Korea’s Economic Status
On January 30, 2012, Korea IT Times had the pleasure of listening to Dr. Bahk Jae-wan, Minister of Strategy and Finance discuss the topic of Korea’s economic situation. These included factors such as South Korea’s relationship with Iran, the new leadership role of Kim Jong-un, FTA with Japan, South Korea, and China, and the common household debt among Korean families. He also discussed the problems with conglomerate corporations and small businesses and the role they play in shaping Korea’s economy.
South Korea and Iranian Relations
The first main topic discussed was South Korea’s relationship with Iran. Most countries of the world rely on Middle Eastern nations such as Iran, Kuwait, and the Kingdom of Saudi Arabia for oil. After all, a large majority of the world’s oil lies in the heart of these countries. In fact, 9% of the oil imported to South Korea is from Iran.
Dr. Bahk commented that two Korean oil companies have refinery facilities that specialize in Iranian crude oil. This raises the eyebrows of many western countries, where relations with Iran are not the strongest. South Korea was questioned by the United States about its ties to Iran, and requested them to limit a significant amount of energy supplies they import from this Middle Eastern country.
But what is a significant amount of oil to purchase from Iran There will be further discussion between the United States and South Korea to discuss and resolve the matter. If South Korea decides to reduce imports from Iran, Bahk stated that most of the oil imports would come from Saudi Arabia. The Kingdom of Saudi Arabia currently produces 10 million barrels of oil for South Korea, but they are willing to produce 12.5 million barrels of oil to export.
Currently, the US domestic laws concerning Iranian sanction are executed when there is no increase in crude oil prices, so they are doing their best to make sure that inflation will not occur in the near future.
Death of Kim Jong-il
The next topic discussed was the death of former North Korean leader, Kim Jong-il. Kim Jong-il died of a heart attack on December 17, 2011 on a train near Pyongyang. Soon thereafter his successor, Kim Jong-un assumed his father’s former position as the leader of North Korea. Many South Koreans feel that because Kim Jong-un studied in the west that perhaps he will be more open with foreign nations, including South Korea.
Others feel that he will follow in his father’s footsteps and continue with the same leadership techniques as Kim Jong-il, and remained a closed and mysterious country. How will this affect the economy of South Korea if the north becomes more open or remains closed Though the question cannot be answered now because of Kim Jong-un’s new role, they are hoping for a new reform for a higher economical growth and better relations between the two Koreas.
FTA Between China, Japan, and South Korea
The third topic discussed by Dr. Bahk is the Free Trade Agreement (FTA) between China, Japan, and South Korea. Dr. Bahk commented that South Korea has very few of its own natural resources, and many imported items come from Japan and China, so a free trade agreement would be ideal.
There have been numerous discussions made by these nations about free trade between the three countries but there are still further talks to be carried out be carried out. In fact, the three heads of state (South Korea, Japan, and China) are planning to announce their plans of a free trade agreement by May 2012.
Korean Debt
Another issue that Dr. Bahk discussed is the family debt situation. Most families borrow money from the bank, whether it be for a new car, house, or sending their child to college. Though Korea has debt, they are certainly not alone. In the United States, a student wanting to attend college will borrow USD 70,000 or more to pay for school.
Although Korea’s percentage of loans based on fixed interest has increased 2.35% since the end of 2011, the overall household debt compared to the GDP has been stabilized and is slowly decreasing. Actually, in comparison with the debt of the United States and United Kingdom, Korea is lower than assets than the US and UK; assets are overvalued and others are underestimated. Although it is uncertain when the economy will boom, Dr. Bahk commented that most likely it will be lower during first quarter and higher in the last quarter.
Conglomerate vs. Small Business
Dr. Bahk’s final topic was the problems with conglomerate corporations and small businesses. Most people shop at a huge conglomerate, though some remain loyal to their “mom and pop” shops. Though it may seem that these huge conglomerates are ganging up on these smaller stores and stealing their business, there are many, in fact that work together.
Some smaller businesses that are being operated that are of in sourcing within the conglomerates. Mr. Bahk emphasized about the ethics and conscience of the large companies in South Korea, though he do not believe it would help the companies through system laws and regulations among the international standards. He also said that large companies and Small and Medium Enterprises (SME’s) needed close collaboration between large companies and their suppliers.
Building conglomerate giants like Samsung, LG, Hyundai, and Kia also helps create jobs for the citizens of Korea. This year’s job creation is said to increase by 3.7% by the end of 2012. Some local Koreans have doubts and worry about the new plan, thinking that perhaps there will be longer working hours, low productivity, and a higher rate of industrial accidents.
Although we make assumptions and share ideas and thoughts about the future of Korea’s economy Dr. Bahk Jae-wan put it best when he said “I believe that even though there are more risk factors and uncertainties than ever, the Korean economy is strong enough to overcome such difficulties with its solidly restructured economic system and trust built at home and overseas. In fact, January 13, 2012 was the 50th anniversary of Korea’s First Five Year Economic Development Plan. Over the last five decades, Korea has shown the most dynamic development in history, weathering numerous difficulties” Luncheon Remarks packet.
That being said by Dr. Bahk, let’s make the year of dragon, the year for Korea’s growth and a prosperous new beginning.
