963 and 1998, the number of doctors rose from 9,052 (1 for every 2,981 people) to 65,431 (1 per 710 people), and the number of hospital beds from 10,477 (38 beds per 100,000 population) to 236,187 (509 beds per 100,000). There has been universal health-care insurance since 1989. Infant mortality decreased from 43 per 1,000 live births in 1970 to 5 per 1,000 in 1998. Life expectancy increased from 62.6 years in the period 1970-75 to 72.4 years during 1995-2000. It is significantly higher than other Pacific nations such as Thailand (68.8 years), but much lower than Japan, which has the world's highest life expectancy (80 years), and the United States (76.7 years).

Education, which is compulsory until the age of 14, has been a priority for the South Korean government since 1948. During the period 1995-97, it accounted for 17.5 percent of government annual spending, which is higher than most countries including Japan and the United States. The literacy rate has risen from 22 percent in 1945 to 87.6 percent in 1970 and to 97.5 percent in 1998, but is a little lower than North Korea's rate of 100 percent. South Korea has surpassed certain major industrialized countries in college-level enrollments in science (34 percent in South Korea, 23 percent in Japan, 29 percent in the United Kingdom, and 31 percent in Germany). Nevertheless, it is still lags behind North Korea in the percentage of the population with post-secondary education; in 1998, post-secondary graduates equaled 9.2 per-

cent of the adult population compared to 13.7 percent in North Korea.

Economic development has improved the standards of living of the South Koreans over time. As a result, only 4.2 percent of them lived below the poverty line in 1999. However, the rapid economic development has created extremes of wealth and poverty. The 1997 financial crisis worsened the situation as many people lost their employment while many others faced wage cuts and declining purchasing power. To address the situation, the government spends large amounts on the social safety net (welfare and unemployment insurance), which amounted to 7 percent of government expenditure in 2000.

WORKING CONDITIONS

South Korea joined the International Labor Organization (ILO) in 1991, but has not yet ratified the ILO conventions on Workers Rights (agreements on the freedom of association, on the right to organize and collective bargaining, and on the right of public-service employees to organize). South Korea's constitution provides for the right of workers to associate freely, excluding public-sector employees. According to 1998 legislation, white-collar public workers are allowed to form work-

place councils, but blue-collar workers in the postal services, railways, telecommunications, and the National Medical Center are allowed to have unions. In 1997, South Korea amended its labor laws to permit competing unions from 2002 onward, and also to permit more than 1 national labor federation. In 2000, there were 3 such federations: the Korean Confederation of Trade Unions, the Federation of Korean Trade Unions, and the Independent Korean Federation of Clerical and Financial Workers, in addition to 1,600 district labor unions.

The constitution and the Trade Union Law provide for the right of workers to collective bargaining and collective action. There are provisions for workers to seek retribution in case of unfair practices by employers. The 1997 revision of the labor law removed a ban on third-party intervention (union intervention) in labor disputes. In South Korea, labor disputes tend to escalate to work slowdowns and confrontational interruption of businesses through rallies, sit-ins, and occupation of company offices or factories.

Workers have the right to strike, but strikes in government agencies, state-run enterprises, and defense industries are prohibited. The government has the power to end labor disputes by compulsory arbitration in enterprises that are considered to be of "essential public interest" such as public transportation, public health, and utilities. Wage cuts and layoffs since the 1997 crisis have contributed to the rise of labor disputes, which had dropped to 80 cases in 1995 from the 1980s, when they numbered in the thousands.

The South Korean government implemented a minimum wage in 1998 for companies with more than 10 employees. The rate is subject to annual reviews. In 1999, the minimum wage was US$1.45 per hour. As a rule, it is not adequate for a typical blue-collar worker who must supplement his/her salary with overtime payments and bonuses that most companies usually offer to their employees.

The 1989 amendment to the labor law provides for a 44-hour workweek, but its 1997 revisions enable employers to require some 48-hour weeks without overtime. A reduction in the workweek to 40 hours has become a major goal of the labor movement.

Forced labor and child labor are prohibited, but children under the age of 18 may work under certain conditions. To do so, they require a special employment certificate from the Labor Ministry, which is rarely issued because education is compulsory until the age of 14. Children under the age of 18 who wish to work require written approval from their parents or guardians. There are several laws concerning child labor, which are usually enforced, but regular inspections are not done due to lack of human resources. The government sets safety and health standards at work, but accident rates are high because of the lack of regular inspections.

The 1987 Equal Employment Act provides for the equality of men and women in the workplace. Despite improvement in their hiring and promotion, women are still discriminated against, and many women have been sexually abused. The government has enacted laws to punish abusers and provide redress for the abused, but abuses still continue. Foreign workers, most of whom are undocumented, are subject to various physical and financial abuses. Although the government has legalized the status of some of them and sought to ensure their better treatment by employers, they are still vulnerable to various forms of abuse, including withholding wages and passports.

South Korea has a highly educated workforce of 22 million (1998 est.), a growing segment of which is skilled. Unemployment more than doubled during the 1997 financial crisis, from 2.6 percent (556,000) in 1997 to 6.8 percent (1,461,000) in 1998. Economic recovery reduced it to 4.8 percent (1,353,000) in 1999. In May 2000, the unemployment rate was 3.7 percent.

COUNTRY HISTORY AND ECONOMIC DEVELOPMENT

c. 100 A.D. Emergence of the Kingdom of Koguryo, the first truly Korean state.

668-892. Silla Unification Period marked by cultural borrowings from China.

914-1392. Koryo Dynasty marked by Mongol invasion and decline of Buddhism in favor of Confucianism.

1392. Yi Dynasty moves capital to Seoul.

1590s. Japan invades Korea under Hideyoshi and occupies Seoul.

1884. U.S. Presbyterian missionaries arrive in Korea.

1910-45. Japan colonizes the Korean Peninsula.

1919. Samil (1 March) Independence Movement suppressed by the Japanese.

1945. Japan surrenders in World War II and ends its colonization of Korea. The Korean Peninsula is "temporarily" divided between Soviet and U.S. spheres of influence.

1948. The Republic of Korea is established in the southern half of the Korean Peninsula. Syngman Rhee, a civilian, becomes the first president of South Korea.

1950-53. The Korean War is fought between United Nations (mostly U.S.) and Communist forces.

1950s. South Korea mechanizes and expands its agricultural sector.

1961. Park Chung-hee, a military person, becomes the second president of South Korea.

1960s. South Korea begins its export-driven strategy of industrial growth by producing and exporting light consumer and labor-intensive products as well as some electronics (radios and black-and-white televisions).

1970s. Production and export of more sophisticated electronics, such as color televisions and calculators.

1974. Assassination attempt on President Park; his wife is killed.

1976. Opposition leaders are purged by President Park's increasingly authoritarian regime.

1979. President Park is assassinated a year after his reelection; martial law follows for 15 months.

1979. Major General Chun Doo-hwan becomes South Korea's third president and tightens military rule.

1980s. South Korea begins its production and export of more advanced electronics, such as VCRs, microwave ovens, and cameras. Heavy industry (steel, automobiles, and shipbuilding) emerges as an important sector.

1988. South Korea hosts the Summer Olympics, which also help expand its tourism industry.

1989. Roh Tae-woo, a former military person, becomes South Korea's fourth president.

1990s. South Korea's high-tech industry emerges, which turns South Korea into a major supplier of telecommunication and computer devices and parts.

1990. South Korea normalizes relations with the Soviet Union.

1992. South Korea normalizes relations with China.

1993. Kim Young-sam, a civilian, becomes the fifth president of South Korea.

1996. South Korea joins the OECD, for which it begins liberalizing its economy.

1997. After labor unrest in the early part of the year, a financial crisis emerges, resulting in a series of bankruptcies and collapse of major enterprises. The government negotiates a bail-out package with the IMF for about US$60 billion. Kim Dae-jung, an opposition leader, is elected as the sixth president of South Korea.

1998. Kim Dae-jung takes office as president and announces his "sunshine policy" of seeking better ties with North Korea. Financial crisis eases with private and public initiatives to reduce long-term debt.

1999. The South Korean government establishes the Financial Supervisory Service, and announces a fiscal plan to balance the budget by 2006. Curbs on foreign investments are eased.

2000. Foreign automakers take control of some troubled South Korean firms. President Kim Dae-jung pays an official visit to P'yongyang, the first such visit since the creation of the 2 Koreas.

FUTURE TRENDS

South Korea went through a very difficult economic period in the late 1990s. Its gradual recovery has shown the resilience of its economy and its capability to grow further. The major factor for its success has been the strength of its export industries, the engine of growth since the 1960s. The diversification of this sector, which also includes high-tech industries, will ensure a position for South Korea as a major economic power and a major global exporter.

The high domestic labor costs have led to the relocation of some labor-intensive industries to other Asian countries like China and Vietnam. This process will likely be accelerated, especially because it can speed up recovery of the South Korean economy and help it grow faster by making its products more competitive in world markets.

If the current process of reconciliation between the 2 Koreas continues, better ties will likely lead to extensive production of South Korean goods-for-export in North Korea, where labor costs are much lower. Better ties will also provide a big opportunity for South Korean industries as their government has agreed to expand and modernize North Korea's crumbling infrastructure pending the settlement of major security concerns. The unification of the 2 Koreas could also turn a united Korea into a stronger economic and military power. Despite its current difficulties, South Korea has a large military force and is an economic power with a growing high-tech sector. North Korea suffers from major economic problems and requires heavy investments to repair its aging industries, devastated agriculture, and crumbling infrastructure. However, it has a very extensive industrial sector with an advanced military branch, a relatively significant mining sector, and a highly educated population. It is linked via land to China and Russia, which are South Korea's targeted markets. The combined economic and military capabilities of the 2 Koreas will likely help a united Korea to establish itself as a regional power in the Pacific.

The restructuring of South Korea's economy and the growing presence of foreign investors and enterprises in the previously protected South Korean market will impose bankruptcies and mergers on weak and small firms to make the larger firms strong enough to withstand foreign competition. Unless the economy grows fast enough to generate employment for the jobless, this situation could contribute to a growing unemployment rate with negative economic, social, and political consequences on South Korea. The role of foreign firms in its economy will significantly increase as its closed and highly-protected markets are opened.

DEPENDENCIES

South Korea has no territories or colonies.

BIBLIOGRAPHY

Economist Intelligence Unit (EIU). Country Commerce: South Korea. London: EIU, 29 January 2001.

—. Country Finance: South Korea. London: EIU, February 2001.

—. Country Profile: South Korea, 2000-01. London: EIU, June 2000.

—. Country Report: South Korea, 2001-02. London: EIU, February 2001.

—. Country Report: South Korea, 2001-02. London, EIU, November 2000.

—. Country Risk Service: South Korea. London, UK: EIU, March 2001.

Eui-Gak, Hwang. The Korean Economies: A Comparison of North and South. London: Oxford University Press, 1993.

Kie-Chiang Oh, John. Korean Politics: The Quest for Democratization and Development, 1960-1990. Ithaca: Cornell University Press, 1999.

UNDP. Human Development Report 2000. New York: Oxford University Press, 2000.

U.S. Central Intelligence Agency. The World Factbook 2001. <http://www.cia.gov/cia/publications/factbook>. Accessed May 2001.

U.S. Department of State. 1999 Country Reports on Human Rights Practices: Korea, Republic of. <http://www.state.gov/www/global/human_rights/1999/korea.html>. Accessed April 2001.

U.S. Department of State. FY 2001 Country Commercial Guide: Korea. <http://www.state.gov/www/about_state/business/com_guides/index.html>. Accessed April 2001.

—Dr.Hooman Peimani

CAPITAL:

Seoul.

MONETARY UNIT:

South Korean won (W). A won is equal to 100 chun. There are notes of W1,000, 5,000, and 10,000, as well as coins in denominations of W10, 50, 100, and 500.

CHIEF EXPORTS:

Electronic products, machinery and equipment, motor vehicles, steel, ships, textiles, clothing, footwear, fish.

CHIEF IMPORTS:

Machinery, electronics and electronic equipment, oil, steel, transport equipment, textiles, organic chemicals, grains.

GROSS DOMESTIC PRODUCT:

US$764.6 billion (purchasing power parity, 2000 est.).

BALANCE OF TRADE:

Exports: US$172.6 billion (f.o.b., 2000). Imports: US$160.5 billion (f.o.b., 2000).