South Korea’s recovery from its 1997 economic crisis is being accompanied by a somewhat hesitant drive to enforce corporate reform, and continuing erosion of its international competitiveness.
GNP is expected to grow 4% in 1999, with short-term debt down to 25% from 50% of total overseas debt. Current account surplus in July was $2.8bn (£1.7bn) from $2.5bn in June, with the total for the seven months to July $16bn down from $25.88bn a year earlier.
Chung Chung-Ho, director of the Central Bank of Korea, said: `Although domestic demand for imports is growing, exports are expected to increase by at least 10% because of the recovery in south-east Asian markets. We expect to achieve a $20bn surplus this year.’
Foreign investment in South Korea was a monthly record of $207bn in July, up 68% from last year, bringing the total to $6.5bn over the first seven months of this year.
Much recent growth is consumer-driven, while the dramatic improvement in the balance of payments has been at the expense of capital investment. This will have important long-term consequences for the international competitiveness of South Korean firms. Moreover, industrial conglomerates, or chaebol, remain deeply entrenched and have further consolidated their hold on some sectors since 1997.
One chaebol in deep trouble is the Daewoo Group with overseas debts of $10bn. The government has effectively nationalised the company to save it from bankruptcy, which will also save the local banks (nationalised last year) which are its leading domestic creditors.
The group’s foreign creditors pose the greatest threat to its future. Should they call in overseas loans or seize collateral, property Daewoo owns or leases in Europe could be stripped from its assets. This would complicate the company’s domestic problems because much of its Korean capacity supplies parts to its overseas operations.
While these developments appear to present opportunities for overseas companies wishing to enter or expand in Korea, it remains one of the toughest markets. For overseas investors wanting to enter the Korean market, mergers and acquisitions are probably the best means of becoming established in the country.