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This page is graphically intense with long load times due to photos. However, the photos and narratives by the men who served at Osan Air Base makes the wait well worthwhile. The opinions expressed are those of the author and in no way represents any official statement of Osan AB or the USAF. 
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BUSINESS, FINANCE AND LABOR EVENTSJanuary 2008South Korea nets US$1.23 billion trade surplus with U.S. in November 2007 (Jan 2008) South Korea netted a US$1.23 billion trade surplus with the United States in November 2007, up from $786 million the previous month, according to a monthly tally released Friday by the U.S. Commerce Department. The latest figure raises South Korea's cumulative surplus to $12.45 billion as of November last year.South Korea's exports to the U.S. that month were valued at $4.17 billion and imports $2.94 billion. The Asian country ranked 15th in terms of U.S. trade volume with a foreign nation, seventh in both import and export volumes. The surplus in advanced technology products widened to $307 million, up from $239 million in October. South Korea continued to do well in the auto sector. It sold $934 million worth of motor vehicles and parts while importing $85 million worth, resulting in a $849 million surplus. The year-to-date surplus amounted to $9.51 billion. U.S. trade with North Korea in November was not enough to go on the record, which requires a minimum of $50,000. (Source: Yonhap News.) China passes Korea as the No. 1 shipbuilder (Jan 2008) China surpassed Korea to become the world’s biggest shipbuilder by new orders in 2007, according to data compiled by Clarkson Plc, the world’s largest shipbroker. Chinese shipbuilders booked orders for 103.6 million deadweight tons of ships, compared with Korea’s 94.8 million, according to data from London-based Clarksons. Shipyards in China booked orders at historically high prices last year, more than tripling order backlogs at the nation’s shipyards. Demand for vessels to carry Chinese imports of raw materials and exports of consumer goods is fueling earnings growth at shipbuilders, including China State Shipbuilding, the nation’s biggest. China remained behind Korea in new orders measured by compensated gross tons. Deadweight tonnage measures a finished ship’s carrying capacity and doesn’t reflect the cost of building a vessel or its sale price. Compensated gross tonnage is a measure that accounts for ship size and the time required and materials used for production. China booked 29.2 million gross compensated tons of new orders last year, compared with Korea’s 32 million, Clarkson said. Surging orders helped China’s order backlog more than triple to 51 million compensated gross tons as Korea’s backlog doubled to 64.5 million compensated gross tons, according to Clarkson. Japan booked about 20 percent as many new orders as China and Korea, Clarkson said. IHI Corp., Japan’s third-biggest heavy-machinery maker, said it’s in talks with JFE Holdings to create the biggest Japanese shipbuilder to compete against Asian rivals. (Source: Joongang Ilbo: Bloomberg.) EU replaces U.S. as the No. 1 investor in S. Korea in 2006 (Jan 2008) The European Union increased its investment in South Korea 24 percent year-on-year to US$204 billion in 2006, replacing the United States as the largest foreign investor in South Korea. The EU was trailed by the U.S., which invested $191.5 billion in South Korea, and Southeast Asia with $97.4 billion, the Bank of Korea bank said. Aggregate foreign investments in South Korea reached $652.3 billion in 2006, up 21 percent from the previous year. The EU had ranked second in 2005 with $163.9 billion invested in South Korea, trailing the U.S. with $184.7 billion. Meanwhile, South Korea's overseas investment stood at $212.4 billion as of the end of 2006, up 42 percent from a year earlier, the central bank said. Asia's third-largest economy invested the most in the U.S. with $55.5 billion. The EU was the second-largest investment destination with $48.9 billion, the bank said. South Korea's bond investments in the United States stood at $25.6 billion in 2006, up 39 percent from the previous year mainly on institutional investors' appetite for safer assets, it added. (Source: Hankyoreh News: Yonhap.) S. Korea, EU Spar Over `Rules of Origin’ (Jan 2008)South Korea and the European Union began a new round of talks for a free trade agreement (FTA) at the Shilla Hotel in Seoul on 28 Jan, this time focusing largely on the ``rules of origin,’’ which has been one of the sticking points in the past negotiations. The ongoing round is the sixth of its kind since the two sides launched the negotiations amid much fanfare in May 2007, right after the conclusion of the South Korea-U.S. FTA. But the talks have been deadlocked by what the Europeans see as Seoul's protective stance toward some industries (such as automotive) and what the South Koreans described as the EU’s high standards. Under EU-suggested rules, a product would be considered as coming from a trading partner only when at least 60 percent of the value of the finished item is added in that country. South Korean negotiators want the ratio to be lowered to 40 percent, as a number of manufacturers in the country outsource many components from neighboring countries such as China to cut costs. (SITE NOTE: Supposedly this was smoothed over previously, but it appears it hasn't. The focus before was that items from the Kaesong Industrial Zone was to be accepted as "made in Korea." The US rejected this. The accepted standard is the 60 percent rule -- but the ROK wants it lowered especially since China has become its main source of auto parts outsourcing -- and with Kaesong parts listed as outsourced, the ROK end products would become hard pressed to meet the 60 percent rule.) However, officials say a major breakthrough is unlikely for the free trade talks in this round since two of the hottest points in previous rounds -- tariff concessions on goods and auto standards for South Korean car imports -- have been taken off the table. With regard to cars, for example, the EU has offered to eliminate its 10 percent tariff within seven years. In return, the EU wants South Korea to ease regulations on European cars by applying less restrictive international technical standards. The EU is South Korea's second-biggest trading partner after China and is the biggest foreign investor in South Korea. (SITE NOTE: Korean auto exports to Europe has surged in recent months causing EU automakers to cry foul. This is getting to be a sticking point especially now that Korean automakers are opening plants in the former Soviet-bloc nations to take advantage of tax incentives and lower labor costs -- along with entry into the EU markets. The EU is pushing for 50 to 75 percent of the value of a finished item to be added within that country. Korea is saying that is too strict and is suggesting 30 to 45 percent because it outsources many components to other Asian countries. An item-by-item resolution has not been made, but the chief negotiatiors say a general outline has been drawn. South Korea and the EU are major trading partners. In 2006, their bilateral trade topped $80 billion (roughly 75.9 trillion won). An FTA with the EU would be the biggest-ever for South Korea, surpassing the deal signed last June with the U.S., which now awaits ratification by legislatures in both countries. Dozens of protesters -- mostly farmers -- braved the cold weather outside the hilltop hotel to blast the ongoing negotiations. A sign held by one farmer read, ``Stop South Korea-EU FTA that kills all Korean pig farmers.’’ (SITE NOTE: Tongil News showed a photo of the protest where the cardboard effigy showed an American flag meaning it was pointed to the US-ROK FTA despite this being a EU-ROK FTA negotiation.) (Source: Korea Times.) Progress Made, but EU FTA Battle Goes On (Jan 2008) Joongang Ilbo on 31 Jan reported that as the sixth round of ROK-EU free trade talks come to a close, intellectual property rights and place-of-origin issues are nearly resolved, according to Kim Han-soo, the ROK's chief negotiator, during a briefing 30 Jan at The Shilla Hotel. "We are moving smoothly as far as intellectual property rights are concerned," he said. An agreement has also been reached on safeguards on agricultural products. But the two key issues of auto industrial standards and tariff concessions have not been discussed in this round. February 2008Samsung Ordered to Pay W3 Trillion to Creditors (Feb 2008) A Seoul court on 31 Jan ruled in favor of creditors of the now-defunct Samsung Motors, ordering Samsung Group chairman Lee Kun-hee and 28 Samsung affiliates to repay W3.15 trillion in overdue debt to creditors in the nation’s biggest civil lawsuit ever. Samsung will have to repay about W2.3 trillion given that creditors have already converted about W800 billion worth of shares in Samsung Life Insurance they had received into cash.When the Seoul Central District Court delivered the ruling regarding its now-defunct affiliate, Samsung Motors, on 31 Jan, there was a distinct atmosphere of disappointment at Samsung Group. The court acknowledged the validity of the "agreement," which was the biggest issue in the case, and ruled in favor of the creditors in the largest civil lawsuit in the nation's history. Officially, Samsung has announced that it will decide whether to appeal after review of the ruling; internally, it thinks that it has been completely defeated by its creditors. One Samsung Group executive expressed his disappointment about the court's decision, saying that Samsung would now be branded as a company with overdue debts, when the group is already in a predicament due to the ongoing investigation being conducted into allegations that it maintained slush funds to bribe public officials and the aftershock following the nation's largest oil spill on the western coast. (Source: Hankyoreh.)The Seoul Central District Court on 31 Jan ruled in favor of the creditors -- 14 financial institutions including Seoul Guarantee Insurance Company. The court ruled an agreement Samsung signed with its creditors to repay the debt in listed shares is valid, rejecting claims by the conglomerate that it entered the agreement under duress. The court ruled Samsung is liable to repay the entire principal of W2.45 trillion and must sell Samsung Life Insurance shares worth about W1.63 trillion aside from about W800 billion worth of shares that creditors have already converted into cash themselves to repay part of the debt. Samsung is also liable for overdue interest of about W700 billion that has accrued since 2001. The court also ruled if Samsung affiliates lack the money to repay their debt, Lee must make up for the shortfall from his own holding in Samsung Life Insurance shares. The court’s ruling also clarifies the legal responsibility of Samsung Chairman Lee Kun-hee with regard to Samsung Motors’ insolvency. When the affiliate applied for bankruptcy in 1999, Lee contributed his own shares of Samsung Life Insurance as collateral for the debt, and a deal was signed. Samsung insists that Lee contributed the stocks out of moral responsibility and denied that Lee should be held legally responsible.The court dismissed Samsung's argument that the agreement was the outcome of undue pressure from the government and was therefore null and void. Samsung said it has yet to decide whether to appeal after reviewing the ruling carefully. In June 1999 when losses were incurred in the wake of Samsung Motors' application for court receivership, the creditors received a total of 3.5 million shares of Samsung Life Insurance from the group chairman, worth W700,000 apiece. Unable to sell the shares because Samsung Life Insurance was not, as promised, listed, the creditors in 2005 sued for about W5 trillion -- W2.45 trillion in debt, W2.28 trillion in overdue interest, and an indemnity. The court reduced the interest claimed. (Source: Chosun Ilbo.) U.S. industrial standards hurt fair trade??? (Feb 2008) Korean companies spend about 900 billion won ($950 million) every year in additional costs in conducting quality and safety tests to meet U.S. industrial standards, according to a government study. The KSO (Korean Standards Association) reported on 3 Feb that it received 1,069 complaints from firms, laboratories and institutions last year about unreasonable and arbitrary industrial standards of the United States. The Korean Agency for Technology and Standards (ATS) said a survey conducted on 930 local exporters and certified industrial testing laboratories revealed that they pay an average of 890 billion won (US$942.5 million) every year to meet U.S. industrial standards. The total translates into 950 million won per each company and laboratory, with businesses also voicing discontent over requests for long, drawn-out tests that delay sales. The ATS, under the Ministry of Commerce, Industry and Energy, said it counted 1,069 individual cases in which South Korean businesses and institutes believed that strict industrial standards were unfair. Of the total, 504 cases involved U.S. agencies requesting the use of specific U.S.-made testing equipment and materials in quality and safety experiments. This was followed by 179 instances of long, drawn-out tests. Other complaints that were voiced were lack of consideration for South Korean environmental conditions and climate, and generally poor or outdated technology used in tests. (SITE NOTE: The United States is the largest export market of South Korea, and goods exported to the country are often required to meet the standards and guidelines set up by private associations or interest groups of its industries, rather than official guidelines of international organizations such as the ISO (International Organization for Standardization). The answer is if you want to sell in an advanced nation that is subjecting its manufacturers to the same tests, you need to upgrade your tests to meet these standards. It is simply evening the playing field. The days that Korea can claim that they are a poor country are long past. This is the same game Korea plays in its protectionist policies -- but when its applied to them, they cry foul. Many countries take advantage of local industrial standards as a non-tariff barrier to protect local industries from foreign goods and services. Korea does the same. Moreover, many U.S industrial standards are considered as de facto global standards because of the size of the country's market and its influence on the global economy.) "In the case of the American Association of Textile Chemists and Colorists (AATCC), the agency insists that all tests to check for shrinkage of clothes be conducted using U.S.-made detergent," said a government official. The report insisted that the price of standard U.S. detergent is 100 won per gram, which is 20 times more expensive than Korean detergent. So Korean firms are spending 10 billion won in buying the U.S. detergent to conduct 1 million fabric tests every year, it estimated. (SITE NOTE: This seems fair as the fabrics are going to be used in the American market with consumers using American detergents.) He added that others, like the organization that regulates auto imports, call for the exclusive use of U.S. testing equipment to evaluate safety. "In the past, Seoul did not make an issue of this even though these rules were not internationally accepted standards set by the International Standards Organization and the International Electrotechnical Commission," the official said. He added that South Korea will ask for changes in very unfair cases. (SITE NOTE: International standards don't seem to bother the ROK especially when it comes to the issue of boneless beef and their inspection criteria.) Related to this, the ATS said it found at least 10 testing standards that were arbitrary or ineffective that need to be changed. These include tension testing of metallic materials regulated by the American Society for Testing and Materials, carbon monoxide alarm tests conducted by Underwriters Laboratories Inc., and the pH of water extracted from wet-processed textiles carried out by the AATCC. Other agencies cited for maintaining unfair standards were the American Society for Mechanical Engineers and the Institute of Electrical and Electronics Engineers Inc. (SITE NOTE: We wonder if all this horse-manure was brought up in the US-ROK FTA talks...which we doubt.) (Source: Yonhap News.) Agriculture deficit hits record high in 2007 (Feb 2008) South Korea's agriculture deficit reached a record high last year fueled by a sharp rise in global grain and feed prices, a state-run corporation said on 4 Feb. The country's agricultural trade deficit reached US$10.92 billion last year, up from $8.68 billion in 2006, the state-run Agro-Fisheries Trade Corp. said. Exports gained 10.2 percent to $2.40 billion, while imports jumped 22.6 percent to $13.32 billion. (Source: Yonhap News and Korea Times.) RIDICULOUS: KERI deems exploding laptop safe because it can't find why it exploded (Feb 2008) The LG Electronics laptop model that exploded into flames on Jan. 8 turns out, after a month-long investigation, to pose no safety problems, LG Electronics and LG Chem said on 12 Feb in a release. The two companies said they received a final note from Korea Electrotechnology Research Institute (KERI), which took charge of the explosion case, saying the incident was triggered by external factors such as high temperature and shock, not by defects in the laptop or its battery pack. (SITE NOTE: Unfortunately, the laptop was NOT being subjected to high temperatures NOR shock -- it was sitting around.) The explosion happened when a reporter was covering the hospitalized victims of a deadly fire in Icheon last month. The reporter noticed white smoke leaking out of his laptop, so he ran to the rooftop of the Bestian Medical Center in Gangnam, where the computer burst into flames. According to the release, KERI conducted over 100 tests but failed to find the cause of the problem. “According to the global standard, a laptop battery should resist 130 degrees Celsius for 10 minutes. LG’s laptop battery was okay at that high temperature during our test,” said Eom Seung-wook, a KERI researcher. “Since the laptop and its battery have no problems, we’re not considering any kind of recall,” said an official from LG Electronics. (Source: Joongang Ilbo.) (SITE NOTE: The bottomline is that the reasoning is that since KERI said it can't find the problem, there must not be a problem so LG Electronics then tries to sweep it under the carpet. This comes after problems with cell phone batteries exploding still in the minds of consumers. Unfortunately, two more incidents occurred.) UPDATE: LG to Replace Battery Free (Mar 2008) LG Electronics Co., South Korea's No. 2 electronics maker, said on 26 Feb it will offer free battery replacements for one of its laptop models following recent battery explosions. LG Electronics halted sales of its Z1-AE007 laptop model after two cases of battery meltdowns were reported. The company has yet to determine the exact cause of the meltdowns. Manufacturing industry losing jobs (Feb 2008) Employment in Koreas manufacturing sector is declining by the year, as the trend of jobless growth seeps deeper into the economy due to an advancing market and increasing number of companies expanding overseas investments, according to a state-run think tank. This phenomenon has been most apparent in the manufacturing sector, the pillar of the nations economy, the Korea Institute for Industrial Economics and Trade said in a report. In 1993, it took an average of 11.08 workers to produce 1 billion won worth of goods, but the figure dropped more than two-fold to 3.92 people by 2005, according to the study on the impact of macroeconomics on industries released yesterday. In 2006, the figure dropped further to 3.66 workers, showing an overall decline of 67 percent since 1993. Asias fourth-largest economy has been struggling with uncertain job prospects as manufacturing companies seek to build factories in markets with cheaper labor like China, India, and Vietnam. The lack of government incentives and high taxes have also prompted companies to look offshore or to hold back investments at home. By manufacturers, according to the report, information-technology firms, such as electronics parts makers, and audio and telecommunications equipment makers, saw the steepest decline to 1.69 workers in 2006, down 85 percent from the 11.31 recorded in 1993. Computer and office equipment manufacturers suffered the biggest drop, of 2.45 workers, an 86 percent plunge from an average of 16.96 recorded 13 years ago. However, the metal industry, most representative of the smokestack industry, felt the least impact, as it employed an average of 11.25 workers in 2006, down 20 percent from 13.99 workers registered in 1993. The service industry also experienced the smallest impact compared to manufacturers, as it employed 17.56 people per firm on average, down 27 percent from 23.94 during the same period. Machinery equipment rental companies and supplies rental firms hired more people, with employees averaging 29.9, up 19 percent from 24.55. The property market also saw a rise, with 5.42 workers per firm, a 40 percent jump from 3.87. The KIET report attributed the growth to development of the information-technology industry and the advance of technologies. The think tank projects the gap in employment between the manufacturing and service industries to widen because of the accelerating pace of job cuts by manufacturing firms. Between 1995 and 2006, the labor productivity rate of manufacturing companies grew an average of 8.8 percent annually, while the service industry in general recorded an average of 1.8 percent. Within the service sector, only telecommunications firms saw a higher increase, with 11.8 percent. The employment rate in the manufacturing sector has been falling rapidly since the 1990s and into the following decade, the KIET report stated. On the other hand, jobs are growing in the service sector, while our productivity is declining. This shows a different pattern from advanced economies where job growth is accompanied by productivity growth. (Source: Korea Herald.) 2007 exports to U.S. hit $47 billion (Feb 2008) Korea netted a $12.9 billion trade surplus with the United States for 2007, slightly down from $13.4 billion in 2006, the U.S. Commerce Department said on 14 Feb. Korea exported $47.6 billion worth of goods and services last year and imported $34.7 billion worth. In 2006, exports totaled $45.8 billion, while imports came to $32.44 billion. Korea fell into the red in the trade of advanced technology products, recording a $2.5 billion deficit. But it tallied a $10.3 billion surplus in auto trades for 2007. On a monthly basis, Korea recorded a $415 million deficit in December trade, with $3.1 billion in imports and $3.5 billion in exports. It also fell $200 million into the red in advanced technology trade for the month. In the auto sector, Korea tallied a $778 million surplus for the month. The Commerce Department said the '07 U.S. trade deficit dropped 6.2 percent to $711.6 billion, the first decline in six years. The deficit for December fell to $58.8 billion on-month from $63.1 billion. U.S. trade with North Korea totaled $1.7 million for 2007. (Source: Joongang Ilbo.) Korean Products' Market Share Decline in U.S. (Feb 2008) Made-in-Korea products are increasingly losing ground in the American market. In contrast, market shares of seven other countries including Mexico, whose free trade agreements with the U.S. came into force, are rising steadily. According to a report titled "Declines in Korean Products' Market Shares in the U.S. and its Reasons," released Sunday by the Institute for International Trade at the Korean International Trade Association, Korean-made products' shares in the U.S. import market rose to 3.14 percent in 2004 from 2.94 percent in 2003. But it declined for three consecutive years: 2.62 percent in 2005, 2.47 in 2006, and 2.43 in 2007. The items that recorded the largest margins of decline between years 2004 and 2007 were electrical and electronics goods and clothes with 3.98 percent and 3.78 percent, respectively. Electrical and electronics goods particularly suffered a big loss. Though the overall size of the U.S. import market expanded 0.16 percentage point compared to 2004, the shares of Korean goods have dropped. The institute attributed the reasons for the setbacks of the Korean goods to the rising price competitiveness of emerging Asian nations such as China, India and Vietnam, and increasing market shares of the nations who sealed FTAs with the U.S. In case of Mexico, whose FTA with the U.S. took effect last year, its market share in the U.S. edged up by 0.60 percentage point compared to 2005. Singapore, Chile, Morocco, Bahrain, Oman and Israel also saw their market shares rose by small margins over the same period. "To raise market shares, we should develop value-added technologies to differentiate ourselves from the newly emerging economies. But more importantly, we should ratify the KORUS FTA that is now pending in the National Assembly as soon as possible to make the most of tariff-free trade with the U.S.," said Kim Byeong-yu, a deputy director of the institute. (Source: Donga Ilbo.) Samsung Caught Off Guard by Sony Move (Feb 2008) Sony’s announcement on 26 Feb that it has agreed to set up a joint venture with Sharp for the manufacture of next-generation liquid-crystal display panels has put Samsung Electronics, Sony's long-time partner in LCDs, on red alert. Huge losses, tangible or intangible, seem inevitable for the Korean conglomerate, which is already battered by a corruption scandal. Since establishing LCD panel joint venture S-LCD in 2003, Samsung and Sony have maintained a close relationship, bearing an equal share of expenses in the construction of new factories. When new plants were built in 2004 and 2006, Sony invested some W1 trillion to W1.3 trillion each time (US$1=W947). But Sony's latest decision leaves Samsung alone to invest in S-LCD's 10th-generation production line and it will cost an estimated W5 trillion to build. Above all, Samsung stands to lose its biggest buyer in the 10th-generation LCD market. S-LCD's new line, when put into operation, was expected to bring annual sales of W4 trillion, of which Sony was expected to buy half. For the past four years, Sony bought around W2-3 trillion worth of LCD panels annually from S-LCD. Samsung also worries about possible damage to its brand image. When S-LCD was established in 2003, the Korean electronics giant consolidated its high-tech image by supplying LCD panels to Sony, then the world's largest digital TV maker. This eventually helped Samsung take the top spot in the global LCD TV market. Although Samsung ranks first in the global LCD panel and TV markets, its breakup with Sony is unlikely to help its image, especially when competition is growing ever fiercer among the big players. S-LCD means a lot to Samsung: Lee Jae-yong, the only son of Samsung Group chairman Lee Kun-hee, is the official director of S-LCD. The new alliances among the Japanese rivals has prompted calls for closer cooperation among Korean enterprises. Several companies led by the Korea Display Industry Association have laid out plans to work together in the development of display panels, equipment, parts and materials. Samsung, for its part, faces criticism over its slow response. There have been plenty of signs indicating shifting alliances in the global LCD market. For instance, Sony refused to invest in S-LCD's new line late last year and instead increased procurement from Taiwan. Meanwhile, Sharp, Japan's largest LCD maker, had been looking for a new partner since it announced last year it is building the 10th-generation line. But Samsung ignored the signs and allowed itself to be caught off guard, critics say. (Source: Chosun Ilbo.) Conflicting Story: Samsung and Sony Still in Negotiations (Feb 2008) On 27 Feb it was reported that Samsung Electronics Co Ltd was in the final stages of talks with Sony Corp to jointly build a new LCD panel production line and the two may cooperate on another, bigger line, a Samsung source said on 27 Feb. (SITE NOTE: Samsung Electronics Co Ltd and Sony Corp are likely to invest about $1.9 billion jointly in a new flat screen production line, a source at Samsung said on 4 Mar. The comment was the latest in a series of announcements from panel makers and sellers, underlining the robust outlook for liquid crystal displays (LCDs) as demand for sleek, stylish and increasingly inexpensive television sets rises. The Samsung source declined to give an estimated timing of production and the output size. "It shouldn't be too late, but first we'll have to see the market conditions." However, Sony is diversifying its panel suppliers in a bid to surpass Samsung, the world's top maker of LCD TVs in 2007.) Sony, which runs a joint venture to produce liquid crystal display (LCD) panels with Samsung, said on 26 Feb it would take a one-third stake in Sharp Corp's $3.5 billion LCD panel plant in Japan to meet rising demand for flat-screen TVs. Sony's LCD production and procurement strategy had been eagerly awaited as other major TV makers including Sharp Corp T , Panasonic maker Matsushita Electric Industrial Co Ltd and Samsung have made public their investment plans.The move announced on 26 Feb had raised concerns in the Korean market that Sony might not cooperate with Samsung in future projects, although Sony President Ryoji Chubachi pledged to continue running S-LCD, its joint venture with Samsung. "We've almost wrapped up discussions with Sony for the 8-2 (eighth generation/line 2) production line and it's been going well," said the Samsung source, who asked not be named. The new plant would be located at the company's LCD production complex south of Seoul. Sony and Samsung, the world's biggest maker of large-sized LCDs, are already operating the 8-1 line, an eighth-generation line in the S-LCD complex. The investment size for the new line has not yet been set but will likely be similar to the 8-1 line, the source said. Asked on the sidelines of a news conference on Tuesday if Sony is talking with Samsung on another eighth-generation line, Chubachi declined to comment, and a Sony spokesman on 27 Feb said the company still has no comment on the matter. Samsung and Sony spent a combined 1.8 trillion won ($1.9 billion) in the initial stage of the existing line. Samsung is currently ramping up the 8-1 line on its own, spending another 2 trillion won. Samsung believes it is still possible to work with Sony on a bigger 10th generation LCD production line, the source said. The comment comes after Sony's Chubachi said on 26 Feb that if Samsung proposes that they jointly build and operate a 10th generation plant, Sony is willing to consider it. Sharp's new factory in which Sony is investing will be the world's first using the 10th-generation glass substrates, which yield more panels than earlier lines. Samsung benefited from Sony's brand power and steady demand for its screens, while the alliance provided Sony with a partner to shoulder heavy investment needs in the flat-panel industry. But the two are rivals in the LCD TV market, with Samsung ranked the world's biggest LCD TV producer for 2007, followed by Sony and Sharp. Sony aims to sell 15-20 million LCD TVs in the year starting on April 1, up from 10 million this business year, and urgently needs to secure enough panels. Shares in Samsung were up 1.2 percent at 578,000 won while Sony rose 2.7 percent to 5,340 yen by mid-afternoon, both outperforming the respective market's benchmark index. (Source: Boston.com.) Signs of Stagflation Looming (Feb 2008) Korea is seeing signs of stagnant economic growth amid high inflation -- known as stagflation -- and a widening trade deficit due to rising prices of crude oil and other raw materials, as well as the U.S. subprime crisis. The Bank of Korea (BOK) reported on 28 Feb the deficit in the current account -- the broadest measure of trade, services and investment -- flowing into and out of the country, widened to an 11-year high in January amid soaring oil prices. Growing downside risks may prompt the central bank to lower its growth target for this year from its earlier projection of 4.7 percent. The market regards the Lee Myung-bak government's ambitious goal of achieving a 6 percent growth through stimulus packages as unrealistic. Korea is expected to see its highest inflation in a decade this year. The current account shortfall reached $2.6 billion in January, compared with a revised $813.8 million deficit in December. The January shortfall was the largest since January 1997 when it amounted to $3.13 billion. ``Exports continued robust growth in January, but the surging prices of oil and other raw materials raised import costs for firms,'' said Yang Jae-ryong, an official of the central bank. Last month, the trade balance posted a shortfall for the first time since March 2003. Customs-cleared imports surged 31.1 percent from a year ago to $36.1 billion, while exports rose 15.4 percent to $32.4 billion. Rising raw materials prices are casting a shadow over the country's economic recovery, fueling concerns that South Korea, a chief importer of oil, metal and grain, will suffer inflation and a significant drop in earnings from exports. The price of Dubai crude, South Korea's benchmark, jumped 69 percent from a year ago in January, taking a toll on the world's fifth-largest oil buyer. ``The average import price of oil surged to $89 per barrel in January from $33 the previous year. As a result, oil imports grew to $7.3 billion in January from $4.1 billion a year ago,'' Yang said. Surging oil costs have sharply increased the prices of goods and services here over the past few months, dampening consumer spending. Consumer prices rose above the BOK's target range of 2.5 to 3.5 percent from a year ago for the second straight month in January. ``Global raw materials prices are likely to go up further on a continued rise in global demand,'' the Korea Center for International Finance said in a recent report. ``A weak dollar and inflation risks will also put more upward pressure on global prices.'' In addition, the country's outbound shipments are expected to fall amid a U.S. economic recession. The BOK earlier said that the current account will likely swing to a shortfall of about $3 billion this year, the first deficit since 1997. ``If oil prices remain high this year, the annual current account shortfall may shoot above the BOK's initial forecast,'' Yang of the BOK said. (Source: Korea Times.) Conglomerates Lose Ground (Feb 2008) The dominance of the top 30 conglomerates in Korea has significantly declined, the Korea Economic Research Institute said yesterday in its report dubbed, “Reducing economic dominance of conglomerates as percentage of the national economy.” According to a survey of 18,000 companies subject to external audit, the nation’s 30 largest business groups’ sales accounted for 35.6 percent of the national economy in 2005, compared to 59.7 percent in 1995, though the number of affiliates remained almost unchanged: 206 in 1995 and 218 in 2005. Their share of total assets to the economy also dropped from 34.1 percent to 19.2 percent and the rate of employment declined from 40.3 percent to 25.6 percent during the same period. Financial companies were excluded from the survey. By size, the top four groups suffered the biggest sales drop from 40.5 percent to 22 percent. Those ranking fifth to 10th saw their sales proportion decrease from 14 percent to 10.1 percent. But those ranking below 10th experienced no major changes. “Korea now badly needs to foster global companies, but various regulations get in the way of their development, hampering national competitiveness and further growth,” the report pointed out. “In 1987, when a system designating conglomerates’ groups was adopted, regulations were necessary to prevent companies’ reckless expansion through loans. However, those risks have largely gone. If anything, excessive regulations undercut the global competitiveness of domestic companies,” said Lee Ju-seon, director in charge of corporate research in the institute. He added, “The system and other regulations, such as the restriction that caps shareholding by big conglomerates in other firms, must be abolished.” (Source: Donga Ilbo.) China, S. Korea probe factory closures (Feb 2008) China and South Korea are investigating complaints that hundreds of Korean-invested factories have closed down, leaving workers without pay. Although surging manufacturing costs are hurting foreign manufacturers in many areas, especially southern China, the Korean factory closures are mainly concentrated in eastern China's Shandong province, a region with many ethnic Koreans that is closest to the Korean peninsula. "We heard that some South Korean companies closed their operations in Qingdao due to rising costs," Liu Xiaojiang, deputy director of Shandong's Department of Foreign Trade and Economic Cooperation said in a phone interview on 27 Feb. "We are now investigating. We don't know yet how many there are," he said. Surging wages and costs for fuel and other raw materials, combined with the loss of tax rebates on exports - previously used to promote investment in export production - have put the squeeze on many manufacturers already enduring a potentially onerous tightening of labor and environmental standards. Some low-tech manufacturers are closing, while others are moving to lower-cost regions of inland China or to neighboring countries such as Vietnam. Both sides appear to be taking pains to ensure the problem does not sour their otherwise very close, thriving business and political relations. Officials in Seoul said a task force set up by the South Korean government traveled to Shandong, Shanghai and Dongguan in southern China's Guangdong province a month ago to study the situation. The task force, based in Qingdao, a city in Shandong, will help companies legally liquidate their businesses if necessary, the South Korean government said in a statement. In Qingdao alone, about 200 mostly small and medium-size factories closed down without paying wages and taxes, said Kim Oh-ryong, deputy director of the China division at South Korea's Ministry of Commerce, Industry and Energy. The companies are legally required to reimburse the Chinese government for any tax breaks or other benefits if they shut down in less than 10 years, he said. Not all the companies affected are small ones. In Yantai, another city in Shandong, the Yantai Shigang Fiber Co., a textile factory, suddenly shut down in early January, leaving some 3,000 workers without jobs or compensation, the Shanghai Oriental Morning Post reported on 26 Feb. Calls to the company found its number out of service. There were 19,529 South Korean-invested businesses in China as of September, almost all of them small and medium-size companies. (Source: Fresno Bee.) (SITE NOTE: The answer of the probe is self-evident. The Koreans rushed to China for cheap labor -- but instead found massive problems with corruption, farm mentality workers, and other problems that worked against them making a profit. They simply cut their losses and went home -- without paying for the lost wages. All Korea has to do to investigate how the Korean companies reacted is simply to look at how Korean companies in Korea act. They simply close shop -- clean out the bank accounts -- leave nothing except shells of buildings that the banks own as bad debts and disappear.) March 2008Seoul Ranked Outside Top 50 Financial Hubs (Mar 2008) South Korea has grown into the world's 13th largest economy and the 11th largest trading nation over the past 60 years, rising from the ashes of the 1950-53 Korea War. But the country still has a long way to go to achieve its goal of becoming an international financial center as it has even failed to make it into the top 50 in the latest international financial hub ranking.The Roh Moo-hyun administration championed the financial hub plan and unveiled a series of ambitious measures, including providing tax breaks over the past five years to turn the country into an international financial powerhouse. But the Roh government apparently failed due to anti-foreign sentiment, inconsistent policies and militant labor unions. Foreign analysts have pointed out that Korea's anti-foreign sentiment is the biggest obstacle to the hub plan, adding the country should deregulate the financial market, lower taxes, and create a more foreign-friendly residential and educational environment. Citing its Global Financial Centers Index (GFCI), the City of London Corp. on 28 Feb announced a list of the top 50 financial centers in the world. London topped the list, followed by New York, Hong Kong and Singapore. The index is based on a number of existing rankings in combination with a regular survey of 1,200 senior industry figures. Among Asian cities, Tokyo came in ninth, followed by Dubai at 24th. Even Shanghai and Beijing put their names on the list, ranking 31st and 46th, respectively. Foreign analysts here said it is no surprise that Korea is lagging far behind its Asian rivals in the race to become a regional financial hub. ``Seoul did not make it to the list because it is not an international financial center. I do not think Korea wants to be one,'' said Michael Breen, president of Insight Communications Consultants in Seoul. He said what it means to be a financial hub is different to the Korean government and people from international communities. ``Being a financial center in Seoul means a strong local financial industry, whereas to international communities, it means a regulation-free environment where all types of financial activities are allowed,'' Breen said. He said Korea's public sentiment opposes foreign companies and investors, well illustrated by the Lone Star case, adding it is the mentality of the people who don't want Seoul to be a global financial center. ``Reforming the taxation system and building more international schools and hospitals will definitely help Korea attract more foreign investment. But above all, the government should first decide whether or not it wants to become a place like Singapore or Dubai,'' Breen suggested. (SITE NOTE: It is so insightful to see how people are saying the things that an insignificant expat teacher has been saying for four years -- and the term I use is "xenophobic." The ROK continues to pursue the Lone Star Affair as proof that the attitude dies hard. Then there is the SK Global affair that rankles every foreign investor and the latest is how a convicted embezzler Hyundai CEO sentenced to jail is released by President Roh because of his "service to the country." Then there is the Samsung Group who is in a tight spot lately because of its shenanigans. Yep, Korea really doesn't want to be a hub.) Meanwhile, Seoul Financial Forum made a number of policy suggestions to the Lee Myung-bak government early last month. It said the new government should act in a more coordinated manner than the previous administration, adding it should set up a presidential-level program management office that will effectively coordinate all facets of the government's efforts for the financial hub plan. It also stressed the government should implement policy changes and reforms in a coherent manner, which is the key to creating a business-friendly environment. The forum also suggested that the government should strengthen professional capabilities of regulators, reform the tax system and administration, improve management-labor relations and ease anti-foreigner sentiment. (Source: Korea Times.) (SITE NOTE: First Lee Myeong-bak needs to clean up the NTS which was used as a punishment tool by the Roh administration -- along with the FTC. The ROK is not anti-business. It has only been anti-FOREIGN business.) Forecast for S. Korean economy downgraded: SERI (Mar 2008) A major private think tank Sunday downgraded its projection for the South Korean economy's growth this year, reflecting concerns over a possible U.S. slowdown and financial woes in global markets. South Korea's economy will grow 4.7 percent for this year from the 5 percent advance previously forecast, the Samsung Economic Research Institute (SERI) said in a report. Asia's fourth-largest economy is projected to expand 4.9 percent in the first half and gain 4.4 percent in the next six months. (Source: Yonhap News.) (SITE NOTE: Korea grew by 5 percent in 2007. This indicates a projection for a slowdown.) U.S. Slowdown Hits Korean Economy (Mar 2008) The U.S. economic downturn is growing more serious than expected. The global economy is also struggling, with heavier inflationary pressures caused by skyrocketing prices of raw materials, such as crude oil and grains. In the same vein, the Korean economy is also facing difficulties. Korea's current account balance has deteriorated and prices have risen amid soaring oil prices. Exports and investments are also showing signs of slowing down. Local and foreign think-tanks have begun cutting their forecasts for Korea's economic growth this year from 5 percent to the 4 percent range. Far from a temporary slowdown, indicators show that the U.S. economy, which began reeling in the fourth quarter of 2007 after being hit by the subprime mortgage crisis, is sinking into a deep mire. The U.S. Institute of Supply Management said its survey of manufacturing activity in February fell to 48.3 percent from 50.7 percent in January. This figure is the lowest since April 2003 when the Iraq War began. A number below 50 percent signals declining activity. UBS, a global investment bank, predicted that the world's financial firms will face at least US$600 billion in subprime mortgage losses -- three times as much as previous estimates. With middle-class consumption remaining sluggish because of the worsening financial crisis and falling housing prices, the prevailing view holds that the U.S. economic slowdown grow even worse. The U.S. slump has also weakened the dollar. The greenback scraped a new low of $1.5275 per euro on the New York Foreign Exchange on Monday, the weakest level since the euro's debut in 1999. International investors rushed to sell U.S. dollars and buy oil, a safe-haven asset. At the New York Mercantile Exchange (NYMEX) on Monday, the price of the West Texas Intermediate crude for April delivery hit a record high of $103.95 per barrel. In addition, the prices of gold, corn, rice, soybeans and copper are also sky high, prompting worldwide fears of serious inflation. According to a report on industrial activities in January released by the National Statistical Office on 4 Mar, facility investment dwindled by 9.6 percent from the previous month, the first fall in four months, partly due to sluggish investment in semiconductor manufacturing equipment. The so-called "MB effect" -- the prediction that corporate investment would grow after President Lee Myung-bak's inauguration -- has apparently been losing some luster amid the U.S. slowdown. The index of leading economic indicators dropped 0.4 percent in January, the first decline in 22 months since March 2006. The consumption growth rate, which has remained below zero for three consecutive months, rose 2.5 percent in January. But it is unclear whether the upward trend will continue, since consumption rose thanks to a business boom during the Lunar New Year holidays and a rollout of new car models. (SITE NOTE: LMB demanded that his cabinet make bringing inflation under control a priority. Rising costs of raw materials and foods coupled with rising gas prices have started to impact the lower income families.) A warning light has already begun to flash for the country's exports. The current account recorded a second consecutive monthly shortfall with a deficit of $2.6 billion in January, a result of soaring prices of imports, including crude oil. Tentative statistics show that exports also recorded a deficit of about $800 million in February, with exports to the U.S. falling nearly 20 percent year-on-year due to the U.S. slowdown. In particular, shipments of semiconductors and cars, key export items, plunged by around 39-51 percent year-on-year. With investments and exports moribund, economic think-tanks are lowering their forecasts for Korea's economic growth rate for 2008. The Samsung Economic Research Institute (SERI) cut its growth forecast by 0.3 percentage points to 4.7 percent on 2 Mar. Lehman Brothers, a global investment bank, cut its forecast from 4.6 percent to 4.3 percent. Fitch Ratings, a British ratings agency, cut its forecast from 4.9 percent to 4.1 percent, and UBS cut its forecast from 4.1 percent to 3.6 percent. Hong Sun-young, a managing director at SERI, said, "The U.S. economic slowdown may lead to sluggish exports, rising prices and worsening purchasing power in Korea. This year our economy's survival will depend on how we cope with the external environment," including soaring oil prices and the weakening dollar. (Source: Chosun Ilbo.) Construction shut down as concrete strike goes on (Mar 2008) Amid mass strikes by ready-mixed concrete makers who want to raise their prices by at least 12 percent, the first official meeting between concrete makers and builders failed to reach a resolution after a six-hour meeting on 20 Mar. Four representatives from the Korea Federation of Ready-mixed Concrete Industry Cooperatives, which accounts for 60 percent of Korea's concrete market, met with five officials in charge of buying building materials. As reported in the Korean media, concrete makers asked builders to pay 12.5 percent more for their products. Builders maintained that their commitment was for a raise of only 4 percent. With no compromise in sight, industry experts predict that mass strikes by concrete makers are likely to be prolonged. About 680 concrete makers went on strike on March 19 and halted production. As a result, most nationwide construction projects have stopped. "Last year, concrete makers and builders went through seven rounds of negotiations," said Choi Min-soo, a researcher at the Construction and Economy Research Institute of Korea. "Only cement prices went up last year. But this year gravel, oil prices and cement prices all increased. It seems like it will take longer to settle the dispute than last year," Choi added. Asked about a plan to solve longstanding problems between concrete makers and builders, Choi said, "The builders should develop their own technologies, or consumers and builders should shoulder rising raw material prices, along with concrete makers. Currently, all the burden falls on concrete makers." Members of the Korea Foundry Cooperative Association have shown no signs of resuming work. They called for a rise in cast-iron product prices earlier this month and announced that they will stop supplies indefinitely. Meanwhile, the Korea Federation of Small and Medium Business met with the Federation of Korean Industries yesterday to discuss ways to deal with increasing raw material prices. (Source: Joongang Ilbo.) (SITE NOTE: This is not a simple strike, but the root problem of how to pass the increasing costs onto the consumer without getting into price-gouging schemes. Currently the remocon companies bear the costs of increased sand and components -- and in order to cut corners have been known to substitute inferior sand that leads to crumbling buildings. The reason is that the mechanics for passing price increases on has not been established.) Dollar hits 2-year high against the won -- 982.40 rate best since early 2006 (Mar 2008) The dollar reached a two-year high against the South Korean won Friday, despite its continuing fall against most of the world's major currencies. The dollar climbed to a 982.40 won commercial rate in currency markets Friday, matching levels last seen in February 2006. In November, the dollar dipped to just more than 900 won before rebounding and remaining in the 940 won range until about two weeks ago. Some currency market analysts in South Korea told Stars and Stripes last week that they believe the dollar's surge has a little more steam left in it, but it won't last past summer. "This strong dollar trend against the won is highly likely to continue for the first half of this year, but we predict that the dollar rate will be dropping a little by the end of this year," Jang Jae-chul of the Samsung Economic Research Institute said during a phone interview. The dollar's gains in South Korea run contrary to global trends. Recession fears and steep cuts in interest rates have weakened the dollar in recent weeks against most major world currencies. The dollar continues to set new record lows against the euro, has lost 17 percent of its value against the Japanese yen since May and is now worth less than 50 cents against the British pound. So why is the dollar bucking the trend in South Korea? Financial experts say the most likely explanation is a combination of investor flight and slower South Korean economic growth projections. Unlike established markets such as Europe or Japan, South Korea is considered a relatively stable "emerging market." In times of global economic turmoil, many investors look for less risky ground in large, established markets."Therefore, you want to retrieve investments from the South Korean market by completely selling off, rather than continuing to invest," said Park Hae-sik, research fellow at the Korea Institute of Finance. "The dollars are getting pulled heavily out of the Korean market, and that is triggering the Korean won to drop rapidly." Both Park and Jang said analysts expected a small drop in the won's value this year, but they say no one anticipated the steep drop of the past two weeks. Even with the dollar's recent gains, the won has been gaining sharply throughout the decade. Five years ago, one dollar bought 1,250 won. (Source: Stars and Stripes.) Won plummets to 997 vs. dollar (Mar 2008) The won-dollar exchange rate is now standing at the threshold of W1,000 per dollar, a 26-month high. A high rate is good for exporters because it can increase price competitiveness, but it's a hardship for importers who have to pay more for imported goods. It's also a strain on low-income people because it leads to higher consumer prices. The weaker won is making it more costly for natural resources-deficient Korea to import raw materials. According to the Bank of Korea, a 1 percent fall in the won against the dollar pushes up local consumer prices by 0.07 percentage point. The won hit a fresh two-year low against the greenback 13 Mar as foreign investors continued to sell the local currency. The won plunged to 997.3 won to the dollar, down from 14.9 won on 13 Mar. The local currency has been on a steady decline since Feb. 29. The yen-dollar exchange rate has dropped, while the yen-won exchange rate has risen higher. This has placed a heavy burden on many South Korean businesses that rely on yen-denominated loans. The outstanding balance on yen-denominated loans at five major banks -- Kookmin Bank, Woori Bank, Shinhan Bank, Hana Bank, and the Industrial Bank of Korea -- totaled 862.8 billion yen as of the end of February. Simply put, businesses have suffered debts of more than W2 trillion (US$1=W982), given that the yen-won exchange rate has soared about 30 percent since July last year. In addition, soaring international crude oil prices are posing a threat to the entire South Korean economy. The price of West Texas Intermediate crude climbed above $110 a barrel at one point. The price of Dubai crude, which South Korea relies on heavily, will likely reach $100 a barrel soon. South Korea's economic operation plan for 2008 -- which was drawn up after estimating the average price of Dubai crude at $80 a barrel -- is now running up against a big brick wall. Global investment banks predict that the average international oil price will rise each year, to $95 per barrel in 2008, $105 in 2009, and to $110 in 2010. Foreign investors have pulled money out of the local stock markets on growing concerns that the U.S. central banks liquidity supplying measures will not work to ease the global credit crunch. Analysts attributed the weakening won to an international sell-off of Korean stocks. Experts say international investors are hedging against further economic turmoil by selling off high-risk assets. I think the wons value is rapidly plummeting because almost all factors, including the credit crunch, are contributing to the shortage of the dollar in the local foreign exchange market, said David Kim, an economist at Woori Investment & Securities. There are few factors that can balance out the shortage of the dollar for the time being, he said. The weaker won also reflected poor investor confidence in the outlook of the local bourses. Koreas benchmark KOSPI fell 0.95 percent or 15.36 points to close at 1,600.26 yesterday. The tech-heavy Kosdaq fell 4.10 points to 617.71. The ROK is being impacted by the high won-yen exchange rate, high cost of oil, and high consumer prices all around. These are ominous signs as the ROK struggles to turn its economy around. South Korea's economy is heading toward a mire of "three highs": a high won-dollar exchange rate, high international oil prices, and high prices. With these three variables rising simultaneously, local businesses face the risk of higher costs and have less desire to make new investments. President Lee Myung-bak's "MBnomics," which aims to reinvigorate the economy by galvanizing corporate investment, has hit a roadblock even before getting off to a good start. The problem is, all of the "three highs" are external variables that South Korea can do nothing about. Neither the government nor businesses have the means to bring them under control. And the trend will likely continue, as it is a structural economic phenomenon on a global scale. Under these circumstances, domestic and foreign economic think-tanks have cut their forecasts for South Korea's economic growth this year. (Source: Korea Herald and Chosun Ilbo.) Won slides down to match the dollar (Mar 2008) The era when people must pay 1,000 won for one U.S. dollar is here again. At the foreign exchange brokerage in Seoul, the won's value dropped to nearly 1,000 won versus the dollar, an increase of more than 60 won in 11 trading days. On March 14, the Korea Exchange Bank set the won's retail reference rate at 1014.75 per dollar as of 3:05 p.m. The rate was stable at the level of 1010 won, after rising to 1001.01 in the previous day of trading. It was the first time in almost two years that the retail rate surpassed 1,000 won versus the dollar. The won's decline gained momentum after foreign investors sold more stocks in South Korea than they bought and exchanged dividend payments into U.S. dollars. Amid speculation that demand for the dollar would continue to increase, asset management companies and importers also purchased the U.S. currency, adding pressure on the won. However, the U.S. dollar has hit fresh lows against other major currencies as well. At another point during the day, the dollar struck an all-time low against the euro and broke the 100-yen level. (Source: Hankyoreh News.) On 17 Mar the local currency was trading at 1,017.65 won as of 10:17 a.m., down 20.35 won from the 14 Mar close. It was the first time in 26 months that the Korean currency fell below the 1,000 won mark against the greenback. Dealers said the won sharply fell against the U.S. dollar as investors still saw the greenback as a safer asset although the U.S. economy was sliding into a recession. On 17 Mar the local currency closed at 1,029.20 won to the U.S. dollar, down 31.9 won from 14 Mar close and the weakest close since Dec. 12, 2005 when it finished at 1,033.7 won to the greenback. The won's daily loss was the biggest since Aug. 6 1998 when the local currency fell by 70 won to the dollar. .jpg) Won Rate (17 Mar 2008) The South Korean currency's tumble against the U.S. dollar is expected to bring more pain to local companies as they are grappling with runaway oil prices and rising costs of raw materials, analysts said on 17 Mar. A fall in the won's value against the greenback hurts domestic consumption and drives up inflationary pressure as it makes import prices more expensive, while it fattens the value of overseas earnings by exporters such as Samsung Electronics Co. and Hyundai Motor Co. On 18 Mar South Korean stocks rebounded and the Korean currency gained against the U.S. dollar after the government announced in an emergency meeting that it would stop the surging greenback. On Seoul's foreign exchange market, the Korean won gained 15.20 won to finish at 1014 won per dollar. It was the first time the won had risen in 13 trading days. On 19 Mar just before Seoul's foreign exchange market opened, Finance Ministry official Shin Je-yun hinted at government action to stabilize the market around 8:50 a.m. "The government and the Bank of Korea are worried over the recently surging foreign exchange rate," he said. "If they conclude that market uncertainty will not stabilize without intervention, relevant authorities will implement necessary measures." After the announcement, the government apparently sold about one billion to two billion U.S. dollars on the market yesterday. This caused the foreign exchange rate to fall 15.2 won to close at 1,104 won, the first gain for the won in 13 trading days. (SITE NOTE: The last time the ROK did this just before the collapse of the ROK economy in the IMF Crisis of 1998.) Won Tumbles Against Dollar (May 2008) The won fell against the U.S. dollar on the Seoul foreign exchange market on 8 May, at one point dipping to as low as W1,050. The Korean currency ended the day at W1,049.6 to the dollar, down W23.5 from 7 May's close. 8 May's exchange rate marks a 30-month low for the won since Oct. 25, 2005, and the seventh consecutive business day that the currency has slipped against the dollar, down a total of W53.5 since April 28. The won's fall was the result of high demand for the greenback, with refiners needing more dollars to buy crude oil amid surging international oil prices and foreigners buying the dollar to repatriate dividends to their home countries, experts said. Hong Seung-mo, an official with Shinhan Bank, said, "The won tumbled against the dollar as oil refiners and importers snapped up the dollar to settle bills. If the current trend continues, we could see the won dip to as low as W1,080 per dollar." Other pundits said that policy makers' remarks in favor of a weaker won also led the currency to fall against the dollar. When reporters asked what he thought of the falling won on 8 May, Strategy and Finance Vice Minister Choi Jung-kyung said it was a "natural consequence" of the current account deficit and an imbalance between supply and demand. Bank of Korea Governor Lee Seong-tae also said 8 May that a weaker won against the dollar "does more good than harm" for the growth of the economy. (Source: Chosun Ilbo.) 'Top Chaebol Must Be Subject to Investment Cap' (Mar 2008) The country should continue to restrict inter-subsidiary equity investments by the top five conglomerates to help increase corporate investment and create more jobs, a Seoul economist claimed, directly contradicting the Lee Myung-bak government's plan to ease the regulation. Another economist argued that the government should not relax the rules on conglomerates' ownership of banks, saying such a move will increase risks to financial market stability. At a seminar organized by the Korean Economic Association on 21 Mar, Konkuk University professor Choi Jeong-pyo said if the government abolishes the inter-subsidiary equity investment ceiling on Korea's top five business groups, they will use most of their funds not to expand investment, but to acquire stakes in affiliated companies. ``Conglomerates will also focus more on taking over a number of soon-to-be privatized public firms than on strengthening core businesses through expansion of investment. Scrapping the equity investment cap will not lead to an increase in corporate investment, but to widen the gap further between large and mid-tier business groups,'' Choi said. President Lee has said his government will lift the law that prevents a chaebol unit with assets of 2 trillion won or more from making equity investments in an affiliated firm to help increase corporate investment and create jobs for higher growth. (SITE NOTE: We fear that the chaebols will use the banks to further their goals of consolidating their power. With banks to fund their risk ventures under their control, there are great risks if there are collapses. The problem has been in the past is that the government has picked up the bills -- and now the chaebols are at it again. Instead of cross-assurances on loans, they will now simply have their banks guarantee their loans through borrowed capital from other banks. In other words, the cross-assurance scheme now gets broader and involves the national financial markets.) Meanwhile, Hallym University professor Yoon Suk-heun called on the government to maintain the law banning non-financial companies from owning banks. ``There are pros and cons of easing rules on conglomerates' ownership of banks. But risks outweigh benefits. Most of all, if business groups control banks, it will increase financial market risks in times of emergency under the current regulatory regime,'' Yoon said. The government has said it will relax rules on conglomerates' ownership of banks in a bid to strengthen competitiveness of the financial sector. Under the current law, non-financial companies are banned from owning more than a 4 percent stake in a bank. President Lee has also said easing the rules would create synergy by combining manufacturing and financial businesses, and help strengthen the competitiveness of local financial companies amid intensifying global competition. (Source: Korea Times.) May 2008Foreign Investors Turn Away From Korea (May 2008) Despite all the slogans and gestures by the government to attract foreign investment, foreigners have turned their backs on Korea as the world's 13th largest economy has become increasingly less friendly to foreign investment. The view, which has long been denied by ranking government officials, has been backed by the latest report on foreign direct investment (FDI) into Korea. The volume of net FDI -- FDI inflow minus outflow -- in the first quarter fell to minus $670 million for the first time since the third quarter of 2006, according to the Bank of Korea. This figure compares with net FDI of $1.58 billion in 2007 and $3.59 billion in 2006.Despite the government's denial, the view that Korea has become less attractive to foreign investment has been widely shared among global investors. ``Korea has become less friendly to foreign investment in the past five years as it recovered from the financial crisis,'' Andy Xie, an analyst of the Shenzen Development Bank (SDB) in China, who is the former Morgan Stanley chief economist overseeing the Korean economy and financial markets, told The Korea Times. ``Koreans may disagree but this view is widely shared in the international community,'' he added. (SITE NOTE: Though LMB mouthes pro-business phrases, the courts are still prosecuting the Lone Star fiasco just sentencing another in stock manipulation in Apr 2008. The message is clear. Korea is still a xenophobic business environment.) ``Korea's development model is based on developing indigenous firms to conquer foreign markets, very similar to the Japanese model,'' he added. ``The opening to FDI during and after the crisis was out of necessity. Korea was down and needed the money. When Korea recovered, it reverted.'' Inbound investment had increased sharply since 1998 when the currency crisis hit the nation, with net FDI soaring to $9.33 billion in 1999 and $9.28 billion in 2000 from $5.41 billion in 1998. However, after recording $9.25 billion in 2004, the net FDI steadily decreased to $6.31 billion in 2005, $3.59 billion in 2006 and $1.58 billion in 2007, turning negative in the first quarter of this year. The nation's inconsistent and heavy-handed rules have become a major bottleneck, scaring away foreign capital and businesses, according to an analysis by the central bank. ``Excess regulations and complex administrative procedures here have deterred investment inflow over the past few years,'' BOK senior economist Lee Weon-joon said. ``In particular, the entry barrier for foreign businesses is set too high,'' he added. ``The government has introduced a number of projects to attract foreign investment, including `Invest Korea' in 2003, but most of them have turned out to be no more than slogan-oriented projects.'' In the category of startup administrative procedures, Korea ranked 95th out of 131 countries surveyed, according to the 2007-2008 global competitiveness report by the World Economic Forum (WEF). The nation is also lagging far behind in such categories as control over foreign business ownership and protection of investors, ranking 61st and 53rd, respectively. (SITE NOTE: The chaebols still control flaunting stock holder management rights. The old system is still being maintained despite all the fancy talk.) ``The government always says that it is trying its best to deregulate the market, but they only make a few changes in the micro sectors and leave the big picture unchanged,'' Lee said. The central bank also cited lack of foreign capital inducements, sluggish domestic investment, an unfavorable business climate and withdrawals of existing investment for the sluggish FDI. Excess regulations and anti-business sentiment have made the nation one of the least attractive investment destinations among rich countries, far behind its Asian rivals such as Singapore and Hong Kong, as well as developed countries. The nation ranked 25th out of 82 countries in a survey on business environment conditions conducted by the Economist Intelligence Unit (EIU), far behind Singapore (3rd), Hong Kong (6th), the U.S. (7th) and Taiwan (19th). The EIU expects chances to be slim that Korea will improve its business environment in the short term. ``I don't think Korea can change in the near future to reverse the poor FDI trend,'' Xie said. ``Korea may be unwilling to make the changes to attract FDI,'' he added. ``Korea may never become a truly open economy. The mere fact that people always talk about foreign versus local means that the economy cannot be truly open.'' The central bank said that for investment promotion, the government needs to relax more regulations. ``Reforming regulations is the most urgent task for Korea to attract more foreign investment,'' Lee said ``If Korea is to become a major FDI destination, it should create a more foreign-friendly business environment by removing red tape and tackling its key competitive disadvantages, such as labor market rigidity,'' he added. (Source: Korea Times.) Public Corporation Reform Remains Slow (May 2008) The affiliates of public corporations including Korea Housing Management, Korea Real Estate Investment Trust, and Korea Gas Technology Corporation were ordered by relevant ministries to make adjustments such as privatization or restructuring under the previous government for loose management, but failed to take any action. This shows that the strong opposition from within public corporations makes it difficult for the government to achieve successful reform with one-round advices. ? Labor unions set out to refuse privatization According to the Board of Audit and Inspection (BAI) on May 18, the Planning and Budget Committee, a direct body under the president during the Kim Dae-jung government, had designated Korea Housing Management and Korea Expressway Corporation, affiliates of Korea National Housing Corporation, and Korea Construction Management Corporation, an affiliate of Korea Water Resources Corporation, as corporations to be privatized. It had judged that the task of Korea Housing Management to manage rental houses and the audit and review tasks of Korea Construction Management Corporation were beyond the boundaries of public corporations since those were the areas where private companies competed against each other. In 2001, however, the labor unions of these affiliates opposed to the privatization plan, justifying themselves that they serve public good and eventually nullifying privatization. Among them, Korea Housing Management has been degraded into a weak enterprise with the net income smaller than 100 million won in 2007, as the number of houses under its management dropped from 250,000 in 2005, 230,000 in 2006, to 220,000 in 2007. It could only avoid deficit because Korea National Housing Corporation passed over projects worth 773 billion won over the last three years based on a contract ad libitum. Korea Real Estate Investment Trust, an affiliate of Korea Land Corporation, was advised by the BAI last year to sell off the entire stock to the private sector, after an audit. Though Korea Land Corporation sold its share of Korea Real Estate Investment Trust to a private equity fund, it left out 30 million out of 100 million stocks from the sale. The BAI presumes that the public corporation shortened the sales list to maintain the authority to appoint over two executives of its affiliate. ? Neglected criticism on multidirectional management The Ministry of Commerce, Industry and Energy, in charge of Korea Gas Technology Corporation, revealed its reading in 2005 that “the collective energy project which constructs steam supply and power generation plant and provides community residents with warm water is not appropriate as a project of Korea Gas Technology Corporation.” Its judgment was based on the initial purpose of Korea Gas Technology Corporation, which is the maintenance and repair of facilities to supply natural gas. But in March 2006, Korea Gas Technology Corporation established an affiliate named Gyeonggi CES and began the collective energy project. In 2007, the gas corporation recorded a deficit of 50 million won in the collective energy category. The market domination is also small at about 0.7 percent. It would be safe to assume the project has failed. In the end, the BAI gave a warning to the troubled company in November 2007 for entering into business beyond the initial purpose, but no change has been made so far. Also, the Korea Container Terminal Authority was advised by the audit agency in January 2005 to “take actions to improve fundamental strength, including the restructuring of its affiliates, to make up for the net loss amounting to 21.2 billion won.” Despite the advice, the authority newly invested in a logistics company named Sunkwang Logistics, together with SKCTA, increasing the number of affiliates from three to five. (Source: Donga Ilbo.) 50 public firms make short list to go private (May 2008) Of the 305 state-run corporations, 50 public companies, state-owned banks and firms that were bailed out by the government are on the short list to be privatized. They include Incheon International Airport Corporation, Korea Power Engineering Corporation, Korea Real Estate Investment Trust, Korea Development Bank, Industrial Bank of Korea and Woori Finance Holdings Company.  Subsidiaries of the three publicly owned financial institutions will be also privatized, according to an unnamed senior official at the Ministry of Strategy and Finance who spoke exclusively with the JoongAng Ilbo. Sixteen firms that received bailouts, including Hyundai Engineering and Construction Company and Hynix Semiconductor Incorporated, will be sold this year. An unidentified Blue House official said the move to privatize will happen quickly. ¡°Some will be privatized soon while others will be privatized later after laws are amended at the National Assembly,¡± he said. Amendments will be submitted to the National Assembly in June. The Blue House official said proceeds from the privatization of 50 companies will be worth 63 trillion won ($60.3 billion). That money will be used to create jobs and promote the economy in provincial regions, the official said. With privatization of the 50 public firms, the payroll at public companies will be reduced by 70,000, according to the ministry official. In addition to the companies that will be privatized, the ministry official said another 50 public companies will be merged and then restructured. The merger of Korea National Housing Corporation and Korea Land Corporation, which was suspended during the previous administration, will be executed. Kibo Technology Fund and Korea Credit Guarantee Fund will also be merged. The plans containing both the privatization and merger changes are expected to be announced in early June by the ministry. Ten energy companies, including Korea Electric Power Corporation and its subsidiaries, Korea National Oil Corporation and Korea Gas Corporation, will remain public until new energy policies are made, the ministry official said. Infrastructure related firms, including Korea Expressway Corporation and Busan Port Authority, are not subject to privatization for the time being. Instead, they will bring in managers from the private sector. The Korea Water Resources Corporation and National Health Insurance Corporation will also be exempt. In the course of privatization and mergers, care will be taken not to create monopolies or raise utility prices, ¡°And there needs to be buyers,¡± said the ministry official. ¡°We wanted to announce the plans this month, but it was delayed because of resistance by some politicians and labor unions at public companies.¡± Korea National Oil, which will remain public, will grow with government funds. A proposal to combine Korea National Oil and Korea Gas was scrapped. Fifty firms will be merged before restructuring. According to the Ministry of Strategy and Finance, the operations of Korea National Housing and Korea Land largely overlap. ¡°Public companies with overlapping operations undermine the efficiency of the entire public sector,¡± the ministry official said. Some profitable operations of the Korea Tourism Organization and the Korea Coal Corporation, such as golf clubs and casinos, will be sold to the private sector. Korea Railroad Corporation will remain public, while its passenger and freight businesses will be separated. Operations at 30 public firms, including Kyongbuk Tourism Development, will be transferred to regional governments or parent companies. (Source: Joongang Ilbo.) Seoul unveils phase one of deep privatization scheme -- Initially, 41 firms would participate in president's long-promised plans (Aug 2008) The blueprints of the Korean government’s reform program to privatize, consolidate or restructure state-owned enterprises were finally unveiled yesterday. The Ministry of Strategy and Finance on 11 Aug said that 41 state-run companies out of the total 319 - including the Korea Development Bank, the Industrial Bank of Korea as well as the Korea National Housing Corporation and the Korea Land Corporation - will be included in the initial phase of reforms.  Privatization Plans (Aug 2008) (Joongang Ilbo) The outline was drawn up by a committee under the Finance Ministry consisting of three government officials and four from the private sector headed by Oh Yeon-cheon, a Seoul National University professor of administration. The number of institutions slated for reforms is larger than the 33 mentioned by Kang Man-soo, minister of strategy and finance, earlier in the day when he met with policymakers from the ruling Grand National Party to discuss the plan. “We will privatize firms that are competitive in the market economy. Those that will remain under the government’s management will provide quality service at low price,” Kang said. The minister added that the second and third phases of reforms will follow as soon as preparations are completed. Bae Kook-hwan, vice finance minister, said the earlier figure presented by the minister excluded enterprises such as Korea Development Bank and the Industrial Bank of Korea, whose reform plans had been publicly disclosed earlier. Government departments have already completed changes at Incheon International Airport Corporation. Bae added that after the second and third phases of the restructuring take place, roughly 100 state-run enterprises will be privatized, consolidated or restructured. The restructuring of the public institutions to boost efficiency was one of the key campaign promises made by President Lee Myung-bak. The government’s plan to push forward with the restructuring has been stalled after widespread demonstrations against the importation of U.S. beef expanded to become anti-Lee administration protests. There are 260,000 employees working at the institutions with a total 2008 budget of 338 trillion won [$328 billion]. The government said 35 public institutions since 2002 have had a higher annual growth rate in annual wages than labor productivity, and excessive employee benefits, including education expenses. According to the first phase reform plan, 27 state-owned companies will be privatized, two will be either merged with overlapping businesses and 12 institutions will have business restructuring. Korea Development Bank will be split into a holding company and Korea Development Fund, which will specialize in financial policy that will indirectly assist small and midsized companies. The holding company will be privatized as well as the bank’s subsidiaries including its capital and asset management departments. Industrial Bank of Korea and its subsidiaries including IBK System, IBK Capital and IBK Credit Information will be privatized with its shares sold in the open market. Five state-run businesses including the New Seoul Country Club, Korea Asset Investment Trust and Korea Real Estate Investment Trust will be privatized. The government also plans to sell off its large investments in 14 private companies including Daewoo Shipbuilding and Marine Engineering, Woori Financial Holdings and Ssangyong Engineering and Construction. Detailed plans on how the sales will be made will be announced by the Financial Supervisory Commission by the end of this month. The government currently has a 50 percent stake in Daewoo Shipbuilding, a nearly 73 percent stake in Woori Financial Holdings, and 38.8 percent in Ssangyong Construction. In addition, the government will sell off 49 percent of its stake in the Incheon International Airport Corp. The statement noted that to secure international competitiveness, the reformed airport company will include a strategic alliance with a foreign company that specializes in managing airports. The Finance Ministry added that it could probably make additional sales of its stake in the airport company to draw foreign investors. The merger and the shutting down of overlapping departments between Korea National Housing Corporation and Korea Land Corporation will proceed as already planned. Other corporations will have their operations changed. Korea Tourism Organization will sell off its non-essential businesses, including duty- free shops and golf courses. The overlapping support for small and medium-sized companies at Korea Trade Investment Promotion Agency, Small Business Corporation and Korea IT International Cooperation Agency will be restructured. While support for overseas businesses will be exclusively handled by the trade promotion agency, Small Business Corporation will manage only local businesses. The dates on when these reforms will take place were not specified. “The committee and the government have only given out the general outline,” said Oh, head of the reform committee. “The specifics will be worked out by the related government departments,” Oh added. This includes corporate restructurings, including any layoffs at the institutions. The vice minister confirmed that the government will not privatize public companies that are closely connected to basic living necessities, including entities providing electricity, gas and water. “Those that are not under the reform program are public companies that are evaluated to have weak competitiveness,” Bae said. “Instead we plan to focus on improving management efficiencies,” he added. Legislative bills related to the reform plan will be submitted to the National Assembly during its regular session in September. Additionally, Bae said discussion on the second and third phases of the reform will be held later this month and early next month. The overhaul of the public sector, however, is much smaller than the government’s initial plan. The government in May said those that were considered for privatization would likely stand at 50 enterprises, which includes Korea Power Engineering Co. Additionally, institutions considered for merger or shutting down were to add up to 50, including Korea Credit Guarantee Fund and Korea Technology Credit Guarantee Fund. “Practically, only a few public institutions are being privatized since the reform includes the 14 private companies that the public fund has invested in, such as Daewoo Shipbuilding and Marine Engineering,” said Kim Kwang-soo, a professor of management at Kangwon National University. “I don’t see too much of a reform mentality.” Oh, head of the reform committee, said the first phase only includes institutions whose reforms are most likely to receive public support. (Source: Joongang Ilbo.) Supreme Court upholds suspended jail term for SK Group chief (May 2008) The Supreme Court on 29 May upheld an appellate court ruling that convicted the chairman of SK Group of breach of trust but suspended his prison term, citing his intentions to reform the family-run conglomerate. The ruling ended a five-year-long court battle for Chey Tae-won, whose young leadership has been tainted by civic accusations that he engineered the window dressing of accounts and profited from insider stock trading. The top court found Chey guilty, but upholding the Seoul High Court's 2005 verdict, suspended his three-year prison sentence for five years in consideration of his pledge to enhance management transparency, according to the ruling issued by Presiding Judge Jeon Soo-ahn. (SITE NOTE: This may be "fair" for Korea -- but it is another example of the rich getting away with murder, while the poor rot in jail. For foreign businesses who remember the problem of "management rights" and the Sovereign Investment funds problems, this is another example of the rich buying their way out of jail time and keeping the vested control of their "chaebol" family interests. The wrong signal has been sent to all. Just as LMB is getting ready to implement a special pardon for the poor who have been jailed or convicted for "crimes of the poor", the rich get off scott-free.) The trial began in 2003 after a leading civic group, Solidarity for Economic Reform, raised allegations of corruption against Chey and other senior executives as part of its reform campaign on family-run conglomerates, also known as chaebol. The civic group accused the SK chief of fraudulently inflating profits worth 1.55 trillion won (US$1.5 billion) by SK Global, which has been renamed as SK Networks, and selling unlisted stock he owned in the five-star Walkerhill hotel at an inflated price in the process of his stock swap with another SK unit, aimed at keeping his management control on the SK Group. Unlisted companies have been a main device for Korean enterpreneuers to keep or move wealth and management rights. Damage was often incurred on minor shareholders. In the first verdict by the Seoul Central District Court in 2004, Chey was sentenced to three years in jail. The rare prison sentence for a conglomerate head, however, was reduced to a suspended jail term in the High Court in 2005, whose judicial members are generally considered more conservative than the lower court. (SITE NOTE: We are not saying that "conservatives" will prosecute or free the rich -- we are saying the majority of the judges were appointed by Roh Moo-hyun and Kim Dae-jung and are PROGRESSIVES. The accusations of bribery and corruption amongst the prosecutors and judges are still out there -- and this ruling makes it awfully tempting to raise them again.) Explaining the suspended term, the appellate court then said, "Most of the problems that the SK Group has had, such as bad management in SK Global, cannot be attributed to the defendant and he committed the crimes while attempting to resolve SK's problems, and he is now determined to bring transparency to the group management." The plaintiff expressed regret, saying the final ruling on 29 May effectively freed the chairman from burden to reform. "This is another problematic ruling by the Judiciary that raised public distrust and confirmed the conception that the rich are not guilty but the poor are guilty," Kim Sang-jo, an economics professor at Hansung University and a leading member at the civic group, said. He said the top court sidestepped the sensitive issue of how unlisted stock trading is abused by conglomerates. Meanwhile, the Supreme Court ruled on Chey's case on the appeal of prosecutors. Chey himself dropped his appeal late April. (Source: Yonhap News.) June 2008World Bank Ranks Down S. Korea's Biz-Friendlienss (Jun 2008) President Lee Myung-bak, the former corporate CEO who is now beleaguered by a slumping economy and low approval rating, has his work cut out for him in honing his much-touted business-friendly policies, as a recent global survey indicates that the country's overall ``doing business'' ranking dived seven steps last year to No. 30. In the 2008 World Bank's ``Doing Business'' survey released Thursday, Asia's third-largest economy fell behind most major or emerging economies in Asia, including Singapore, Hong Kong, Japan, Malaysia and Thailand. The annual poll ranked 178 economies ? from Afghanistan to Zimbabwe ? evaluating their regulations on business operations, covering the period April 2006 to June 2007. Countries were judged in ten categories, including starting a business, dealing with licenses, employing workers, paying taxes, registering property and closing a business.South Korea's strengths were in enforcing contracts and closing a business, as it ranked 10th and 11th in those categories, respectively. Its weakest was in employing workers and starting a business, as it was seated 131st and 110th, respectively. Singapore was given an overall No. 1 ranking, followed by New Zealand, the United States, Hong Kong, Denmark and Canada. Ranked last was Congo. Lee has pledged multi-ranging policies that would strip red tape and other regulations that restrict local and foreign businesses operating here. However, many of his proposed plans were shunned for being unfriendly to small- and medium-businesses. Most recently, in a survey conducted by IMD, a global business school in Switzerland, South Korea slipped two notches to 31st in terms of its national competitiveness ranking among 55 countries worldwide. (Source: Korea Times.) Transport Workers Go on Strike (Jun 2008) A transport crisis is in the offing after the Korean Transportation Workers' Union announced a general strike starting 13 Jun. Strikes have already begun in Ulsan, Gunsan, Pyeongtaek, and Gwangju, and major ports including Busan and Ulsan are busy preparing for the general strike. Dissatisfied with the government's recent measures to offset skyrocketing fuel prices, the truckers demanded that diesel taxes be reduced, in addition to more substantial subsidies. The truckers also demanded that shippers hike payments for their service. While the government is reluctant to lower fuel taxes, negotiations with shippers over the shipping charge were ongoing yesterday. The shippers, however, said the truckers' demand of up to an 80 percent hike is too high. Industries recall too well 2003, when a two-week truckers' strike cost them at least $540 million. Some 4,000 truckers nationwide refused to work, slowing down cargo shipping at major ports and industrial complexes, the Transportation Ministry said yesterday. Among the 9,716 trucks operating in and out of major ports, 1,111 vehicles at Pyeongtaek, Dangjin and Gunsan had stopped service. Thousands of trucks at other major companies including Hyundai Motor's Ulsan plants and Samsung Electronics' Gwangju factory also refused to transport cargo. Hansol Paper's Janghang factory in North Jeolla said the loading and unloading of its export products had been stopped for two days due to the strike. The plant is losing 2 billion won ($1.9 million) a day. "Domestic buyers understand the situation, but overseas buyers said they will no longer purchase our products if we fail to meet deadlines," said Kim Eun-seok, the chief manager of the factory. At Daesan Industry Complex in Seosan, South Chungcheong, petrochemical companies are alarmed about the strike. Samsung Total, LG Chemical and Lotte Daesan Petrochemical said about 60 billion won worth of export goods failed to leave on time. At a road near Pyeongtaek Port yesterday afternoon, about 100 trucks were parked in rows on both sides of the road. At the main gate of the port, about 10 members of the truckers' union stopped trucks from entering. "Because fuel is so expensive, we lose more money the more we drive," Shin Song-gyu, a 38-year-old trucker, said yesterday as he stood outside Pyeongtaek Port. Shin detailed his shipping trip to Gwangju last week as an example. He said he received 450,000 won for moving a container to the southern city, but paid 400,000 won for fuel and 40,000 won for toll fees, leaving him with 10,000 won. "I pay 2 million won a month for my auto installment, and I am about to lose my truck because I have no money," he said. The Gwangju branch of the KTWU held a ceremony marking the beginning of the strike at 3 p.m. 10 Jun. In Gwangju, over 300 trucks refused to deliver goods both for export and domestic use for Samsung Logitech, the logistics division of Samsung Electronics, and export home appliances of Daewoo Carrier. As the drivers of some 30 trucks in Gunsan turned off their engines, it created problems for delivering imported lumber and wood pulp for the domestic markets. The Hyundai car carrier unit of the KTWU in Ulsan started its strike on 9 Jun, with the result that over 500 cars failed to reach 13 warehouses nationwide. (Source: Joongang Ilbo.) (SITE NOTE: The government has mustered 100 military trucks to offset the strikes effects. However, the business leaders state that the strike will cause major disruptions -- especially if the remocon concrete trucks stop feeding construction projects.) Some ports paralyzed as trucker strike grows (Jun 2008) As of midnight Thursday, more than 10,000 independent truckers went on strike, significantly slowing cargo shipments at ports and industrial complexes nationwide. At several ports including Incheon and Gwangyang, the amount of goods shipped plummeted to 10 percent of normal. The Korean Railway Workers' Union and the longshoremen's union, formed under the Korea Transport Workers' Union, also announced that they would not transport freight that truckers refused to haul. According to the Ministry of Land, Transport, and Maritime Affairs, an estimated 11,000 truckers turned off their engines yesterday. More than 40 percent of the truckers joining the strike were not members of the independent truckers' union. At Incheon Port, 2,400 container trucks joined the strike yesterday. Its operation declined by 90 percent. "If the strike continues, the port's operation will be paralyzed," said a port official who refused to be named. Gwangyang Port's operation also dropped by 90 percent. Operations at Pyeongtaek Port in Gyeonggi Province plummeted by 99 percent. Some owners of the goods drove cargo trucks themselves. Cement deliveries in Gangwon Province also reported a slowdown. In South Chungcheong Province, 1,000 trucks stopped hauling freight at Daesan Petrochemical Industrial Complex and Dangjin, suspending the shipment of 33,000 tons of cargo. "Usually 4,500 tons of goods are shipped from our plant per day but today only 30 tons were shipped," said Choi Soo-won, head of the distribution team at Samsung Total Petrochemicals inside the Daesan industrial complex in Seosan, South Chung-cheong. "Owners of small and midsized companies, which ran out of stock, drove trucks themselves." Small trucks went out of the complex in a group, guarded by police . Lee Jong-ok, senior director at LG Chem. Ltd., which has a factory inside the complex, said that "officials in the export department spent all day on the phone persuading our buyers to understand our situation." The Korea International Trade Association forecast that the strike will cause a daily loss of 128 billion won ($122.7 million). In the 2003 strike of cargo truckers, the daily loss was estimated 38.6 billion won. Unionized truckers, constituting 3 percent of the nation's 370,000 truckers, also interfered with the operation of truckers on duty. Two cargo trucks were attacked while driving on roads in North Gyeongsang Province yesterday morning. A 25-ton cargo truck driven by a 41-year-old trucker was hit by rocks at 3:10 a.m. in Gyeongju and its windshields and windows were broken. "Thirteen trucks returned as unionized truckers stopped them on major roads in Pohang and Gyeong-ju," said an official at a cargo company who refused to be named. Earlier at 11:30 p.m. Thursday, a trucker driving near the Daesan Complex was injured as two members of the union smashed the truck's window with a steel pipe. Nine assault incidents were reported in South Chungcheong Province. Police have been investigating nine members of the independent truckers' union who allegedly assaulted truckers who refused to participate in the strike. "The administration will strictly punish illegal activities, including encouraging violent protests or interfering with the operation of other truckers," said Prime Minister Han Seung-soo at an emergency meeting of ministers yesterday. "As enormous financial loss is expected from the slowdown of exports and imports, cargo truckers should immediately call off the strike," said Han. Regarding the union workers' demands, Transport Minister Chung Jong-hwan said that the ministry will do its "best" to address the concerns. Truckers demand fuel tax cuts, more subsidies and a hike in shipping charges. Still, Chung maintained his position that the increase in shipping charges should be discussed between individual shippers and truckers. The ministry says it is difficult to form a representative committee consisting of shippers of different goods and locations across the country. The Transport Ministry dispatched 65 army container trucks to Uiwang ICD (Inland Container Depot) and Busan Port. The ministry also plans to dispatch 30 more army cargo trucks to Busan and Gwangyang ports. Cargo trains will run more often than usual while police will guard ports and container depots, according to the ministry. The Korea Transport Workers' Union ordered its member unions not to transport freight that cargo truckers refused to deliver. "If the government oppresses the cargo truckers' union, we will immediately begin a general strike," said Lee Seok-haeng, chairman of the Korea Confederation of Trade Unions. (Source: Joongang Ilbo.)  Members of the Incheon branch of the Korean Transport Workers' Union, which launched a nationwide strike on June 13, stand face to face with police who are standing guard against the protest march in the Hang neighborhood on June 13. (15 Jun 2008) (Hankyoreh) Truckers' strike more than doubles in size overnight (Jun 2008) More than 10,000 truckers nationwide have stopped driving, after a truckers' union began a general strike on June 13. As a result, the nation's main logistics hubs in the nation in Busan, Pyeongtaek, and Uiwang have halted their operations, causing a logistics crisis. The Ministry of Land, Transport and Maritime Affairs estimates that as of noon on the first day of the strike, the number of truckers participating in the strike doubled from 4,500 to over 10,000 in just one day. The reason for the strike is simple. The chronic oversupply of trucks and the complicated system of subcontractual agreements, combined with high oil prices, have led more and more truckers, whether members of unions or independent operators, to participate in the strike. The crisis could easily be resolved with policies to ease these two problems, but there does not seem to be an easy solution for either one. One possible solution would be for the Korea Cargo Transport Workers' Union, the government, cargo owners and transport firms to agree on lowering oil costs, readjusting transport rates to a realistic level and introducing a standard rate system. But this will not be easy. The government says that it will subsidize oil costs to a certain extent if diesel fuel prices exceed 1,800 won a liter, but unionized truckers are doubtful about the effect of such a measure, saying they will already have posted a deficit when the cost of diesel fuel reaches 1,800 won a liter. Regarding the readjustment of transport rates, truckers are demanding a rate hike of at least 30 percent, while companies want to keep it at around 10 percent. However, even if the two sides were to compromise on transport fees, it would not get to the root of the problem. As long as oil prices follow an upward trend, the problem with transport rates will appear again. The standard rate system, under which a base rate is fixed according to the volume and size of cargo, should be institutionalized. However, for truck drivers it is a Maginot line, similar to the minimum wage system for hourly employees. Due to objections from within the industry, the system will likely be adopted after a considerable period of time as a "recommendation," without binding force. According to a survey of 1,253 truck drivers conducted May 24-31 by the Research Institute for Transportation Labor Policy, up to 30.5 percent of respondents want fundamental institutional improvements, instead of an immediate drop in diesel fuel prices or a transport rate hike. What unionized truckers wanted most is the right to collective bargaining. They think that they can deal directly with cargo owners only when their right to collective bargaining is guaranteed and believe that this will then lead to improvements in a complicated structure of subcontractual agreements, which aim to eliminate the middleman in logistics deals. For this reason, the cargo transport workers' union is urging the government to pressure cargo owners so that they can negotiate with them directly, even if that will be difficult right now. The government, however, does not agree, and says that it cannot serve as a mediator in the negotiations because cargo owners are not laborers, but self-employed people. Having direct negotiations with cargo owners collectively is considered collusion under the fair trade law, according to the government. Cargo owners have also declared that they will only talk with agencies or transport companies. Experts note that the government, which should be working to improve the long-standing problem of the poor structure of the individual cargo transport business, is forcing truckers to go on strike by being lax in dealing with the situation. (Source: Hankyoreh.) 5th Day of Truckers` Strike Cripples Cargo Handling (Jun 2008) With the nationwide truckers' strike entering its fifth day yesterday, cargo handling ratio by major ports and inland container terminals was 20 percent of normal capacity. At the central pier of the port of Busan, container yard capacity was 106.3 percent and the pier of Gamman was also filled with unhandled cargo. The government said it will continue to negotiate with shippers but rejected accepting "excessive demands." (SITE NOTE: Many manufacturing plants have shut down their operations because they no longer have storage space for the backed up units. For example, the Gwangju factory of Samsung Electronics Tuesday stopped production of five household appliances due to lack of storage space on the fifth day of the truckers' strike. Small size businesses are decrying the strike because many are on the brink of bankruptcy because they have no raw materials to continue their businesses. An association of small-scale retailers announced that they are having trouble securing a timely supply of consumer goods such as beer, instant noodles and sugar. The association said that the inventory at its 40 or so warehouses across the country has been halved. The organization projected that if the truckers' strike continues, about 30 percent of its inventory will run out. As to shipping, the ports are paralyzed. As a result, transshippers are looking towards other ports to handle their shipments. Korea had become the hub for transshipments, but the strike may cause a shift if companies start using other ports in China and never return.) ? Negotiations concluded at 23 workplaces The government will conclude negotiations today through a variety of channels. The truckers' union demanded a 30-percent raise in transportation fees in negotiations with a group representing 14 container transport firms, which countered with a hike of between nine and 13 percent. Glovis, a subsidiary of Hyundai Motor, took part in the negotiations among conglomerate subsidiaries including Samsung Electronics and LG Electronics, which had originally refused to negotiate. Negotiations were concluded in 23 workplaces as of yesterday. After shipping companies decided to compensate hikes in transportation fees from surging oil prices, some truckers went back to work. In the southern port of Gwangyang, however, container traffic was just three percent of normal capacity. With its inland cargo handling ratio under 10 percent, the port effectively stopped functioning. Transportation to and from Incheon was also three to five percent. At the ports of Pyeongtaek and Dangjin, 93 percent of truckers refused to work. ? Construction unions strike The Korean Federation of Construction Industry Trade Unions held a rally on the second day of its general strike yesterday. It demanded a standard rental contract detailing a construction company's obligation to provide fuel and worker compensation for construction workers. The federation's leadership held talks with Vice Land, Transport and Marine Affairs Minister Kwon Do-yeop, saying, "Government measures are inadequate but positive overall." The federation also canceled a rally scheduled to be held in front of the Korea Specialty Constructors Association in Seoul and ended its two-day strike. "We will continue to strike in the provinces from Wednesday and keep demanding standardized contracts and fuel provision," it said. "If the government fails to deliver its promise, we'll take tougher action." With the walkout, construction work stopped at 54 out of 1,832 sites that affiliates of the Land Ministry had placed orders with. In addition, work was stopped at 18 sites in which autonomous provincial bodies placed orders. ? Government offers alternatives but presses labor In a joint news conference of five ministries yesterday at Gwacheon Government Complex, the government said it will crack down on illegal labor action. A plan was announced to reduce the number of transportation vehicles through the injection of 100 billion won to buy transportation operation rights and vehicles by next year. The government will also increase the supply of transportation vehicles running on liquefied natural gas, which is 30 to 40 percent cheaper than oil. Moreover, the scope of evening discounts for highway toll fees will be expanded for vehicles carrying less than 10 tons of cargo. Experts say the expanded discount will benefit an additional three million vehicles. Oil Subsidies to Help Drivers, Farmers, Fishermen (Jun 2008) The government will provide from next month a subsidy amounting to half of the rise in diesel oil prices for self-employed drivers, farmers and fishermen. Prime Minister Han Seung-soo hosted a Cabinet Council at the Government Complex in central Seoul yesterday and passed a resolution to revise tax law. The oil subsidy will be provided for a year from next month through June 30 next year and benefit bus and truck drivers, cargo ship captains, shipowners, farmers and fishermen. The government will secure the financial resources by raising the motor vehicle fuel tax from 32 percent to 36 percent, but will avoid putting more financial burden on the people by lowering taxes on transportation, energy and environmental protection. A source from the Public Administration and Security Ministry said, "The government's measure will benefit self-employed drivers, fishermen and farmers who have suffered from surging diesel oil prices." Under the revised bill, the acquisition tax will be lowered from 10 percent to two percent and property tax for land and buildings will fall from four percent to two percent for golf courses located outside of the Seoul metropolitan area. (Source: Donga Ilbo.) In a press conference on 17 Jun, Transportation Minister Chung Jong-hwan proposed that the government spend more than 100 billion won ($97.2 million) to buy trucks and help convert diesel-powered engines to use less costlier liquefied natural gas, a move designed to help cut operating costs. The minister also said that the government is willing to give more discounts on highway tolls to reduce outlays for the country's nearly 3 million commercial vehicle drivers. As of Wednesday morning (18 Jun), the Transportation Ministry estimated that around 11,933 truckers were still on strike. Truck drivers to return to work as strike continues (Jun 2008) Thousands of South Korean container truck drivers are expected to return to work on 19 Jun, but many truckers continued a crippling strike for a seventh day, refusing to accept government proposals to address soaring fuel costs. According to the Ministry of Land, Transport and Maritime Affairs, around 15,000 container trucks are expected to resume service from Thursday afternoon as their representatives, consignors and consignees agreed to raise haulage rates, a key issue behind the labor strike. Cargo transports are likely to get back on track after cargo owners reached agreement with an association of container transportation firms. The Ministry of Land, Transport and Maritime Affairs said that 14 container transportation firms on 19 Jun agreed with cargo owners to raise transport fee rates to 16-and-a-half percent. With the agreement, around 15-thousand cargo trucks are likely to resume operations while some five-thousand trucks belonging to the Korea Cargo Transport Workers' Union continue to strike. (Source: KBS.) The decision comes amid a series of reports that truckers have reached deals with a growing number of major shippers including LG Chem, POSCO and Glovis to end their strike, raising hopes that the week-long disruption in the logistics industry would be resolved sooner than expected. Over 13,000 unionized truckers from the Korea Cargo Worker Union (KCWU) walked off the job Friday, demanding the government take measures to ease their financial woes arising from soaring fuel prices. The action has been disrupting operations at major ports and dealing a heavy blow to the country's export-driven economy. According to the government's latest estimate, the labor strike has cost the nation about US$5.92 billion in lost trade. (Source: Yonhap News.) S. Korea's truckers union calls off week-long strike (Jun 2008) South Korea's truckers union has called off its week-long strike that effectively paralyzed overland freight traffic and trade, industry and government sources said on 19 Jun. Sources said the Korea Cargo Worker Union (KCWU) and the association of local container companies held their fifth round of talks in the port city of Busan and agreed on a 19 percent increase in freight hauling fees. The umbrella union representing about 13,000 workers called a nationwide strike on Friday, calling on the government and large logistics companies to take realistic steps to ease the burden of truckers faced with skyrocketing diesel fuel prices. The walkout was devastating because non-union truckers joined the strike. The two sides also reached an understanding on introducing standardized fares for freight haulage, starting in 2009, and working together to make this into law. The standardized fare system has been a key demand of the KCWU since it can ensure a minimum wage for drivers and small-time owners of trucks. The compromise follows talks held Wednesday that ended after container companies proposed hikes of 16.5 percent, compared to the 21.5 percent demanded by the umbrella union. The KCWU, however, said that while it was calling off the strike at a national level, separate negotiations will take place between truck drivers and companies that require transportation services. In a statement released after the agreement was reached, the two sides expressed hope for the speedy normalization of overland freight transportation. Factories had to stop or cut back on production because raw materials and components were not arriving on time, while US$3.61 billion worth of exports and $3.64 billion in imports have been held up at ports. The Ministry of Land, Transport and Maritime Affairs, meanwhile said it welcomed the agreement, and pledged to take steps to help start introducing standardized fare system for hauling cargo next year. It said a committee will be set up under the prime minister's office to examine ways to help improve the country's logistics network. This is expected to include streamlining the multi-layer contract arrangement that has reduced the money reaching drivers to half of what has been paid by the company requesting the freight transport. The ministry in addition said plans to allocate up to 270 billion won (US$262 million) to buy excess trucks, help convert diesel engines to liquefied natural gas (LNG), and allow more commercial vehicles to use the nation's highways cheaply will be implemented on scheduled. The measures are all aimed at cutting truckers' operating costs. (Source: Yonhap News.) KTCU in Controversial Decision to Strike (Jun 2008) The Korean Confederation of Trade Unions has decided to go on a full-out strike against imports of American beef although little more than 30 percent of members support industrial action. In a press conference at headquarters in Yeongdeungpo-gu, Seoul on Tuesday, the KCTU said "all nationwide workplaces" would go on strike on July 2, and members in provincial areas will come to Seoul to participate in rallies on July 3-5. It is the first general strike for a year and six months since the militant union umbrella protested against the conclusion of the Korea-U.S. free trade agreement in December 2006. The KCTU designated July a "month of total struggle, including general strike." In a press release, the KCTU said it was calling a general strike "considering that health is a prerequisite to working conditions, because workers will lose their power to work if they contract mad cow disease (from eating U.S. beef) and lose their health." According to the KCTU, a vote was conducted among 271,322, or 53 percent, of its registered 511,737 members, with 169,138, or 70.3 percent, of the participating members supporting the strike. But this amounts to less than 40 percent of all registered KCTU members, which according to the labor law means the general strike was voted down. In a separate vote on Monday by the Hyundai Motor union, a key constituent of the KCTU, members rejected the KCTU-led strike, with only 48.5 percent in favor. Despite strong opposition among its members, the Hyundai union leadership nonetheless decided to support the strike. Hyundai workers on the union website called for a clean break with the KCTU and its affiliated trade unions. "We should never be manipulated by their logic for political strikes," one member wrote. "We are going to speak out against political strikes and won't hesitate to replace the union chairman if the leadership pushes for the strike." (Source: Chosun Ilbo.) (SITE NOTE: The KCTU is set to wage a general strike immediately if the government reports import hygiene conditions for U.S. beef in the official gazette or exercises public power to neutralize the strikes of the Korea Cargo Workers Union and the Korea Federation of Construction Industry Trade Union. Bulletin boards on the confederation's homepage are also full of opponents criticizing its political strike. The government released a ministerial statement, saying, "The confederation`s general strike is an illegal political strike, which has no relation with improving working conditions. If the organization keeps conducting illegal activities, the government will deal with union members in accordance with laws and regulations.") Former Daewoo Chief’s Hidden Wealth Found (Jun 2008) Prosecutors unearthed a fortune stashed away by former Daewoo Group Chairman Kim Woo-choong, 72. They said he hid the wealth worth tens of billions of won in the form of stocks. Kim has been indicted on charges of deceptive accounting practices, which led Daewoo Group to bankruptcy in 1998. ``We are investigating how Kim amassed such a fortune and are searching for other suspicious money involving him,'' a prosecutor said. The finding came during an investigation into Cho Poong-eon, 69, a Korean-American military weapons dealer, who is known as a close aide to Kim. Cho has been investigated on suspicions that he bribed government officials and politicians in 1998 to help prevent Daewoo Group from going bankrupt and protect Kim from being jailed. The weapons dealer was indicted with physical detention on June 3 for breach of trust charges. According to the prosecution, the questionable fortune was reserved in the form of stock of Best Limited Co., former Daewoo Development. Kim's wife previously owned the company. If it is confirmed that Lee intentionally hid the money, the prosecution will confiscate it. ``We will try to wrap up the interrogation this month,'' the prosecutor said. The court sentenced Kim to a jail sentence of eight years and six months and ordered him to pay 10 million won in fines in 2006. He was also ordered to forfeit 17.9 trillion won but has refused, alleging he does not have it. (Source: Korea Times.) (SITE NOTE: But due to its rather hollow financial structure, even though it had the most Overseas Branch offices, when the "IMF Crisis" came about, the unstable Daewoo Group plummeted. It had to sell off nearly 50 division corporations, only focusing on the major companies. Kim was on the list for the Interpol when he was in exile, because of how he left Daewoo with the insurmountable debt. He was arrested soon after he returned to South Korea on June 14, 2005, and apologized "for hurting the nation and accepted full responsibility for the collapse of the group, adding he is ready to accept whatever the authorities have in store for him," according to the Chosun Ilbo. In May 2006 he was sentenced to 10 years in jail after being found guilty of charges including embezzlement and accounting fraud. 21 trillion won ($22 billion) of his fortune was seized and he was fined an additional 10 million won. On 30 December 2007, he was granted amnesty by President Roh Moo-hyun's pardons for the new year.) Foreign Funds Leave Korea (Jun 2008) Korea faces an exodus of foreign private equity funds operating here, as many have already cut back their operations or are taking steps to pull out of Korea due to growing competition in the local market coupled with anti-foreign capital sentiment. The funds are looking for alternative investment destinations and are moving to invest either in China and India with their favorable tax systems, or in Australia and Singapore, which have more transparent regulatory systems. According to informed sources, Lone Star Funds, the largest shareholder of Korea Exchange Bank (KEB), is likely to withdraw from Korea, as soon as the KEB sale is concluded. ``As far as I know, Lone Star sold off most of its assets, except for KEB, and it has had Hudson Advisor, an asset management subsidiary of the fund, monitor and manage its remaining assets,'' a local investment banker involved in the private equity market told The Korea Times, asking not to be named. ``Most people in charge of deal making have already left, and only those taking care of problem loans are here,'' he added. A spokesperson at Insight Communication, a PR agency for the Texas-based buyout fund, denied this, saying that Lone Star has no plan to make any additional investments nor to pull back from the Korean market. Carlyle Group, one of the largest private equity companies in the world, is also mulling leaving Korea, according to the sources. Carlyle, which enjoyed a huge amount of capital gains from the sale of KorAm Bank to Citigroup in 2004, has recently reduced its operation here by cutting its total workforce from seven to five. ``Several years ago, Carlyle allocated 40 percent of its Asia fund to Korea, but it has recently slashed its allocation. I heard that they are seriously considering closing business here,'' an executive of a local private equity firm said on condition of anonymity. The sources said that CVC Capital Partners, a Britain-headquartered private equity firm, is also believed to be taking steps to withdraw from Korea. Of late, the head of the Korean office and other staff quit their jobs. CVC has been one of the most active private equity firms in Korea over the past decade. It took over Haitai Confectionary & Foods, WiniaMando and MagnaChip, a non-memory business unit of Hynix Semiconductor. CCMP Capital, a private equity fund spun off from JP Morgan Partners, recently lowered its Asian fund allocation to Korea from 30-40 percent to 20 percent, the sources said. Affinity Equity Partners (AEF), which took over Hi-Mart, recently sent its two partners based in Korea to its Hong Kong office, allegedly due to problems associated with taxes. Newbridge Capital, which acquired the Korea First Bank in early 1999 and handed it over to Standard Chartered Bank in 2005, pulled out of the Korean market a couple of years ago. Additionally, several major global private equity firms investing aggressively in other Asian markets are not even looking at the Korean market. According to sources, KKR (Kohlberg Kravis Roberts), a New York-based private equity firm, is managing $4 billion in funds in Asia, most of which are invested in China, India, Singapore and Australia. Other major private equities, including Black Stone, Texas Pacific Group (TPG) Asia and Bain Capital, are also not coming to Korea. Black Stone is operating in Asia with funds of $3 billion; TPG Asia with $4 billion; and Bain Capital with $1 billion, the sources said. ``Given the size of these funds and their activities in other Asian countries, it is not understandable that they don't come to Korea,'' another source said. Market experts said that there are a few key reasons why foreign private equity firms are either not coming to Korea or are pulling out -- unfriendly attitude toward foreign private equity and few M&A targets generating enough returns. They added that growing anti-foreigner sentiment, ambiguous regulations and problems associated with taxation, and fiercer competition have combined to scare away foreign funds. ``All of the reasons point to what private equity firms see as an unfriendly or even hostile attitude in Korea toward private equity investment,'' Jeffrey Jones, an international lawyer specializing in M&A, told The Korea Times. ``The notion that profits can be considered excessive in Korea and that a company will be criticized by the public and in the press keeps many private equity firms away from Korea,'' he said. ``This is not a government policy matter but a matter of the social environment and it frightens investors. ``The Lone Star case has become symbolic of this environment and every foreign investor, strategic or private equity firm, expresses concerns about the treatment of Lone Star,'' he said. Lim Byung-chul, director of Shinhan Bank Future Strategy Development Research Institute, said that Korea is losing its popularity as an M&A market. ``There are fewer business opportunities in Korea than before due to growing competition. Since there is ample liquidity in the local market, demand for foreign funds is shrinking,'' he said. `` In particular, the number of M&A deals generating returns foreign private equities are seeking is decreasing. ``Putting any label on foreign private equities is not desirable. If this trend continues persisting, it is highly probable that Korean firms will face similar problems when they invest abroad,'' he added. (Source: Korea Times.) July 2008Exodus: Foreigners Continue Sell-Off on Seoul Bourse (Jul 2008) Foreign investors are rapidly exiting the Seoul bourse. A net selling spree by foreigners has continued for 20 business days, from June 9 to July 4, unloading W6.2 trillion (US$1=W1,050) of Korean stocks. The 20-day net sale is a record tie with another in March 2005 but the sales figure this time is three times greater than the W2.1 trillion sell-off then. Foreigners have sold some W21 trillion in the Korean bourse so far this year and could outdo last year's W24.7 trillion for the full year. On Friday when foreign net selling in the securities market reached W266.1 billion, the Korean stock index fell below 1,600 to close at 1,577.94 points.? Depression, inflation reducing market appeal Foreign selling sprees have been seen in most emerging Asian markets in recent days. In June, some US$3.8 billion in foreign funds left the Taiwanese stock market and $2.6 billion exited the Indian stock market. Of the six emerging Asian economies where foreign investment transactions are officially tallied, last month foreigners net purchased only in the Philippines, at $59 million. And in July, foreigners have net sold $35 million in the Philippines as well. Experts say that foreign funds are leaving the relatively insecure emerging markets over worries of stagflation (depression coupled with inflation) worldwide. "The fast-growing emerging markets have assisted the advanced economies, but signs of stringent monetary policies due to inflation in those markets have reduced their growth merit," said Samsung Securities market strategist Hwang Kum-dan. But the exodus of foreign capital is a harsher blow to the Seoul bourse as Korea has scarce natural resources and is highly dependent on exports. Hyundai Securities strategist Rhoo Yong-seok says high oil prices and inflationary pressures increase corporate expenses and cut product demand in advanced economies, which inevitably lowers corporate profit margins in Korea and other emerging countries. ? No end in sight Experts expect the selling spree to continue for the time being. Chang Sung-moon at Fidelity International says foreign investors have been steadily unloading Korean stocks since 2006 and the trend will continue as stock prices fell less in Korea compared to bourses in Taiwan, India and Hong Kong. Meanwhile, the European Central Bank on Thursday raised its key interest rate by a quarter percentage point amid inflation worries. A rate hike increases demand for stable assets like bonds, causing stock markets to contract. "As the ECB rate hike suggests, the global trend is to reduce stock holdings and shift to stable assets," said Douglas Ahn, managing director at UBS Korea. "With no particular boost for stock gains, foreign selling will likely continue." (Source: Chosun Ilbo.) FDI in Korea Shrinks for 3rd Straight Year (Jul 2008) While rival economies are briskly attracting foreign direct investment, FDI is falling in Korea. FDI, such as in building factories, is essential for continuing growth and creating jobs but foreign investors are increasingly turning away from Korea. Korea is the only country among the 30 OECD member states whose FDI has dropped for three straight years. According to OECD data on Monday, the 30 member states attracted a record US$1.37 trillion in FDI last year, up 31 percent from 2006. But FDI in Korea fell 56.7 percent to $1.6 billion. FDI in Korea has been falling steadily, from $9.2 billion in 2004, $6.3 billion in 2005 and to $3.6 billion in 2006. FDI in Japan and Mexico also dwindled until 2006 but both countries posted over 20 percent growth last year, leaving Korea as the only country to post negative growth for a third year. Korea ranked 16th among the 30 OECD countries in FDI volume in 2004, but slid to 23rd in 2005, 28th in 2006 and 29th in 2007, with only Norway posting less. Despite the global economic woes from high oil prices, FDI has increased sharply in the BRICs (Brazil, Russia, India and China) and ASEAN (Association of Southeast Asian Nations) nations. Foreign investment in these countries is often of the so-called "greenfield" type, centered on manufacturing such as company startups and facility expansion, which helps to maintain employment and growth of host country. FDI in India grew three-fold last year to $15.7 billion and doubled in Russia to $27.8 billion. The Central Bank of Brazil proudly forecasts that last month's FDI was an estimated $35 billion, the highest this year. Investment in Vietnam, Thailand, Indonesia and Malaysia also nearly doubled last year from 2006. Jeon Young-jae, a researcher at Samsung Economic Research Institute, said, "Foreigners are reluctant to invest in Korea due to the saturated market, hawkish labor unions and various regulations." (SITE NOTE: And maybe the xenophobic business environment that Roh Moo-hyun started and continued till today by the entrenched progressives he appointed to positions in the FSC and other economic bodies.) (Source: Chosun Ilbo.) Doosan Heir Suspected of Embezzlement (Jul 2008) A scion of Doosan Group is likely to face questioning over alleged embezzlement and stock price manipulation. The summons is part of an investigation into chaebol scions suspected of having reaped huge capital gains through irregular schemes. Investigators 8 Jul seized financial documents and computer files during a raid at New Wall Corp.'s office in southern Seoul. Park Jung-won, a fourth generation Doosan heir, was the company's president and the company's largest shareholder. He is a son of former Doosan Group Chairman Park Yong-oh. The Doosan scion purchased 1.3 million shares of New Wall Corp., a Kosdaq-listed company, in March 2007 and took over management control. Stock prices jumped from 5,000 won to a high of 10,400 won per share. Park sold all the shares to lock in profits in December. In September before the sale, the company filed public notices stating it would increase capital, saying Park would buy additional stocks worth 5 billion won ($4.8 million). However, Park left the firm after selling his shares, and the company reversed its capital increase plan, to the detriment of retail investors. A prosecutor said they have secured evidence that the Doosan heir embezzled New Wall Corp.'s funds while president. They will soon call him in for questioning. ``We also suspect Park spread the rumor of capital increase to inflate stock prices, taking advantage of his position as a chaebol scion,'' the prosecutor said. With the raid, the prosecution is intensifying its probe into alleged stock rigging by family members of conglomerates, who are mostly second or third generation heirs. In a similar case, the prosecution last month arrested Koo Bon-ho, a cousin of LG Group Chairman Koo Bon-moo and the largest shareholder of Red Cap Tour. Prosecutors suspect Koo, Park and other chaebol scions colluded with insiders at Kosdaq-listed firms to inflate stock prices by giving the false impression that they would take part in the management of the companies. Once retail investors rushed to invest in the stocks and the stock prices surged, they took gains, leaving retail investors burnt in their wake. (Source: Korea Times.) Defunct Daewoo Group’s ex-head indicted again (Jul 2008) Kim Woo-choong, founder of the now-defunct Daewoo Group who was released in a special amnesty in December, will stand trial again as prosecutors indicted him on 9 Jul for hiding large amounts of assets to avoid forfeiture. An appeals court sentenced Kim to eight and a half years in jail and ordered him to pay 17.9 trillion won ($17.8 billion) for fraud and embezzlement in 2006. Daewoo Group, once Korea’s No. 2 conglomerate, collapsed in 1999 in the wake of the Asian financial crisis. The 71-year-old Kim, who suffers from heart problems and pneumonia, was pardoned in a presidential amnesty at the end of December. (SITE NOTE: The lawyers for Kim immediately played the failing health card for sympathy to question the indictment.) The Supreme Prosecutors’ Office said it imposed fresh charges on Kim, who was found to have hidden 115 billion won worth of shares under the name of a firm called Best Limited, while failing to pay his fines. Prosecutors also found evidence that he tried to bribe government officials to resuscitate the ailing group by paying a lobbyist $44.3 million. The lobbyist, Jo Pung-eon, was indicted and detained. Jo used $24.3 million of the lobbying fund to acquire a major stake in Daewoo Information Systems, the group’s subsidiary, prosecutors said. (Source: Joongang Ilbo.) Jo Poong-eon Received W52.6 Bil. From Daewoo (Jul 2008) Under the leadership of Kim Dae-jung, the Daewoo Group teetered on the verge of collapse. According to prosecutors, Daewoo attempted to lobby Korean-American Jo Poong-eon, who was on the best terms with the former president, to save the group. The Central Investigation Division (led by Park Yong-seok) at the Prosecutor General's Office additionally indicted Jo, on 9 Jul, for receiving 44.3 million dollars (52.6 billion won based on the then won-dollar exchange rate) from Daewoo's former Chairman Kim Woo-joong in exchange for influence peddling. According to prosecutors, Jo spent 24.3 million dollars, out of 44.3 million dollars, buying 71.5 percent of Daewoo Information Systems' shares (2.58 million shares). He then attempted, in vain, to buy Daewoo Communications' TDX business with the remaining 20 million dollars. Later, he bought the Samil Building with 9.4 billion won, out of the money returned from Daewoo Communications. Kim Woo-joong said, "Jo said he would give 30 percent of the 2.58 million shares of Daewoo Information Systems to Kim Hong-geol, third son of former President Kim Dae-jung. Therefore, I thought 30 percent of the shares belonged to Kim Hong-geol." Prosecutors announced, "We're still trying to find whether the shares effectively belong to Kim Hong-geol." Prosecutors also uncovered that Kim Woo-joong falsely transferred 7.76 million shares (amounting to 114.9 billion won) of former Daewoo Development to Best Lead Limited, a paper company, in order to avoid the government's redemption, and redeemed the shares. While investigating Jo's issuance of international convertible bonds at a giveaway price, prosecutors found that Jo colluded with RedCap Tour's major shareholder Koo Bon-ho, a second cousin of LG Group Chairman Koo Bon-moo, to manipulate stock prices and prosecuted Jo for violation of the Securities Exchange Act. (Source: Donga Ilbo.) 7 in 10 Foreign Investors Seek to Exit Korea (Jul 2008) Foreign investors were excited early this year, optimistic that President Lee Myung-bak would present radical deregulation plans to accommodate their needs. Even his special economic advisor Sakong Il fanned these expectations by promising one of the largest foreign business groups here that they'll see changes. But nearly a half a year later, what's left are disappointed foreigners getting ready to channel money elsewhere. The Korea Chamber of Commerce and Industry (KCCI), a local business lobby, asked 845 foreign firms about their investment plans for the second half of this year, and only three out of 10 said they were willing to put money in Korea. The rest said they had decided to opt out for alternative destinations such as Singapore and Hong Kong. The main reason for their exit was the gloomy outlook on investment conditions due to unfavorable foreign currency rates, soaring inflation, unstable labor and insufficient government countermeasures. ``It seems like a lot of promises were made at first, but the presidential office is tied up with other urgent tasks,'' said an executive of a U.S.-based office supply company. Another manager of an Australian food company said, ``A significant number of potential investors were waiting to see plans materialize, but progress is coming much slower than expected.'' Deregulation and tax breaks were the most urgently demanded measures, as polls showed that Korea was ranked the lowest in terms of incentives, administrative procedures, and transparent and consistent policies. According to the poll, Seoul got 2.89 points in the overall evaluation, while Singapore got the highest of 3.60 points, followed by Hong Kong (3.51), the U.S. (3.46) and Japan (3.25). Sakong had said his committee of national competitiveness would pass numerous bills at once to lift unpractical policies slowing investment, but such plans were pushed to the back burner as the government spent the past few months battling protests against U.S. beef imports. The Organization for Economic Cooperation and Development (OECD) said last week that South Korea's foreign direct investment (FDI) ranking nose-dived to 28th in 2007 down from 16th in 2004. (Source: Korea Times.) Gov’t Not to Privatize KEPCO affiliates (Jul 2008) The government decided to withdraw its plan to privatize major public energy corporations, including the power affiliate of Korea Electric Power Corp. (KEPCO) and Korea Gas Corp. (KOGAS). It is also planning to change the privatization method from a “package process” into a “phased process.” However, it will continue the privatization process of public energy corporations not closely related to utility fees, including Korea Power Engineering Co. and KEPCO KPS. The government reached the agreement in a closed-door meeting for crisis management presided over by Minister of Strategy and Finance Kang Man-soo yesterday. A high-ranking Finance Ministry official said, “We decided to cancel the privatization plan for KEPCO’s power affiliate and KOGAS, which are closely related to utility fees, and are reviewing whether to privatize Korea District Heating Corp.” He also added, “As a package process of privatization could cause shock waves, we’re planning to carry on the privatization plan in stages, under the leadership of ministries responsible for each public corporation.” The government also decided to privatize Korea Airports Corporation and Incheon International Airport Corporation, and included the Korea Housing Guarantee Co. in the list of corporations to be privatized. However, it plans to exclude the Korea Appraisal Board from the privatization list, since the board plays a considerable level of public function. The plan to merge the Export-Import Bank of Korea and the Korea Export Insurance Corp. will also be discarded, since the government concluded that the merger would not create synergies. Experts believe that such a shift in the government plans is not unrelated to the increasing political burden amid the recent public protests against government policies. The ruling Grand National Party recently said, “Privatization of public corporations are not a priority issue.” Under these circumstances, there are rising concerns that the privatization project, which was one of the core tasks of the Lee Myung-bak administration, might fizzle out. (Source: Donga Ilbo.) Audits Uncover Massive Free-for-All at Public Agencies (Jul 2008) Executives of the Korea Securities Depository spent W848 million (US$1=W990) at massage parlors, nightclubs and golf courses with their corporate credit cards between 2005 and 2007, the Board of Audit and Inspection revealed Monday. The government watchdog was unveiling a preliminary report on 31 public corporations. The BAI said KSD executives spent lavishly on entertainment with their corporate credit cards even though they had no reason to work outside the office. The officials bought golden keys with corporate credit cards as souvenirs for their retiring colleagues, and spent some W97 million on meetings of their board of directors at golf clubs or tourist resorts when they could have held them at the office. The Korea Racing Association, meanwhile, paid between W180,000 and W360,000 overtime to every staffer every month since 2001, though none actually worked overtime. Since November 2004, the KRA paid them another W90,000 to W150,000 more every month as "extra allowances." The watchdog estimates that a total of W23.4 billion was dissipated that way over the past seven years. The Industrial Bank of Korea was also generous with overtime, paying out on four occasions since December 2005 a total of W35 billion among executives and staff. The Korea Land Corporation illegally raised a generous "welfare fund" and distributed it to staff in the form of allowances. There were other irregularities. The Korea Minting and Security Printing Corporation manipulated the results of recruitment tests in 2005 and 2007 to employ applicants who failed it. In one case, it hired an applicant, who ranked 666th in the recruitment test by forging his test results to bump him up to 45th. "At their superiors' request, the corporation's personnel management officers employed an unsuccessful applicant whose test score was 26 points, by giving him 72 points after forging his test results,” a BAI official said. The Korea Coal Corporation in 2007 hired 10 unsuccessful applicants in return for favors. And the Korea Expressway Corporation, the BAI said, under the pretext of management efficiency awarded retired staff the management of 175 highway tollgates out of 185 it put to public tender. As of the end of 2006, the debts of 24 public corporations subject to auditing, except seven financial institutions, stood at W119 trillion, up more than 60 percent from the W74 trillion of late 2002, the BAI said. The watchdog has therefore decided to increase the number of public corporations subject to audits to 101. (Source: Chosun Ilbo.) (SITE NOTE: This is the continuation of the BAI and district prosecutors' offices nationwide investigating irregularities at public corporations in a concerted effort announced when the new government was inaugurated. The Supreme Prosecutors' Office's Central Investigation Bureau said in May the offices "are openly or secretly investigating 20 public corporations and government-funded agencies." Among them, prosecutors are currently investigating corruption and irregularities involving a number of officials at the Korea Coal Corporation, Korea Securities Depository, and Korea Exchange. They banned the officials from overseas travel, searched their offices, and traced their bank accounts. The CIB has received the devastating findings of an inspection of 31 public corporations conducted by the Board of Audit and Inspection in March and April. It seems likely that the number of public agencies subject to the criminal investigation will increase further. The watchdog's inspection report found fault with the management of about a dozen public corporations including KEPCO and the Korea National Housing Corporation. (Source: Chosun Ilbo.) Report Reveals Lavish Salaries at Public Firms (Jul 2008) At 171 or 56 percent of Korea's 305 state-run corporations, the average salary for non-executive employees is over W50 million a year (US$1=W1,007). At three such public corporations the average annual salary for non-executive employees exceeds W90 million, and at 30 or 10 percent of such firms the average tops W70 million. Meanwhile, as of the first half of this year, regular employees of private-sector companies (with more than five employees) are paid an average W31.94 million a year. According to Ministry of Strategy and Finance data submitted to ruling Grand National Party lawmaker Koh Seung-duk on Thursday, employees at the Korea Securities Depository were paid an average W96.77 million last year. The depository spent nearly twice as much on wages (W43.1 billion) as on business expenses (W23.5 billion) in the year. Employees of the Korea Development Bank, which is targeted for privatization, received an average W92.96 million in annual pay to rank second, followed by Koscom workers at W91.85 million. Next was KDB Capital (W89.17 million) at fourth and the Financial Supervisory Service (W87.84 million) at fifth. KDB was found to have used W91 million in business promotion expenses by the bank's governor last year. Others rounding out the top 20 highest paying public firms were state-run banks and think tanks including the Industrial Bank of Korea, the Export-Import Bank of Korea, the Korea Electrotechnology Research Institute and the Electronics and Telecommunications Research Institute. Of the 20, six including ETRI ran a deficit last year and more than half (11) have posted a deficit in the past five years. ETRI recorded a W14.1 billion deficit while paying an average W83.72 million in employee salaries in 2007. Ranking 16th on the salary list at W77.20 million, the Korea Atomic Energy Research Institute hasn't been in the black once in five years. In a National Assembly committee meeting on measures for public corporations, Rep. Koh said, "People feel the service level at public enterprises is lower than at private firms yet public workers are better paid. If the public enterprises refuse to revamp their management amid today's economic woes, the public will be enraged." Strategy and Finance Minister Kang Man-soo called the problem serious and said he will work to implement wage levels that correspond to corporate productivity. (Source: Chosun Ilbo.) S. Korea set to merge, reorganize 30 public firms (Oct 2008) The government said on 10 Oct that it will privatize, merge and restructure 30 state-operated companies and organizations as part of its plan to enhance efficiency in the public sector. The announcement by the Ministry of Strategy and Finance marks the final "hardware" restructuring phase of a multi-phased plan that aims to overhaul the country's public sector, which receives 23 trillion won (US$18.5 billion) from taxpayers every year. Improving the nation's competitiveness was a key campaign pledge of President Lee Myung-bak last year. Vice Finance Minister Bae Kook-hwan told reporters that the third phase of the plan calls for the privatization of 10 companies, the merging of seven firms into three, with the closing down of two and reorganization of one. Eight other corporations will undergo extensive restructuring efforts designed to boost earnings by incorporating more business-oriented management systems. Of the companies to be privatized, Seoul plans to sell off 49-40 percent stakes in Korea District Heating Corp., Korea Power Engineering Co. and Korea Plant Service and Engineering Co., along with sales of Korea Housing Guarantee Co. and other minor enterprises that do not need to be operated by the public sector. "Selling off government controlled shares can generate revenue that can be used elsewhere," the senior official said. He added the government will retain at least 51 percent stakes in the district heating corporation to prevent price hikes. Two subsidiaries of the corporation providing services to Ansan and Incheon are to be sold off to the private sector. The latest plan also calls for the merging of Korea Technology Credit Guarantee Fund with Korea Credit Guarantee Fund and the reorganization of five subsidiaries of Korea Railroad Corp. (KORAIL) into two companies. "Because there may be a lapse of support for small- and medium- sized enterprises as a result of mergers, the government plans to first establish contingency plans and hold hearings before releasing detailed plans for the two credit organizations later in the year," he said. For Korea Gas Corp. and Korea Broadcasting Advertising Corporation the ministry said the current monopoly in gas imports and TV advertising will be lifted to allow more competition. New gas suppliers will be allowed into the market starting in 2010, while a roadmap for fueling competition in the TV advertisement arena will be made public by late 2009. Bae also said that Busan and Incheon harbor port management authorities will be shut down since most of their work has been transferred to port security corporations in these cities, with Korea Gas Technology Corp. to shed businesses that are not directly related to maintenance of gas-related facilities. The company operated the cogeneration plant and LPG fuel stations. In addition, Korea Electric Power Corp. (KEPCO), KORAIL, Korea Highway Corp. and five subsidiary power companies belonging to KEPCO will be required to cut costs and enhance efficiency. "There will be no privatization of basic utility companies during the present administration but companies will be requested to push through far ranging restructuring plans," the policymaker said. He noted that rail service providers must convert the 641.4 billion won deficit posted last year into a surplus by 2012. If no substantial steps are taken by 2010, Seoul may move to sell off the corporation altogether. Bae also stressed that overall plans, particularly for large companies, will undergo public hearings to receive feedback before restructuring efforts begin on 211 public companies not mentioned in the multi-phase reform package. Seoul has reviewed restructuring plans for 319 public companies, including 14 businesses, like Daewoo Shipbuilding & Marine Engineering Co., that received bailout funds from the government following the 1997-98 Asian financial crisis. In the first and second restructuring plans released in August, Seoul said its would push for changes in 81 companies, but since three organizations overlap, the overall plan calls for a total of 108 public firms to be streamlined or sold off. Critics, meanwhile, said that the total number of companies that will be reduced stood at 45, which is smaller than the 50 or 60 floated by policymakers earlier in the year. An Chong-bum, a economic professor at Sungkyunkwan University, said the overall reform package does not measure up to expectations. "Because of myriad conflicting interests the government only seems to have targeted 'easy' corporations and organizations for restructuring and avoided prickly issues," he said. He said that if reforms proceed in a piecemeal manner, relatively large companies that really need to raise efficiency may be left untouched. This view was shared by Kim Dong-yul of Hyundai Research Institute, who said that realistic constraints may have caused adjustments to initial goals. Kim said that while policymakers stress that they want to transform public companies into efficient entities, what is more important is to determine whether they need to exist at all. "The government may be better advised to determine if such companies need to be maintained and if they must engage in the work they do," the researcher said. (Source: Yonhap News.) August 2008Foreign investors are cashing out (Aug 2008) Despite the Korean government’s oft-spoken goal of attracting foreign capital and transforming the country into the hub of Northeast Asia, foreign investors are increasingly cashing out, according to data from the Bank of Korea yesterday.Korea saw a net outflow of $886.1 million in foreign direct investment in the first half of the year. It was the first negative flow since 1980 when the BOK started compiling related data. The net foreign direct investment peaked at $4.45 billion in the first half of 2000 but has been on a downward spiral since then. Foreign direct investment refers to investment in productive assets (financial assets are excluded), granting foreign investors a management interest with at least 10 percent voting stocks in a local enterprise. This investment does not include short-term flow of money, such as portfolio investments and foreign exchange dealings. During the first six months of this year, Korean net investments overseas tallied $6.82 billion, up 36.1 percent from a year earlier. This means that while foreigners are retreating from the Korean market, Koreans were investing outside the country. “The corporate restructuring process at larger conglomerates and mega-size merger and acquisition deals that began in the aftermath of the Asian currency crisis in the late 1990s came to an end lately. Because of this, foreigners who had invested in Korea are cashing out,” the BOK said in a statement. Experts also point to Korea’s reduced attraction as an investment destination. High real estate prices, labor costs, hard-line labor unions and government-imposed restrictions are considered factors in this development. "What counts most in drawing more foreigners into Korea now is developing a specific eye-popping theme, not cheap labor,” said Bae Min-geun, a researcher at LG Economic Research Institute. Foreigners’ exodus from the stock market has also become a familiar scene. Foreigners withdrew a net $22.1 billion in the first six months, the largest-ever figure since records have been kept. (Source: Joongang Ilbo.) Economic Trouble Deepens (Aug 2008) South Korea is seeing its global economic status deteriorate amid the rise of Russia, Brazil and other developing nations, while losing a greater amount of money in trade with other economies. Skyrocketing oil and other imported commodity costs, on top of the weak won, have raised the costs of goods and services here to a 10-year high, reducing private consumption and discouraging corporate investment and job creation. According to the Bank of Korea (BOK) and the World Bank, Friday, South Korea's gross national income (GNI) fell one notch to 13th among 209 economies in 2007 from a year earlier as Russia jumped two notches to 11th on rising earnings from strong exports of oil and other natural resources amid high global demand. In 2005, Brazil became the world's 11th largest economy, pushing Korea down by one spot to 12th. Russia's nominal GNI increased to $956 billion in 2007 from $857 billion the previous year, the world's 13th largest. The bank compiled the statistics from the ``World Development Indicators 2007'' report released by the World Bank. ``Russia earned a huge amount of oil dollars last year as its exports of oil and other raw materials generated larger income because of surging international crude prices. Korea's drop in the global ranking does not mean that its fundamentals worsened as its income rose at a sustainable pace,'' a BOK economist said. Korea's per-capita GNI ranked 49th at $19,690, up two notches from 51st in 2006. The country still lagged behind its Asian rivals ? Japan at 25th with $37,670; Singapore, 31st with $32,470; and Hong Kong, 33rd with $31,610. Korea's nominal gross domestic product (GDP), the total value of goods and services produced in the country, amounted to $970 billion last year, up from $888 billion a year ago, remaining as the world's 13th largest economy for the second consecutive year. The United States topped the list as the world's largest economy producing goods and services worth $13.8 trillion in 2007, followed by Japan with $4.38 trillion and Germany with 3.3 trillion. South Korea lost greater money in trade with other economies in July as it paid more to import oil and other commodities amid rising prices, despite strong exports. The Ministry of Knowledge Economy said Friday that the nation posted a trade deficit of $1.6 billion last month as exports rose 37.1 percent to $41.4 billion from a year earlier, while imports surged by 47.3 percent to an eight-year high of $43 billion. The cumulative trade deficit for the first seven months of this year came to $7.8 billion, compared with a surplus of $8.4 billion over the same period last year. Korea spent $13.4 billion in July to import crude oil and natural gas, up 93 percent from last year. The ministry said average prices for Dubai Crude, the nation's benchmark, reached $131.31 in July, up sharply from last year's average of $68.43. Reflecting the higher prices of oil and other raw materials, consumer prices grew at their fastest pace in nearly 10 years in July, putting a heavier financial burden on businesses and households. Consumer prices rose 5.9 percent last month from a year earlier, up from a 5.5 percent gain the previous month according to the National Statistical Office (NSO). The increase was the highest since November 1998 when prices jumped 6.8 percent. Seasonally adjusted inflation rose 0.7 percent from a month earlier. The cost of living index, consisting of food and other daily necessities, jumped 7.1 percent from a year ago, meaning that consumers felt the inflation burden more heavily than the overall price increase. It was the highest level since May 2001 when prices also jumped 7.1 percent. Core inflation, which excludes volatile food and fuel prices, rose 4.6 percent in July from a year earlier. Prices of manufacturing goods increased 11.4 percent, reflecting a steep rise in oil and other raw material costs, while prices of agricultural, fisheries and livestock goods rose 4.6 percent. Among 52 daily necessities under government watch, prices of 26 items increased, while those of 10 dropped and 16 remained unchanged. (Source: Korea Times.) Foreign Exchange Reserves Fall $10.5 Bil. in July (Aug 2008) Foreign exchange reserves plunged 10.58 billion U.S. dollars last month due to government intervention in the market. The Bank of Korea said yesterday that foreign exchange reserves fell 4.1 percent from late June to reach 247.26 billion dollars in late July, matching the amount in April last year. The drop was the sharpest month-on-month decrease in foreign exchange reserves since 1997, when the figure fell 20 percent in November and another 16.4 percent in December. The fall was also the biggest in amount since 1971, when Korea began recording the statistic. Thanks to the current account surplus and foreign investment in stocks and bonds flowing into the country after the 1997 Asian financial crisis, the amount of foreign currency skyrocketed from 8.87 billion dollars in late 1997 to a record high 264.25 billion dollars in March this year. State intervention was cited for the steep drop in foreign exchange reserves, as the government and the central bank sold dollars after announcing more efforts to stabilize the foreign currency market early last month. Forex experts estimate the central bank sold 21 billion dollars more than 18 times last month. Korea’s foreign exchange reserves also fell 4.12 billion dollars over the first six months of the year due to state intervention and government redemption of the principal of forex stabilization bonds worth 3.2 billion dollars issued in the late 1990s. Central bank official Ahn Byeong-chan said, “The amount of foreign exchange reserves calculated in dollar terms fell as the government needed to intervene to stabilize the foreign exchange market, and because the value of other major currencies, including the Japanese yen and euro, also fell against the dollar from late June.” In late June, Korea ranked sixth worldwide in foreign exchange reserves, but the fall in foreign exchange reserves has caused worry in the market. Park Hae-shik, senior researcher at the Korea Institute of Finance, said, “As a result of state intervention, the current account deficit, and foreign net sales of stocks and bonds, Korea’s foreign exchange reserves fell drastically in July. The amount of decrease, however, was smaller than market estimates.” “Amid sluggish economic conditions, a decrease in foreign exchange reserves could send bad signals to the market.” (Source: Donga Ilbo.) FX Intervention Ineffective (Aug 2008) With the U.S. dollar making a global rally, any intervention by foreign exchange authorities to prop up the local currency will likely be ineffective, analysts said on 14 Aug. The local currency closed at 1,039.80 won against the greenback, down 0.4 won from Wednesday's close. The currency dropped 23.9 won versus the dollar in the past six sessions. (Source: Yonhap News.) Won Falls to 45-month Low Versus Greenback (Aug 2008) The Korean won on 25 Aug fell to 1,078.9 per dollar, the lowest since Nov. 17, 2004. A weaker won is expected to positively affect exports but could spur consumer inflation, which had stabilized to a point after the fall of international oil prices. On the Seoul foreign exchange market, the won-dollar exchange rate jumped 16.4 won from Friday. The rate has surged a whopping 66.7 points this month alone after closing at 1,012.2 July 31. Forex experts say a stronger dollar and net stock sales by foreign investors are behind the weakening won. Though the government injected an estimated 800 million U.S. dollars into the market yesterday, it was not enough to prevent the Korean currency from weakening. Korean importers also rushed to buy more dollars before the won fell further, helping to fuel the surge in the exchange rate. Financial experts and currency traders say that at this rate, the exchange rate could reach 1,100 over the near term. A weaker won contributes to a surge in import inflation, aggravates managerial difficulties of domestic importers, and results in larger foreign exchange losses to smaller firms that bought currency option products. This will also negatively affect Koreans who remit money to their children studying overseas. Forex experts predict the government will not proactively intervene through injecting foreign exchange reserves in the market, given factors behind the won`s depreciation such as a stronger dollar and rising trade deficit. (Source: Donga Ilbo.) Won Tumbles Below 1,100 Against Dollar (Aug 2008) The won, South Korea's currency, tumbled to a 46-month low against the U.S. dollar Monday as demand for the greenback by foreign stock investors mounted. The local currency was trading at 1,101.45 won as of 10:13 a.m., down 12.65 won from Friday's close. The won has lost more than 13 percent so far this year, putting upward pressure on inflation. Dealers said the won's weakness came as foreign investors unloaded local stocks and the greenback gained ground globally against major currencies. "Market jitters are increasing as large amounts of bonds held by foreign investors will mature next week, which are boosting demand for the dollar," Yonhap News quoted a dealer at a local bank as saying. The ballooning current account, coupled with rising overseas debt and a selling spree of local stocks by foreigners, are also putting downward pressure on the already-weakening won. There has been growing fear that should foreign investors sell off their debt holdings en masse, bond yields would surge, which could increase instability in financial markets. But South Korea's central bank last week downplayed speculation over possible September capital flight, alleging that foreigners' debt holdings maturing this month fell to $6.71 billion as of Aug. 20 from its May estimate of $8.4 billion. Foreigners are also expected to reinvest in local bonds as an arbitrage opportunity has increased. South Korea, Asia's fourth-largest economy, posted a net capital outflow of $5.77 billion in July on selling sprees of local stocks and bonds by foreign investors. The July figure marked the largest net outflow since December 1997 when the county saw a net outflow of $6.37 billion. (Source: Korea Times.) Won-Dollar Rate Breaks 1,200 Mark, Causing Panic (Sep 2008) The foreign exchange market went into a panic yesterday as the won-dollar rate broke the 1,200 level at one point. Foreign exchange authorities verbally intervened in the market in the morning, saying the rate fluctuated seriously. They also sold dollars in the afternoon to prevent a further drop in the won. The rate began soaring immediately after the market opened, with the dollar rapidly appreciating against major currencies due to the U.S. financial bailout plan and worry over Korea`s lack of dollar liquidity. Market players said Korea Export Insurance Corp. purchased a considerable amount of dollars to minimize its foreign exchange losses and banks also struggled to buy dollars. Jeon Jong-woo, managing director of Standard Chartered First Bank Korea, said, “The market is burdened by groundless worry and a mob psychology. Even exporters are not selling dollars. The sharper the won-dollar rate grows, the more it is likely to plunge.” Foreign exchange experts say worry over dollar supply and demand amid Korea’s current account deficit is the main reason behind the serious fluctuation of the foreign exchange rate. Uncertainty in the global financial market has fueled worry over Korea’s dollar liquidity. Over the first eight months of this year, Korea recorded a trade deficit of 11.57 billion dollars. In domestic stock markets, foreign net selling reached 32.4 trillion won (27.3 billion dollars) between January and this month. Jeon Seung-ji of Samsung Futures said, “Exporters used to sell dollars at the end of a month. But they`re purchasing more dollars instead of selling partly because of the growing trade deficit.” The Korean government’s announcement to inject more than 10 billion dollars of foreign exchange equalization funds into the market also contributed to raising volatility in the spot market. The decision spurred experts to predict no more active intervention in the spot market due to a feared reduction of foreign exchange reserves. With the won approaching 1,200 per dollar, certain experts warned that the weakening Korean currency will burden smaller companies with KIKO (knock-in, knock-out) contracts and put inflationary pressure on the economy. Under the KIKO contracts, exporters must sell dollars amounting up to three times the contract amount when the exchange rate surpasses a preset mark. In a survey conducted by the Korea Federation of Small and Medium Business, 70 of 102 firms signing KIKO contracts said they will likely to face bankruptcy if the exchange rate surpasses 1,200. The weakening won also negatively affected the stock market. Korea’s benchmark KOSPI dropped 19.97 points (1.35 percent) from Friday to close at 1,456.36. The tech-heavy KOSDAQ fell 2.29 points (0.51 percent) to finish at 446.05. (Source: Donga Ilbo.) S. Korean won drops almost 5 pct against dollar (Oct 2008) The South Korean won plunged almost 5 percent to a near 10-year low against the U.S. dollar on 8 Oct on concerns that local banks and importers face an acute shortage of dollar liquidity. The local currency closed at 1,395.00 won against the greenback, down 66.90 won from the previous session's close and the weakest level since September 1998. At one point, it fell as low as 1,399.00 won. It was the fourth consecutive session of decline. "Dollar demand is still strong and the currency movement is volatile," said Kwon Woo-hyun, a currency dealer at Woori Bank. The global credit crunch is forcing local banks and companies to meet their dollar needs, he said. Dealers said the South Korean won, which has already lost more than 30 percent so far this year, may breach the 1,400-won mark this week as a global credit crisis dampens exports and a slumping stock market accelerates capital flight. Jun Seung-ji, a currency strategist at Samsung Futures Co., said despite a series of market stabilization measures, investors are panicking and are concerned that a financial rout will affect the real economy. "A crash in the global stock market and concerns over the credit crunch are stoking strong demand for the dollar," he said. "The won will breach the 1,400 level sometime soon." Deepening turbulence in global financial markets will also prompt investors to steer clear of emerging-market assets, experts said. The KOSPI, the country's key stock index, dropped more than 5 percent on 8 Oct, slipping below 1,300 for the first time since August 2006 as foreign investors continued to sell off local shares. The Dow Jones industrial average sank 5.11 percent to close at 9,447.11 on 7 Oct. Experts also said that increased concerns over an economic slowdown, coupled with the increased current account deficit, will continue to prod market participants to scramble towards dollar buying. On 7 Oct, Finance Minister Kang Man-soo said that global financial turmoil is beginning to hurt the economy. The finance ministry also said on the same day that global financial woes may cause the country's economic growth for the year to fall short of its yearly target of 4.7 percent. South Korea may post a $6 billion trade deficit in 2008, Knowledge Economy Minister Lee Youn-ho said on 6 Oct. The shortfall amounted to $14.2 billion for the first nine months of this year. South Korea's currency market has been suffering from a dollar shortage as banks and companies are rushing to the safer greenback on concerns over a financial crisis, which was tipped off by the collapse of investment giant Lehman Brothers Holdings Inc. (Source: Yonhap News.) Korean Won Biggest Loser Against Dollar (Oct 2008) The continuing collapse of financial markets across the globe suggests that most countries are equally exposed to the fallout from the global economic recession triggered by the Wall Street crisis. However, when it comes to currency, Korea has fallen as the biggest victim to the turmoil as its currency has lost the most value against the U.S. dollar among major currencies since the beginning of the year. The local currency took its heaviest beating in a decade on 16 Oct, with the biggest slide in over 10 years. The won closed at 1,373 won per dollar, down 133.5 won from the previous day, the largest daily drop since Dec. 31, 1997. The won has lost a total of 436.9 won or 31.8 percent in value from the end of last year, the biggest depreciation against the greenback among 20 major currencies, according to the Bank of Korea (BOK). The won's extremely poor performance is standing out as most other currencies have weakened at a much slower pace against the dollar. Some currencies, such as the Japanese yen, even gained some ground over the same period. The yen was up 12.9 percent against the dollar Thursday from the beginning of this year, while the Chinese yuan and Taiwanese dollar have also gained 7.1 percent and 0.3 percent, respectively. Australia was the second largest loser with its currency losing 24.6 percent, followed by New Zealand (-21.9 percent), Britain (-12.9 percent), Thailand (-12.1 percent), and the Euro-zone (-6.9 percent).  The won's unusual weakness has been mainly caused by weak economic fundamentals, the government's loss of credibility in the market and its smaller market size. In addition, local financial firms' hedging against currency risks associated with overseas funds contributed to the extreme volatility. Economic fundamentals have been weakening due to the widening shortfall in the current account coupled with the heavy debt burden in the banking sector. Its small size has exposed the market more heavily to external shocks. The current account deficit reached $12.59 billion between January and August, while overseas borrowing in the banking sector soared to $210.49 billion in June from $194 billion at the end of 2007 and $83.4 billion at the end of 2005. ``The disorderly rise of the won-dollar rate reflects a major fundamental weakness in the outlook for the Korean economy and a downturn in foreign investment,'' a local currency dealer said. ``The heavy debt burden has become another fundamental won-bearish factor. It was caused by local banks' heavy overseas borrowing to support their lending here,'' he added. Inappropriate government intervention has consumed the credibility of financial authorities, which has intensified market volatility. ``Attempting to distort its functioning for anything other than `smoothing' purposes is almost likely to have unintended consequences,'' Market Force Company CEO James Rooney said. ``Unusual money flows and the responsive behavior of market participants should be read as valuable symptoms of market distortions and imbalances, and not as causes of the underlying problem themselves,'' he added. Analysts said that wild fluctuation in the foreign exchange rate could hurt the soundness of the financial sector as well as the economy. ``The risk of the disorderly rise in the won-dollar exchange rate is that financial stress on issuers of dollar-denominated liabilities depresses economic activity, cascades into the banking system and erodes the health of banks,'' ING Group chief economist Tim Condon said. (Source: Korea Times.) S. Korean won plunges to over 10-year low (Oct 2008) South Korea's currency plunged to an over 10-year low against the U.S. dollar on 22 Oct as investor sentiment was undermined by sharp falls in local stocks and growing concerns over the negative impact of financial woes on the real economy, dealers said. The local currency closed at 1,408.8 won to the greenback, down 45.8 won from 21 Oct's close, after tumbling to as low as 1,436 won at one point. The Korean won fell to its lowest level since June 17, 1998 when the nation was still suffering from an Asia-wide financial crisis. South Korea's benchmark stock index also nosedived 7.48 percent to close at 1,049.71. Earlier steep losses prompted the bourse operator to suspend program trading temporarily to cool the market just after it opened. "The won's plunge stemmed mostly from continued declines in local stock markets, which was prompted by jitters that the financial turmoil could take a heavy toll on the real economy," said Shin Jin-ho, a currency analyst at Woori Futures. "The dollar is also gaining ground against a basket of other currencies as foreign investors are pulling their money out of emerging markets and converting the proceeds into the safer greenback." he added. The descent comes despite the government's back-to-back measures aimed at easing a dollar-funding shortage in the banking sector and shielding its economy from the global financial turmoil. On 19 Oct, the Finance Ministry unveiled a $130 billion bank bailout package that guarantees banks' foreign debts and injects dollars into cash-strapped financial institutions. Two days later, the ministry announced sweeping measures to buy land and unsold houses from struggling builders and to ease their liquidity crunch. The move is intended to protect the flagging construction sector from the ongoing financial turmoil as it accounts for around 20 percent of the nation's gross domestic product. Analysts doubt that those measures, including state guarantees, will have impact enough to change the recent downward trend of the won's value, saying that demand for dollars will remain strong in months to come. "Foreigners are pulling their money out of emerging markets including South Korea and the sell-off is expected to continue for the time being, which will serve as a drag on the local currency," said Lee Sung-kwon, an economist at Goodmorning Shinhan Securities. According to brokerage data, foreigners have sold roughly 40 trillion won ($28.4 billion) worth of local shares since the start of this year, bringing their ownership ratio to 29.46 percent of the total market value after peaking at 41.98 percent in 2004. South Korea's KOSPI has tumbled more than 40 percent this year. The won has been one of the worst-performing currencies among Asian countries, losing 34 percent against the greenback. (Source: Yonhap News.) S. Korea to speed sales of bailed-out firms (Aug 2008) South Korea's financial watchdog said on 12 Aug that the government plans to expedite sales of its stakes in 14 companies which were bailed out in the aftermath of the 1997 Asian financial crisis. "The government will push for speeding up selling companies to which it injected public funds and plans to complete sales of Daewoo Shipbuilding & Marine Engineering Co. and Ssangyong Engineering & Construction Co. this year," the Financial Services Commission said in a report to the National Assembly. "South Korea also plans to review the timing of the sales, seeking a speedy yet flexible approach to the sell-offs." The move is part of a broader plan by President Lee Myung-bak's government to reform state-run companies. South Korea said Monday it will privatize, merge or restructure 41 firms, including the operator of the nation's largest international airport, as part of the first phase of its controversial public sector reform plan. State-run Korea Development Bank (KDB) and state asset manager Korea Asset Management Corp., are seeking to sell a combined 50.4 percent stake in Daewoo Shipbuilding, the world's third-largest shipbuilder, as the policy lender prepares for its own privatization. The government plans to start reducing its 100 percent stake in KDB next year and to fully privatize it by 2012. Creditors of Ssangyong Engineering are aiming to sell a 50.07 percent stake in the builder which has been on the block since 2005. In mid-July, they picked up a consortium led by Dongkuk Steel Mill Co. as a preferred bidder for the builder, a deal industry sources estimate will reach up to 500 billion won (US$485.4 million).(Source: Yonhap News.) Won Closes 10-Year Low Against Dollar (Nov 2008) The local currency nosedived to a 10-year low against the greenback and Seoul stocks plummeted 6.7 percent Thursday, hit by overnight Wall Street plunges and foreign investors' massive sell off of holdings. The Korean won closed at 1,497 won per dollar, Thursday ? losing 50.5 won from the previous day -- hitting its weakest rate since March 13, 1998, when it closed at 1,521 won. The fall was mostly due to the overnight collapse of the New York Stock Exchange. The Dow Jones 30 Industrial Average fell to its lowest level in five years, on concerns over U.S. auto manufacturers, worsening economic indices and deflation. The Seoul bourse followed the fall, motivating market participants to rush for safety assets. The won-dollar exchange rate, which hovered around 1,480 won per dollar through the morning session, broke 1,500 won and once rose to 1,517 won in the afternoon as there were no signs of government intervention. The local currency has lost around 50 percent in value since July when the rate hovered around 1,000 won per dollar. It once soared to 1,495 won last month following the fall of the Lehman Brothers, but the currency swap deal with the United States helped pull it down to 1,250 won. However, the rate headed up as concerns over the global recession hit the stock market. Foreign investors dumped 92.4 billion won shares, selling for the eighth consecutive day. Pension funds have been buying stocks to sustain the market, but are facing criticism that they are only helping foreign investors decrease their losses on the Seoul bourse. Foreigners have sold around 2.4 trillion won worth of stocks so far this month, and nearly 40 trillion won over the year. They are now dumping bonds as well, turning to safer dollar assets. They sold 4.2 trillion won worth of bonds last month. ``Preference for safety assets is growing upon increasing uncertainties about the real economy in the U.S.'' said Kim Young-jun, a market analyst at SK Securities. ``Despite the support by the United States, concern that problems have already started in the real economy are being reflected.'' Since the psychologically important 1,500 won per collar was breached, the pressure for a further rise could continue without government intervention. The trade account deficit is also leaving the country with no resort over the dollar shortage. The KOSPI closed at 948.69, dipping 68.13, or 6.7 percent, from the previous day. The side-car mechanism was activated during the morning session to halt trading due to the deep plunge. Construction, securities and machinery shares lost over 10 percent on average. Hyundai Heavy Industries fell over 14 percent, while Shinhan Financial Holdings lost 9.74 percent. (Source: Korea Times.) Won passes 1,500 mark amid Kospi plunge (Nov 2008) Korea’s won fell yesterday, approaching a decade low, on concern Asia’s fourth-largest economy will slip into a recession for the first time since 1998. The won dropped 1.3 percent to 1,513 per dollar, according to Seoul Money Brokerage Services. “Korea is more sensitive to a global slowdown than any other market,” said Dwyfor Evans, a currency strategist at State Street Global Markets in Hong Kong. “We expect continued weakness in the won.” Seoul stocks also plunged 3.4 percent in a volatile session yesterday, dragged down by sell-offs in construction and auto shares on deepening recession woes, analysts said. The benchmark Kospi was down 33.59 points to 970.14 after drifting in and out of positive territory in early trading. The index fell below the 1,000-point level again following a 5.8 percent surge on Friday. Volume was heavy at 458.78 million shares worth 4.7 trillion won ($3.1 billion), with losers outnumbering gainers, 594 to 230. “Despite a strong start thanks to Wall Street rallies in the previous session, jitters set in again over a possible economic slowdown, sparking sell-offs across the board,” said Lee Sun-yup, an analyst at Goodmorning Shinhan Securities. Most shares closed sharply lower, with builders and auto shares severely rattled. With rumors spreading that the construction sector might face restructuring, Daewoo Engineering and Construction, the country’s No. 1 builder, dropped 5.7 percent. Hyundai Engineering and Construction also plunged 8.4 percent, extending losses. Industry leader Hyundai Motor dived 12.9 percent, while its affiliate Kia Motors fell by its near daily limit of 14.9 percent. (Source: Bloomberg, Yonhap News.) September 2008Trade Deficit Hits Record High (Sept 2008) Korea's trade deficit hit a seven-month high in August, exceeding US$3.2 billion. Since early this year, the accumulated trade deficit stood at $11.5 billion, raising fears that the country will run a trade deficit this year for the first time in the 11 years since the financial crisis. The Knowledge Economy Ministry on Monday said, "In August, the country ran a trade deficit of $3,229 million, exports reaching $37.39 billion and imports $40.62 billion."Daily average imports in August hit an all-time high of $1.81 billion, up about 47 percent year on year. The trade deficit amount last month also hit a seven-month high since January (W3.93 billion). The country ran a surplus only in May ($852 million) this year but a deficit for the rest of this year. The accumulated trade deficit until August rose to a total of $11.57 billion. A ministry official promised the recent downward trend of international oil prices will be reflected in the economy beginning this month. “But it is more likely that the country will run an 11-year-high trade deficit considering that it is not easy to run a trade surplus on an annual basis,” he added. The rapid increase in imports in August was attributable to a steep rise in prices of crude oil (up 81 percent year on year), coal (107 percent), oil products (75 percent), and gas (66 percent), and to imports of cars and agricultural products in preparation for Chuseok or Korean Thanksgiving. (Source: Chosun Ilbo.) Financial Crisis Takes Real Economy Down With It (Sep 2008) The financial crisis in the United States, exacerbated by the bankruptcy of Lehman Brothers, is pushing not only the financial markets of major countries but business operations and the real economies of those nations into the swamp. Faced with the prospect of drastic slowdowns in growth during the second half of this year, the world’s economic powerhouses have started various pump-priming measures including tax rebates to counter economic stagnation. In Korea, the economy is rapidly cooling off with small and mid-sized businesses facing a liquidity crunch, while household debts are snowballing, the real estate market is stagnant and unemployment remains high. Bank of Korea Governor Lee Seong-tae told the National Assembly’s Planning and Finance Committee on Wednesday that the global economic crisis has only now begun to unfold in the real economies of different countries, warning of drawn-out stagnation around the world. Private economic research institutes in Korea have begun downgrading their growth forecasts for the Korean economy for 2008 and 2009. Global economic crisis worsens The U.S. economy, the rudder for the direction of the global economy, appeared to be recovering as it was supported by pump-priming measures such as tax rebates. GDP growth, which shrank 0.2 percent during the fourth quarter of last year, rebounded into positive territory this year to rise 0.9 percent in the first quarter and 3.3 percent in the second. But the world’s largest economy is expected to decline again during the second half. The U.S. Congressional Budget Office projects the U.S. economy to grow 1.5 percent this year, far slower than the 2.2 percent increase last year. The CBO projects U.S. economic growth to slow even further to 1.1 percent next year. Because of the housing market slump and credit crunch in the U.S., the economies of Europe and Japan shrank during the second quarter, and China’s GDP growth is slowing. These countries are injecting liquidity into their markets so that the U.S. financial crisis does not spill over into their real economies. Kim Deuk-kab, a senior researcher at Samsung Economic Research Institute, said if prolonged jitters in global financial markets increase the cost of raising capital, this could lead to a worldwide deflation -- decline in the value of assets such as real estate -- as the economies of advanced countries stagnate and the pace of growth among developing nations slows down. Exports and domestic consumption slowing Experts say the U.S. financial crisis will impact Korean exports. They project it will adversely affect the real economies of Korea’s main export markets of Europe and Japan, as well as China, worsening conditions for Korean shipments abroad. Huh Chan-guk, director of economic research at the Korea Economic Research Institute, said the Korean economy, which was plagued by slow private consumption over the last six years, is fueled solely by exports. And export growth could slow to the 10 percent range during the second half of this year, from 20 percent during the first half, as a slowdown in global economies is compounded by the financial crisis. If the U.S.-triggered financial instability continues, stock prices will drop, and businesses and households will have problems obtaining loans, causing business activity, private consumption and other aspects of the real economy to shrink more than originally anticipated. Kim Hyeon-wook, a research fellow at the Korea Development Institute, said the reason why global oil prices are dropping in the financial crisis is because there is a lot of concern about economic stagnation in the U.S. and other countries. That means falling oil prices are not completely good news for our export-dependent economy. Kim said the KDI was considering downgrading its GDP growth forecast for Korea from 4 percent to even lower. A staffer at the Samsung Economic Research Institute said it intends to consider the present financial crisis in its 2009 GDP growth forecast to be announced soon. Government and businesses struggling The government and businesses are moving swiftly to minimize the impact of the financial crisis on the real economy. Financial Services Commission Chairman Jun Kwang-woo told a National Assembly committee his agency was coming up with measures to resolve jitters and weaknesses in the Korean financial markets by dealing with defaults on loans owed by small and mid-sized companies, as well as so-called project financing loans extended by savings banks. Vice Strategy and Finance Minister Kim Dong-soo on a radio program said the government was looking into dealing with high real estate prices. Samsung Electronics, LG Electronics and other electronics companies are preparing measures to deal with the drawn-out recession in the U.S., which is a key export market for high-tech products. (Source: Chosun Ilbo.) Daewoo founder walks after being found guilty of hiding assets (Sep 2008) Kim Woo-choong, former chairman of the now-dismantled Daewoo Group, was found guilty Thursday of hiding assets subject to forfeiture but evaded a jail term as the court ruled the crime was unintentional. The Seoul Central District Court sentenced him to a year and a half in prison, suspended for two years, on charges of stashing assets valued at 115 billion won (US$99.6 million). The verdict is to be the final court action against him in the wake of Daewoo's collapse a decade ago. "The weight of the crime is grave, but the defendant deeply regrets it and the pertinent assets have since been forfeited to the government," Judge Yoon Gyeong said. Kim, who was sentenced in 2006 to eight and a half years in prison and ordered to forfeit 17.9 trillion won for fraud and embezzlement, was pardoned last December as part of a presidential amnesty. In July, prosecutors brought fresh charges against Kim after finding he had stashed 115 billion won in an overseas paper company he established. Kim said the assets had been reported to the authorities but could not be forfeited because separate court battles with creditors were then underway. Prosecutors sought a one-year jail term for Kim, to be suspended for two years. Kim, who underwent two heart surgeries, came to the courtroom in a white patient suit and a wheelchair and was helped by his aides to move to the defense table. The ruling, initially scheduled for Sept. 4, was rescheduled after Kim requested a delay citing his ill health. He had spent six years overseas on the run until his return home in 2005 to face trial. Once South Korea's second largest conglomerate, Daewoo collapsed in 1999 under the weight of an US$80 billion in debt in non-performing bank loans in the wake of the Asian financial crisis. Before Daewoo's fall, Kim was an inspiration to Korean youth, transforming a small textile firm into a major conglomerate that drove Korean exports abroad and fueled the country's meteoric industrial growth from the 1970s through the 90s. Some see Daewoo as a victim of the government's policy shift towards ending cash injections into troubled conglomerates. (Source: Yonhap News.) October 2008Gov't to Bail Out SMEs With W8.3 Trillion (Oct 2008) The government on 1 Oct said it will pump a total of W8.3 trillion in direct and indirect support to small- and medium-sized enterprises which are in financial difficulties in the wake of the financial crisis (US$1=W1,189). (SITE NOTE: Small companies have been struggling lately with a weakening won, high raw material prices and falling demand. In addition, a currency derivative product called KIKO, or knock-in, knock-out, has affected hundreds of the firms. Companies signed KIKO contracts with local lenders last year on expectations that the won would stay the same or appreciate against the greenback. But losses snowballed after the won went into a nosedive this year.)As a way to extend liquidity support to the SMEs, the government said it will provide them with W4.3 trillion this year, up as much as W3.3 trillion from its original plan, in support funds through government-owned banks such as the Korea Development Bank and the Industrial Bank of Korea. It will also increase the loan guarantee money for SMEs at the Korea Credit Guarantee Fund and the KIBO Technology Fund by W4 trillion. (SITE NOTE: State-controlled lenders - Korea Development Bank, Industrial Bank of Korea and Export-Import Bank of Korea - will be supplying 3.3 trillion won of the total loans. Not all smaller firms will be eligible. They will be divided into four categories, and companies with grades of A and B will be allowed loans and special credit guarantees. Grade A applies to those operating normally, while grade B is assigned to firms facing temporary difficulties. Those with C grades - meaning they show signs of insolvency but could possibly recover - will enter debt workout programs, while those with D grades - meaning bankruptcy is imminent - will be excluded from government aid. Hopefully, this doesn't turn into a lesson from the past in the 1990s when the government injected monies -- in the form of short term loans at advantageous interest rates to the banks/ The banks windfall was to be used as loans to the SME. The banks instead pocketed the loans and loaned the monies instead to high-profit construction enterprises -- and made windfall profits off the loans -- and the SME simply died withering on the vine looking for loans.) If banks voluntarily expand new loans for SMEs, the government will operate programs to extend guarantees and various incentives through credit guarantee agencies by June next year. To SMEs that have suffered huge loss from the currency option derivative KIKO (knock-in, knock-out) but are deemed likely to recover, banks will give loans to the extent of their KIKO loss, extend maturity of their loans, and convert their loans into common shares. The government plans to provide special guarantees through credit guarantee firms for victims of the KIKO program when they apply to banks for new loans. In effect, the loss of individual enterprises and banks will be covered by the taxpayers, an idea raising fears in some quarters of a moral hazard for executives. (SITE NOTE: One trillion won will come from the publicly run Korea Credit Guarantee Fund, which will buy corporate bonds from the ailing companies. Banks that raise the volume of loans to smaller firms will be given special incentives, and credit guarantees offered by the Korea Credit Guarantee Fund will be augmented by 4 trillion won to ease credit burdens that may weigh on lenders.) (Source: Chosun Ilbo.) Korea Exposed to Economic Hard Landing (Oct 2008) The local currency collapsed again on 7 Oct, on the back of the overnight crash on the U.S. stock market where the Dow Jones industrial average fell below 10,000 points for the first time since 2004. Japan's Nikkei 225 fell 3 percent to a five-year low and stocks in other emerging economies also took a heavy beating as investors dumped stocks on fears that the financial malaise created by the U.S. credit crisis is spreading throughout the world. The credit crisis is quickly turning into a crisis of confidence as local banks and firms are locking up their cash and rushing to the safer greenback, believing that liquidity problems will be aggravated going forward. The Korean won plunged to a 78-month low of 1,328.1 won per dollar, up 59.1 won from the previous close. This is its weakest level since April 12 2002 and the biggest daily drop since August 6 in 1998. The won has lost more than 29.52 percent or 392 won against the dollar so far this year. The KOSPI started lower at the opening bell and fell to as low as 1,321.81 in the morning but the benchmark trimmed those losses on rising hopes that coordinated rate cuts around the world are coming. The key index rose 7.35 points, or 0.54 percent, to 1,366.1, while the KOSDAQ lost 4.44 points, or 1.09 percent, to close at 401.95. The KOSPI has fallen 28 percent, or 531.03 points this year. The deepening market meltdown illustrates how the global credit crisis has sent seismic shocks through the local financial market and economy. In its latest global financial stability report Tuesday, the International Monetary Fund (IMF) warned that emerging market economies, including Korea, are facing the rising risk of a hard landing or regional financial crunch in line with foreign capital outflow. ``Capital outflows have intensified, leading to tighter international and in some cases internal liquidity conditions. Those with greater reliance on short-term flows or with leveraged banking systems funded internationally are particularly vulnerable,'' it said. ``Against the backdrop of rising emerging market risks, institutional investors have reduced positions, especially in equities,'' it added. ``This has been more pronounced in Asia, with especially heavy outflows from Korea and Thailand.'' ING Group Asia's chief economist Tim Condon echoed the view, saying, ``Korean financial assets have been especially hard hit, which we ascribe to commercial banks' dependence on capital market funding for asset growth.'' Citing the won's recent sharp depreciation as ``a disorderly rise,'' he said, ``The risk of the disorderly rise is that financial stress on issuers of dollar-denominated liabilities depresses economic activity, cascades into the banking system and erodes the health of banks.'' The local economy has started feeling the pain from the global credit crisis as the crash on the local financial market has reduced household wealth significantly, dampening both consumer and business sentiment. According to the Korea Exchange, individual investors lost more than 100 trillion won on stock markets between January and September both at home and abroad, with market capitalization of shares and funds held by individuals falling by 104.2 trillion won. Market experts said that Korea needs to take a cautious approach to cope with the current turmoil as it has been triggered mainly by external factors that stemmed from the Wall Street crisis. ``I think Korea should wait a bit to see how the crisis unfolds before acting too hastily,'' Mauro F. Guillen, director of the Lauder Institute at the Wharton School of Business, told The Korea Times. ``We need to understand how the U.S. bailout is implemented and with what results, and also see if the European banks hold or if more experience difficulties,'' he added. ``What is crucial right now is not to rush to action and increase moral hazards, such as the idea that the government will do whatever it takes.'' The IMF also stressed that the government should avoid market intervention unless it is an emergency situation. ``Emergency government interventions should be temporary and taxpayer interests be protected. Intervention mechanisms should minimize moral hazard, while recognizing the exigency of the situation and the evident need for public support,'' it said. A toxic cocktail of global credit tightening, rising domestic interest rates, and a global recession, has raised speculation that coordinated emergency rate cuts by central banks around the globe might be around the corner. In a recent research note, Andy Xie, an independent economist and former Morgan Stanley analyst, said that the Fed may cut interest rates soon and other central banks will follow suit. ``The pressure on central banks to ease extends to other economies. Government debt levels are too high in Europe and Japan, and tax rates are already too high,'' he said. ``Global coordinated cuts of interest rates may happen soon.'' Now attention is being paid to the Bank of Korea's (BOK) monetary policy meeting slated for tomorrow. Many expect the central bank to freeze interest rates due to high inflation and the volatile currency market. However, some argue that the central bank should cut rates to reinvigorate the faltering economy. Moody's Economy.com recently recommended that the central bank lower its policy rate in the upcoming meeting, citing a slowdown in consumer inflation and a liquidity shortage. (Source: Korea Times.) Business Conglomerates to Be Allowed to Own Banks (Oct 2008) Business conglomerates will be permitted to own stakes in banks through private equity funds and pension funds beginning next year, according to a revision of the Bank Act and the Bank Holding Company Act the Financial Services Commission announced on 13 Oct. The revision bills envisage allowing non-banking businesses to own up to a 10 percent stake in a bank. Currently, industrial capital from non-banking businesses cannot hold more than a 4 percent stake in a bank. If the bills are approved by the National Assembly, conglomerate groups will be able to take part in the privatization of state-owned banks such as the Korea Development Bank, Woori Financial Group and the Industrial Bank of Korea. Some 60 public and pension funds including the National Pension Fund that are currently classified as industrial capital will be defined as financial capital without bank ownership restrictions. Even private equity funds with a ratio of corporate ownership of less than 30 percent will be regarded as financial capital. To allow securities and insurance conglomerates to become financial groups, the government will revise the financial holding company system so non-banking holding companies can maintain non-financial companies as subsidiaries. Chaebol such as Samsung, Hanwha, Hungkuk and Dongbu, which own financial companies, will be able to turn them into financial holding companies, while maintaining their existing subsidiaries. An FSC official said if the current bank ownership rules were left intact, “all state-owned banks subject to privatization would inevitably go to foreign investors.” He pledged to minimize side effects by stepping up supervision of large shareholders when lifting the restrictions. Opposition parties and civic groups oppose the revision, which they regard as an attempt to hand banks over to the big business groups. (Source: Chosun Ilbo.) (SITE NOTE: In 1997 the chaebols abuse of the banking system to underwrite the loans to failing subsidiaries created a financial mess. The IMF sought to open up the financial markets -- and now the ROK is going back again to its old ways. In other words, it wants to keep foreign investors in its banking out of Korea. The only ones with the capital to ward off any takeovers from outside are the chaebols -- and they want to use the banks for their own personal piggy-banks. This is a BAD move.) All's fair in Love and Protectionism: China Slaps Import Ban on Hyundai, Kia (Oct 2008) The Chinese government has stopped importing cars made by Hyundai Motor and Kia Motors alleging violations of monopoly and oligopoly laws. According to the automobile industry on Wednesday, the Chinese government accepted a complaint by an association of the Chinese automobile dealers and stopped issuing import licenses for Hyundai and Kia cars. The Chinese dealers argued that the two carmakers forcefully allocated excessive quotas for dealers. “Export has not been completely halted as we still have import licenses we got in August,” a Hyundai-Kia spokesman said. The decision only applies to cars manufactured in Korea and exported to China, not those made by local subsidiaries in China. From January to September this year, Hyundai produced 219,000 cars in its Chinese plant and Kia 105,000. If the companies fail to win more import licenses, it will affect sales of luxury sedans, all of which are produced in Korea. Hyundai and Kia export about 1,500 and 800 cars per month, and losses would be about W50 billion (US$1=W1,240) a month. “The move by the Chinese government comes under monopoly and oligopoly laws that began to be fully enforced from July this year,” an industry insider said. “The aim is to protect China’s own industry and to tame major foreign carmakers doing business in China.” Hyundai Motor expects the ban to be lifted within one or two months since it will badly affect Chinese Hyundai and Kia dealers. In June, China banned imports of Toyota’s Lexus luxury line, but imports resumed within two months. (Source: Chosun Ilbo.) November 2008Economic Downturn Deepening (Nov 2008) The economy is facing increasing downside risks in the wake of a global economic downturn as domestic demand continues to deteriorate, failing to offset falling outbound shipments. The United States, the world's largest economy, and Korea's second largest export destination, is losing steam fast with declining output in the services sector, which accounts for 90 percent of its gross domestic product (GDP), and a rising jobless rate. China, Korea's largest export market, has also seen its GDP growth drop to a single-digit 9 percent in the third quarter, posing a greater threat to the export-oriented local economy.With growing concerns over a global recession and its fallout on Korea, Seoul stocks fell sharply Thursday, with the KOSPI falling below 1,100 points. A steep overnight fall on Wall Street also dampened the investors' sentiment, pushing down the benchmark index to 1,092.22, down 7.56 percent, or 89.28 points, from the previous session. The junior Kosdaq also lost 8.5 percent or 28.89 points to close at 311.96. The won closed at 1,330.8 won against the dollar, down 64.8 won from Wednesday's close, as foreign investors sold local shares, converted money into dollars and took them out of the country. The Ministry of Strategy and Finance said Thursday that despite easing inflationary pressure following the fall of oil prices, the world's 13th largest economy will continue to head downward for the foreseeable future as exports, the nation's main engine of growth, have shown visible signs of a slowdown. ``A bigger problem is that domestic demand, which is supposed to propel growth on behalf of slowing exports, continues to worsen, weighing down on business activities and job creation. All these factors will certainly dampen economic expansion toward the year's end and beyond,'' it predicted. It said the nation should first place top priority on stabilizing the currency and financial markets. ``Then, we should increase fiscal spending to stimulate domestic demand and create more jobs. It is also necessary to introduce a range of policy measures to help small firms and low-income earners deal with the current financial difficulties,'' the report stressed. According to the Bank of Korea (BOK), the nation's gross domestic product (GDP) grew 3.9 percent year-on-year in the third quarter, the slowest since the second quarter of 2005. Industrial production increased by just 6.1 percent in September from a year earlier, staying in single digits for the fifth consecutive month, according to the National Statistical Office (NSO). Exports grew 10 percent year-on-year in October, sharply down from the average 22.7 percent gain during the January to September period. The number of new job offerings stood at only 112,000 in September, falling far short of the government target of 200,000, and the smallest figure since February 2005, indicating that businesses have become more reluctant to hire new workers. Retail sales dropped 2 percent as more consumers tightened their purse strings, the office said.Major research institutes at home and abroad project that Asia's fourth largest economy will expand by below 4 percent next year, with UBS floating the possibility of only 1.1 percent growth. Samsung Economic Research Institute put Korea's 2009 growth rate at 3.6 percent, while the International Monetary Fund (IMF) forecast the economy would grow 3.5 percent. However, the government has pledged to propel growth to the 4 percent range, create 200,000 jobs and post a current account surplus of $5 billion next year through a $26 billion stimulus package, equal to 3.7 percent of GDP. (Source: Korea Times.) Korea Likely to Record Another Trade Deficit Next Year (Nov 2008) Korea is expected to record a trade deficit of US$5.6 billion next year, the first time since the IMF crisis in the late 1990s that the country will record deficit for two years running. The forecast came from the Ministry of Strategy and Finance in a revised budget for 2009 submitted to the National Assembly on 19 Nov. Growth forecasts for next year have been universally bad. Britain's Standard Chartered Bank in June predicted Korea would achieve 5 percent growth in 2009 but has recently lowered its forecast to a mere 1.4 percent. On Nov. 1, European investment bank UBS lowered its forecast for Korea's growth from 2.9 percent to 1.1 percent given a possible decrease in exports. And despite in October forecasting growth of 3.5 percent in 2009, the International Monetary Fund is expected to lower the forecast to the 2 percent level. This year's trade balance is expected to show a $9 billion deficit. But the ministry said despite the trade deficit the current account balance will show a $5 billion surplus in 2009 as service accounts such as tourism will improve. Meanwhile, the export increase rate dropped to a single digit in October and will highly likely fall below zero in November, a Knowledge Economy Ministry official said. If monthly exports dwindle, this would be the first minus growth in 14 months since September last year. (Source: Chosun Ilbo.) Bankruptcies Surge (Nov 2008) The number of bankrupt companies is surging, giving rise to calls for a swift government support and leniency from creditors. Bank of Korea statistics released Wednesday show the number of bankrupt companies nationwide climbed by 118 or 58.1 percent to 321 in October, the largest rise since March 2005 (359). By sector, bankruptcies of manufacturing business rose to 109, from 66 in September; construction from 49 to 65; and service from 74 to 133. By region, company bankruptcies increased from 80 to 111 in Seoul; and from 123 to 210 in provincial areas. The bankruptcy rate added 0.01 percentage points to 0.03 percent from a month earlier. The number of start-up companies increased by a meager 304 to 3,975 in October. The ratio of start-up companies to bankrupt companies came in at 18.8, the lowest since December 2004 (14.9). The central bank said an increasing number of companies went bankrupt amid tougher credit conditions taken by banks amid the global financial crisis that started in September. (Source: Chosun Ilbo.) December 2008Korean Carmakers Slash Output as Crisis Bites (Dec 2008) The five Korean automakers have been cutting production as the recession bites, with Renault Samsung announcing it will suspend plant operations following a similar decision by GM Daewoo. As a result, all five will likely produce 70,000 to 80,000 fewer cars this month, a mere quarter of their monthly average of 320,000 cars. They are closing plants for a certain period of time as well as shortening regular working hours and operation days this month. So far, they had merely cut overtime or extra work.Renault Samsung on Monday said it will shorten operating days from five to four a week beginning early December, and completely suspend operations between Dec. 24 and Jan. 1. The automaker hopes to cut back production by 30 to 40 percent with the measure. The decision came in a meeting on Nov. 28, and about 70 major subcontractors in Busan, Gimhae and Changwon have been notified. Meanwhile, GM Daewoo has stopped operations at its Bupyeong Plant no. 2, which produces the Tosca and Winstorm models, from Monday until Jan. 4. December production will likely shrink by about half. Hyundai Motor said it will cut four hours each from the eight-hour day shift and eight-hour night shift at its Ulsan plant no. 2, which produces the Santa Fe and Veracruz. This is the first time since the financial crisis in 1997 that Hyundai-Kia has drastically cut regular hours. Due to a sharp fall in the sales of SUVs, Ssangyong Motor has been granting all blue and white-collar workers paid leave. Ssangyong will set its next year production goal at 80,000 to 90,000 cars, just one-third of capacity. (Source: Chosun Ilbo.) Ssangyong Unable to Pay Staff (Dec 2008) Korea's smallest carmaker Ssangyong Motors on Sunday said it cannot pay December salaries, which were due on Wednesday. Domestic carmakers saw a steep drop in sales in due to the worldwide economic crisis, but this is the first time a domestic automaker has failed to pay workers the money it owes them. In letters to staff sent Friday, Ssangyong said, "The company is expected to post a deficit of more than W100 billion (US$1=W1,292) this year alone. Due to lack of operating funds for December, it is impossible for the company to pay salaries any longer." It had asked the head office of its parent company Shanghai Automotive Industry in China for emergency operating funds, but the request was turned because the in-house union had called for Chinese executives to resign, Ssangyong said. Shanghai Automotive took over Ssangyong in January 2005 by buying 48.9 percent stake, bringing holdings to 51.3 percent. Ssangyong employs about 8,000 staff -- 2,500 white-collar workers and 5,500 production-line workers. The Ssangyong executive committee plans a protest rally against management in front of the company's Pyeongtaek plant in Gyeonggi Province at 8:30 a.m. on Monday. Ssangyong began suspending the operation of all plants, including the Pyeongtaek plant, for three weeks last Wednesday. On Dec. 12, Ssangyong drastically downscaled its entire organization by merging the domestic business division, the overseas business division, and the services division into a single one, and fired a dozen key executives. A Ssangyong executive said, "The company will conduct an additional round of restructuring focusing on its business departments." With domestic sales dropping 34.5 percent from January until November, the number of Ssangyong's dealerships has shrunk by about 60, from 237 early this year to the current 180. November sales alone fell by 63 percent year-on-year. (Source: Chosun Ilbo.) Banks Put Bailout Cash Straight Back into BOK (Dec 2008) Commercial banks deposited more than W14 trillion (US$1=W1,444) in the Bank of Korea but refuse to lend to cash-strapped businesses. They have apparently deposited the money the central bank gave them to boost liquidity back in the BOK because using the money to extend loans would lower their Bank for International Settlements capital adequacy ratios, the measure of their financial health. Now the BOK is under pressure to pour more cash into the market, keeping in mind tight standards set by credit ratings agencies for the BIS ratio in order to maintain investor confidence. The BOK on Monday said the short-term deposits by commercial banks in the central bank had reached W14.8 trillion by last Friday. Banks are obliged to deposit in the central bank money that will be used to cover future payment obligations, and for this purpose they have deposited W25 trillion in the BOK. That means they have additional funds of more than 50 percent of the required deposits in the BOK. A BOK official said the reason is that banks got liquidity assistance from the central bank and then deposited that money straight back in the BOK, reluctant to use it to lend to businesses that find themselves short for fear that their BIS capital adequacy ratios could be damaged. The BOK, meanwhile, announced on Monday it is easing regulations on collateralized loans to small- and mid-sized exporters as part of the government’s efforts to help them out. In the past, the BOK would extend collateralized loans to banks equivalent to the amount of credit they extended to exporters, but from now on it will offer collateralized loans covering all export credit since Nov. 17. Since the weak won sent the payment burden on foreign-currency debt skyrocketing, the BOK decided to scrap repayment deadlines on foreign-currency loans taken out for use as operating funds. (Source: Chosun Ilbo.) Government’s mass dismissal system used to suppress union activity, union leaders say (Dec 2008) Hanil Construction fired employees after they became union members and refused to submit voluntary resignations. A government firing system, which allows for mass dismissals simply because of “tense management,” is also being used effectively as a means of neutralizing labor unions, and if the conditions for dismissal are eased further, as the Ministry of Labor recently proposed to do via a revision of the Labor Standards Law, labor rights infringements will become more severe, some are commenting. Hanil Construction Co., Ltd., which had a net profit of 37 billion won (US$27.9 million) last year, recently carried out a restructuring plan. Wages for all staff, more than 460 people, were cut by 10 percent, and on December 1 a total of 43 office workers were ordered to work from home, which earns them only 70 percent of the ordinary wage. Calling this “unilateral restructuring,” the workers assigned to work from home formed a labor union on December 12. The company announced four days later that it was implementing “voluntary resignations.” If workers submitted voluntary resignations, they would be paid severance pay, but if they did not, they would be dismissed without severance. The 13 union members who did not submit voluntary resignations received notice of their dismissal on 23 Dec. A union member expressed objections, saying, “The workers are already participating in overcoming the crisis, for example with wage cuts, and (the company) suddenly announced voluntary resignations and dismissals to neutralize the labor union.” “We formed the union to discuss plans for sharing the suffering together, and they unjustly dismissed workers,” said Jeong Chang-hyeop, the union’s secretary-general. In response, administrative managing director Son Yeong-ho explained, “We had already been pursuing voluntary resignations and dismissals because of a deteriorated management environment, and they are unrelated to the formation of the labor union.” Son said that discussions had been conducted through the labor-management council, but Jeong called the council “an organization without substance.” Criticisms that employers are using dismissals not only for personnel reduction but also for their effect of suppressing labor union activity have been presented previously. Heungkuk Life Insurance dismissed 19 workers in 2005 because “current term net profits dropped,” but 70 percent of the workers dismissed were labor union officials. Following several previous disciplinary firings by the company, the officials had received court verdicts reinstating them. “In the case of dismissals where ‘management reasons’ are cited, it is difficult for a dismissed worker to get a verdict of unjust firing,” said Kim Deuk-ui, secretary of the Committee for the Struggle to Reinstate Dismissed Heungkuk Life Insurance Workers. “Dismissals are basically being used to suppress labor unions,” Kim added. “Even now, when conditions and procedures are stipulated, the dismissal system is used not only for mass firings but also as a means of suppressing labor union activity,” said Kwon Doo-seob, a lawyer at the Korean Confederation of Trade Unions legal center. If the conditions for dismissal are eased, this tendency will become more pronounced, Kwon said. “The biggest problem is that throughout society, including in the courts, the mass firing of workers is considered a right of the employer,” Kwon noted. (Source: Hankyoreh.) |
