All the signs are that South Korea’s relative position in the global economy will be even stronger as a result of the crisis. Of course, heavily tied into world trade, it had also been hit by the downturn, but the government’s prompt huge and growing stimulus package seems to have averted the worst effects with a success that surprised even the authorities themselves, writes Ian Williams
ON THE UPSIDE
It was said that South Korea’s economic development was held back by its relatively inflexible capital markets with intertwined holdings dominated by the dominant conglomerates, the chaebols; that it was too reliant on manufacturing, and had an inadequate service sector and inflexible labour supply. Totally un-American, was the gist of the complaints.
However, as South Korea’s economic output surged 2.9% in the third quarter of last year, many in the West would have been wishing they shared those perceived problems, not least in view of a sudden affection from British and American leaders to what they used to disdain as passé rustbelt manufacturing. Much of Korea’s growth was in industrial output, not least the country’s thriving automobile industry, where Hyundai, for example, was taking market share in the US from declining Detroit. It added to 2.6% growth in the second quarter (Q2) 2009—the highest in the Organisation for Economic Co-operation and Development (OECD).
All the signs are that South Korea’s relative position in the global economy will be even stronger as a result of the crisis. Of course, heavily tied into world trade, it had also been hit by the downturn, but the government’s prompt huge and growing stimulus package seems to have averted the worst effects with a success that surprised even the authorities themselves. Almost a year later, in October last year, the finance ministry revised its initial estimate of a 1.5% decline over the year to an actual annual increase over the previous year. The stock market is already above pre-Lehman crash levels.
In addition to new money, the government had front-loaded its annual spending for the earlier part of the year. It also avoided a fire sale by delaying its planned privatisations of state assets until market conditions approved. However, another factor in South Korea’s success is in some ways even more remarkable—its manufactured.....
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