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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.
Table 1. Income Distribution in Korea (Gini Coefficient) |
1985 |
1993 |
1996 |
1997 |
1998 |
1999-1 |
Taiwan ('93) |
U.S. ('94) |
0.345 |
0.310 |
0.295 |
0.280 |
0.310 |
0.370 |
0.308 |
0.456 |
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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