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Business Update
by R. Ben Weber
Goldman Sachs to Acquire 16.6% Equity in Kookmin
Bank
U.S. investment bank Goldman Sachs has
agreed to invest US$500 million in Kookmin Bank according to press
reports. This would make Goldman Sachs Kookmin's largest shareholder
with a stake of around 16.6%. Goldman Sachs will not take part in
the management of the bank, however. This deal continues the trend
of increased foreign involvement in Korea's banking sector.
Hanvit Bank, a consolidation of Hanil Bank and Commercial Bank of
Korea, is preparing to issue new shares later this year in an effort
to attract foreign capital. U.S. investment bank Lehman Brothers
will lead manage Hanvit's new stock issue.
Social Issues
by Peter M. Beck
Korea's Shrinking Middle Class: Amid signs that
the economy is recovering, the latest data on income distribution
paint a more gloomy picture. Despite a sharp fall in the unemployment
rate from a high of 8.7% in February to 6.5% in May, Korea's economic
crisis and subsequent restructuring have hit middle and lower income
groups especially hard.
According to the National Statistical Office, the
number of middle class households fell from 52.3% to 45.8% in 1998.
Meanwhile, the Korea Times reported on June 2 that the portion of
the population falling below the poverty line had risen to 7.2%
in 1998, a 2.5-fold increase over 1997. Overall, real wages fell
10.7% in 1998, according to the Labor Ministry.
The public's perception of income distribution
has shifted more dramatically. According to a Hankuk Ilbo survey,
70% of respondents considered themselves to be middle class before
the crisis hit, but today only 46.3% feel they still belong. The
number classifying themselves as low income more than doubled from
24.1% to 52.8%. Almost 92% felt that the income gap between the
rich and poor is widening.
The latest income distribution figures bear these
perceptions out. As Table 1 indicates, after falling from the 1980s
until 1997, income inequality has risen sharply in the last 18 months
to reach a 17-year high. While still considerably better than the
United States, Korea has slipped out of the band of what is considered
to be a relatively even distribution of income. In response
to these changes, the government is taking steps to beef up the
social safety net. On June 18, the government announced it would
provide tax breaks for wage earners and request a supplemental budget
that includes $1.0 billion to create jobs and expand the social
welfare system.
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Table 1. Income Distribution
in Korea (Gini Coefficient)
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1985
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1993
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1996
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1997
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1998
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1999-1
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Taiwan ('93)
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U.S. ('94)
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0.345
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0.310
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0.295
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0.280
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0.310
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0.370
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0.308
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0.456
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Note: The Gini Coefficient measures the level of equality
in income distribution. Smaller numbers represent greater equality.
Income distribution is considered relatively even if the number falls
between .20 and .35.
Sources: Social Indicators in Korea 1998, National Statistical Office,
Korea Institute of Finance and World Bank (http://www.worldbank.org/html/prdmg/grthweb/dddeisqu.htm)
Korea Insight is published monthly by the Korea
Economic Institute.
Vice President Joseph A.B. Winder is the editor.
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