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South Korea. A Toothless Tiger Suzana Karim And Ryan Songerath. Historical Perspective. 1950’s Adopt Japanese Model Zaibatsu in Japan Chaebol in Korea (chay bol). The Chaebol’s. Family controlled Market share over profits Poor investments High debt-to-equity ratios - PowerPoint PPT PresentationTRANSCRIPT
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South Korea
A Toothless Tiger
Suzana Karim And
Ryan Songerath
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Historical Perspective1950’s Adopt Japanese Model
Zaibatsu in Japan Chaebol in Korea
(chay bol)
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The Chaebol’s Family controlled
Market share over profits Poor investments High debt-to-equity ratios
300%-400% Corruption
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The Top Five Chaebol Over the Years
Rank
Mid-1960's 1974 1983 1990 1995 2000
Late 1950's
1 Samsung Samsung Samsung Hyundai Hyundai Hyundai Hyundai
2 Samho Samho LG Samsung Daewoo Samsung Samsung
3 Gaepung LG Hyundai Daewoo Samsung Daewoo LG
4 Daehan Daehan Hanjin LG LG LG SK
5 LG Gaepung Ssangyong Ssangyong Ssangyong SK Hanjin
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Fight for Reform Chun Doo-hwan 1980 1987 Democratization Market Liberalization
Pace and Sequence? Freedom for labor union formation
Wages increase 60% from 1986 - 89 1993 acceleration of liberalization Open most protected sectors by 97-98
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Why Overvalue Currency?
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Politics 96-97 Failed to push through reforms Lame duck President
Son involved in scandal
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Problems Begin January 97 Hanbo steel
Manufacturing Co. collapses Soon after Kia and several other mid-
sized Chaebol’s file for bankruptcy August 97 won begins rapid
depreciation
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Balance of Payments
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The Crisis
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Recovery (1998-1999) Main Objectives:
Stabilize currency market Stop the outflows of capital Increase foreign reserve Contained the downward spiral in
credit market
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Currency Market stabilization IMF announced a bailout package of
$58.4 billion(13% of Korean GDP) (Figure 2) Government Intervention
Temporary agreement with private creditors to maintain exposure
Voluntary rescheduling of short term debt- $24 billion of short term private debt turned into claims of one to three year maturity.
Tight Monetary Policy (Figure 1) Reduced Consumption and investment Reduced demand for import and surplus in
current account-$50 billion
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Credit Market StabilizationGovernments role as moderator in the financial market (Table 1) Public funds to restructure private institutions
Two major banks were nationalized Government has more say over their operation (because it is providing fund) Forced banks to roll over loans to small firms Encouraged banks to provide new loans with govt. guarantee
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Capital Market Stabilization Diversified fund resource (Figure 3)
Issued commercial paper In 1998, net commercial paper issues
jumped 154 percent from the year before and outpaced the decrease in bank loans
Revived equity market Foreign ownership of Korean equity reached
76.6 trillion won in December 1999 and increased to 87.7 trillion won by June 2000
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Labor Market Improvements Some layoffs to cut costs (8.6%
unemployment rate from around 2%) Temporary workers instead of
permanent workers Wage cuts Increased productivity and large
decrease in unit labor costs of 20% (97-2000)
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After Recovery Some pre-crisis problems were
unresolved Chaebols remained unprofitable Government debt increased to 40% of
GDP Nonperforming loans were 14% of all
loans Korea retained pegged exchange rate
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QuestionsAnd Comments
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