South Korean Economy Destined to a Catastrophe

South Korean Economy Destined to a Catastrophe

(Han Ho-sok, head of the Reunification Studies Institute)



Froth of Cappuccino

More recently the renowned journalist Daniel Gross presented an interesting opinion.

He held that the insolvency of the world financial markets originated from the US has the relation with the “Starbucks”, the US world-wide coffee shop chains.

There floated a super large bubble on the US housing and financial markets like the milk froth over Cappuccino favored by the Americans, and with the breaking of the bubble the housing and financial markets eventually collapsed at a dash.

As of March 2008 the Starbucks has some 4 500 chains in 47 countries; Britain has 256 shops, the largest number, next, south Korea has 253.

What merits attention is the fact that almost the countries with many Starbucks shops suffered the crisis caused by the US-originated shock of the insolvency of the financial markets.

Nevertheless, the countries with no Starbucks shop such as Italy , Sweden , Finland and Norway did not encounter the shock.



Toward Depression from Recession amidst the Process of Globalization

South Korea requested emergency funds from the IMF in a bid to cope with its financial crisis after less than a year since it joined the Organization of Economic Cooperation and Development (on October 25, 1996) as its 29th member state.

It was an unheard-of catastrophe.

What did the ignorant and “bold” decision of Kim Young-sam, the then president of south Korea, who declared the south Korean version of globalization with least knowledge of it, fascinated by the spectacles of Sidney Port, Australia, and the merciless restructuring enforced by the IMF bring about to south Korea?

A report which the “Hyundai Economy Institute” published on September 11, 2008, indicated that the economic situation of the common population has considerably deteriorated due to the economic stagnation, price hikes, increase of interests burden, slowdown of wage rise, etc. The financial crisis of 1997 in south Korea was only the beginning of the so long agonies.

What is more fearful than the desperate reality of south Korea where 36 people on average commit suicide everyday, is the fact that south Korea is inching closer to a big catastrophe which will bring misfortune and pains bigger than that of the 10 year-long depression.

The fact that south Korea has faced an unheard-of crisis during the 10 year-long depression, is just the argument that the ruin of its economy is inevitably more fatal and tragic than that of other countries.

Because of that “globalization” south Korean economy obsessed with it is falling down to an abyss of bankruptcy, unemployment and poverty. After having chanted the liberalization and opening of the financial markets during the 10 year-long depression, it is now rushing straightaway into a depression from the recession.



Why does not the “Black September” Come?

The British daily the “Times” carried an article on September 1, 2008 under the title “ South Korea with the Won Currency Problem is Heading for the Black September”.

The Black September here implies the recurrence of the financial crisis.

Now the foreign exchange reserve of south Korea is less than US$ 247 billion, but its debts due within a year are US$ 215.6 billion.

This indicates the danger of catastrophic bankruptcy caused by the exhaustion of the foreign exchange reserve and the nosedive of won value.

It seems that the south Korean economy cannot escape the danger of dishonor for the second time in the wake of that of 1997 because of the drying up of the foreign exchange reserve after one year.

What is facing the south Korean economy at present is not the recurrence of the financial crisis of the 1990s, but it is an overall bankruptcy.

There are four points explaining the danger of the overall bankruptcy the south Korean economy is facing right now.

First, bipolarization of export and domestic market got deepened.

The vital question of the south Korean economy depends on export.

The portion of the export and import against the GDP in 1998, just one year after the financial crisis occurred, was 84.1%, but it rose to 94.2% in 2007.

After the Kim Young-sam regime pursued the globalization, big businesses associated with the neo-liberal globalization enrolled in the world market at an extremely fast speed while otherwise small and medium-size businesses headed for ruin. The ruin of small and medium-size businesses means the collapse of the domestic market.

And what is more terrified than the collapse of the domestic market is the decrease of south Korean export along with the insolvency of the world financial markets in recent period.

Second, it is a “spurious commerce”.

The factor of added value induced by export was 0.698 in 1995, but it was 0.647 in 2003.

The job induction effect for a billion won of export was 26.2 persons in 1995, but it decreased to 12.7 persons in 2003.

Such economic indices show that despite much export it does not help increase the domestic added values and jobs, rather it goes by contraries.

Third, foreign capitals secede from the stock markets of south Korea . In all of south Korea , Taiwan , India , Thailand , the Philippines and Indonesia ; south Korea is the first where the scope of the secession of foreign capitals from stock markets is biggest.

The crisis of bankruptcy of the world financial markets incurs the secession of foreign capitals from south Korean stock markets, followed by slump of won value, resulting in the collapse of its financial markets.

Fourth, it is the ruin of the object economy.

The average household debt was 20 million won in late June 2001, but increased to 40 million won in 2008.

As of March 2008, the total sum of individual debts augmented to 75.8 billion won, 15.63 million won per capita.



When the Trio Ended

Bankruptcy, unemployment and poverty sweeping the south Korean society, dominated by American-style capitalism, are converged on middle and lower population in terms of income distribution rate.

The monthly average income of the 20% lower level population is 830 000 won, whereas that of upper classes is 6.34 million won, more than 7.64 times than that of the former.

10% upper classes occupied 54.3% of the south Korean net assets (gross assets deducted by liabilities), the amount of their minimum net assets is 538 million won, and they owned 53.4% of all real estate.

Apparently south Korean capitalism is American-style one where social and class inequity is extremely rampant so that only 10% upper classes live luxuriously.

The indigent population in south Korea increased from 12.05% in 1997, the first year of the financial crisis, to 16.22% in late 2006.

As of 2006 the absolute poverty-ridden population bellow the minimum cost of living was 5.36 million, 11.1% of all population, and 1.54 million, less than 3.2% of them, receive the trivial grants for survival, and the rest, 3.82 million, are on the verge of starvation.

Absolute poverty-ridden children are numbered a million as of late 2007.

The elderly population is 5 016 000, more than 10% of all, and the elder who live alone forsaken by the society are 880 000.

In this despaired society the scope of new job creation has dwindled by 185 000 on average every year since the occurrence of the financial crisis.

Bankruptcy, unemployment and poverty are the social misfortune and agony from which 80% of the south Korean population are suffering.

Nevertheless, “president” Lee Myong-bak is clinging to the free trade and open market policy, and the Grand National Party is tenaciously attached to American-style capitalism which protects and represents the interests of the wealthy classes of 118 000 who owned more than US$ a million (a billion won) as of 2008.

Aboard a broken airplane called American-style capitalism Lee Myong-bak, the Grand National Party and the Federation of the Korean Industries are performing a trio chanting that American-style capitalism is the only outlet.

Engrossed in the onboard trio, they are gliding, not knowing of the engine breakdown, and with the finish of their glide their trio will end as well.

The “Black September” will not come, but only the crash will fall on the broken airplane.