continue-

Economic Trend
by Florence Lowe-Lee

Industrial Production Continues its Recovery: The National Statistical Office (NSO) reported that the nation's industrial output surged 17.1% in April, the sixth consecutive monthly increase and the largest monthly growth since the 1997 currency crisis. The official attributed the rise to a steady increase in exports, recovery in domestic consumption, and facility    investment. By sector, semiconductor production rose 34.3% in April, automobiles jumped 41.7%, and office accounting machinery rose 79.6%. Wholesale and retail sales also increased 8.3%. A major turnaround was in local construction orders, which surged 39.3% in April after declining 51.1% in March. The NSO said the positive changes in April are mainly due to the government's effort to increase infrastructure investment aimed at stimulating the economy. Separately, the business survey index for the third quarter of this year rose to a 4-year high of 125, said the Korean Chamber of Commerce and Industry.

% Increase Over Previous Year   1st Quarter Feb Mar Apr Industrial Production 12.5 3.9 18.8 17.1 Wholesale & Retail Sales 6.0 7.4 8.3 8.2 Domestic Machinery Orders 16.9 -1.0 15.8 23.6 Domestic Construction Orders -45.3 -52.0 -51.1 39.3

Imports Surge, Export Industry Needs Restructuring: Korea's imports in May jumped by an average of 25% over the same month last year, reaching $9.5 billion, according to the Ministry of Commerce, Industry, and Energy (MOCIE). This increase was the highest growth rate since January 1996. Although   exports are rising so far this year with increase of 3.2% for the year up to the end of April or $41.9 billion, experts said the export industry needs restructuring. Korea must broaden both its export markets and the products that it exports in order to stay competitive. So far this year, most overseas shipments have been in electronic/electric products, automobiles, shipbuilding, and general machinery items. Domestic exporters depend heavily on Southeast Asian markets. However, as Southeast Asian countries and China are strengthening their export drive as a means to overcome the economic crisis, the nation's exporters are faced with severe competition. Because the export prices of Chinese products are much lower than those of Korean products, local exporters sometimes have to cope with a loss in order to stay competitive. Furthermore, Southeastern Asian countries are rapidly catching up with Korea in semiconductors and other high-tech areas. Economists at LG Economic Research Institute suggested that to reinforce the competitiveness of Korea's export market, it would be necessary to increase cutting-edge industrial plant exports as well as explore new technologies.  

The Status of Privatization Efforts in Korea: Within the past year, the Korean Government has taken steps to privatize 11 of its 26 state-owned enterprises. Within the last month, the Korean Government has renewed efforts to privatize Pohang Iron and Steel Corporation (POSCO), the Korea Gas Corporation, and Korea Telecom. To date, the Ministry of Finance and Economy has liquidated all of its asset holdings in POSCO, and the Korea Development Bank announced its plans last week to sell 8% of its remaining 20% stake in POSCO next month. Earlier this month, the Government announced that three international corporations were vying for 25% stakes in Korea Gas Corporation. This translates into a sale of over half the total government stake. By the end of June, it is expected that British Gas will purchase a stake of 15%, Japan's Osaka Gas will   control 8% and GIC 2%. Also late last month, the Government announced that Korea Telecom sold 13% of the government stake to overseas investors. This percentage is the government ceiling on sale of government owned shares for 1999. The total ceiling for foreign sales is estimated at 33%. The sale took place through the issuance of American depository receipts on NYSE at $27.565 per share, which according to news sources, "is the largest DR issue ever on the New York bourse by an Asian  company excluding Japan."

Gross National Income Falls: Despite a robust economic growth rate of 4.6% in the first quarter, Korea's nominal gross national income (GNI), (gross domestic product plus net trade and     investment income), declined 1.7% year-on-year to $91.22 billion. The Bank of Korea said this drop was mainly due to    declines in export profitability. In the first quarter, domestic exporters' profit margins sank as the won-dollar exchange rate plunged and this had a negative effect on prices of Korean products shipped overseas. The Central bank predicted that nation's nominal GNI will start growing again as won-dollar exchange rates stabilize and subsequently a recovery in export prices.

next page