economic structure is its heavy dependence on international trade. In 2003, the value of merchandise trade was equivalent to 35.7% of GDP, compared with 10% of GDP in the early 1970s, following the export-oriented industrialization drive initiated by the then president, Park Chung-hee.

Korean exports mainly consist of elctronic products, machinery and transport equipment, Semiconductors, wireless telecommunications equipment, computers, steel, ships and petrochemicals. The main exports partners of Korean republic are China (18.2%), US (17.8%), Japan (9%), and Hong Kong (7.6%).( figures in the bracket indicate these countries' share in 2003) Imports commodities are machinery, electronics and electronic equipment, oil, steel, transport equipment, organic chemicals, plastics. In 2003, the share of different countries from which Korea imported these products was -Japan 20.3%, US 13.9%, China 12.3%, Saudi Arabia 5.2%.



ROLE OF GOVERNMENT vs MARKET
During late 1950s, South Korea GDP per capita was comparable with levels in the poorer countries of Africa and Asia. Today its GDP per capita is 18 times North Korea's and equal to the lesser economies of the European Union. This success through the late 1980s was achieved by a system of close government/business ties, including directed credit, import restrictions, sponsorship of specific industries, and a strong labor effort. The government promoted the import of raw materials and technology at the expense of consumer goods and encouraged savings and investment over consumption.

In 1961 General Park Chung Hee overthrew the popularly elected regime of Prime Minister Chang Myon. A nationalist, Park wanted to transform South Korea from a backward agricultural nation into a modern industrial nation that would provide a decent way of life for its citizens.The Park administration decided that the central government must play the key role in
economic development because no other South Korean institution had the capacity or resources to direct such drastic change in a short time.

Park extended government control over business by nationalizing the banks and merging the agricultural cooperative movement with the agricultural bank. Economic programs were based on a series of five-year plans that began in 1962. The Economic Planning Board was created in 1961 and became the nerve center of Park's plan to promote economic development. The early economic plans emphasized agriculture and infrastructure; the latter were closely tied to construction. Later, the emphasis shifted consecutively to light industry, electronics, and heavy and chemical industries. Using these strategies, an export-driven economy developed.

The economic system incorporated elements of both state capitalism and free enterprise. The economy was dominated by a group of chaebol (large private conglomerates) and also was supported by a significant number of public corporations in such areas as iron and steel, utilities, communications, fertilizers, chemicals, and other heavy industries. In 1995, for example, the top 30 chaebol produced 16% of South Korea's GDP and accounted for 41% of manufacturing value added and 50% of exports. Among the top 30
chaebol, the top four groups at the time Hyundai, Samsung, Daewoo and LG clearly dominated, producing 9% of GDP in 1995. Although the corporate landscape has changed considerably since 1997, partly as a result of government reforms only 18 of the largest chaebol in 1997, remained on the list in 2001, they continue to dominate economic activity. The government guided private industry through a series of export and production targets utilizing the control of credit, informal means of pressure and persuasion, and traditional monetary and fiscal policies.

Significant economic policies included strengthening key industries, increasing employment, and developing more effective management systems. Because South Korea was dependent on imports of raw materials, such as oil, a major government objective was to significantly increase the level of exports, which meant stressing greater international competitiveness and higher productivity.

The government combined a policy of import substitution with the export-led approach. Policy planners selected a group of strategic industries to back, including electronics, shipbuilding, and automobiles. New industries were nurtured by making the importation of such goods difficult. When the new industry was on its feet, the government worked to create good conditions for its export. Incentives for exports included a reduction of corporate and private income taxes for exporters, tariff exemptions for raw materials imported for export production, business tax exemptions, and accelerated depreciation allowances.

In 1990 the Economic Planning Board primarily was charged with economic planning; it also coordinated and often directed the economic functions of other government ministries, including the Ministry of Finance.





South Korea Economy


South Korea is ranked 24th in the world in terms
of population with 48.233 million people residing there in mid 2004. According to data obtained from World Bank Indicators, national growth rate in Korea during 1997-2003 was 0.7 %, more than world average of 1%.

Korea is densely populated country with 490 persons living per sq km in 2004, 80% of which live in urban areas. Life expectancy at birth in Korea is 74 years, somewhat less than other OECD high income countries, according to (1997-2003) World Bank figures.

Gross primary enrollment, which denotes the percent of school-age population, is 100, same for both the sexes. 92 % of the population has access to safe drinking water. Adult Literacy rate is 98%. Korea is ranked 28th in 177 countries of the world in terms of human development index.
South Korea Economy Key Indicators


After a period of relative success at the end of the 1990s, there has been a recent slowdown in GDP growth. GDP per capita has not grown strongly enough to narrow the income gap vis-à-vis the United States.
STRUCUTURE OF THE ECONOMY
According to World Bank estimates, in 2003,
agriculture accounts for 3.6% in total GDP, while industry and services had a share of 36.4% and 60% respectively. Similarly, maximum number of labour force was employed in services 72.1%. Agriculture employed 8.8% and industry 19.1% of country's work force. Since the early 1960s, South Korea has achieved an incredible record of growth and integration into the high-tech modern world economy. The Asian financial crisis of 1997-99 exposed longstanding weaknesses in South Korea's development model, including high debt/equity ratios, massive foreign borrowing, and an undisciplined financial sector. Growth plunged to a negative 6.6% in 1998, then strongly recovered to 10.8% in 1999 and 9.2% in 2000. Growth fell back to 3.3% in 2001 because of the slowing global economy, falling exports, and the perception that much-needed corporate and financial reforms had stalled. Led by consumer spending and exports, growth in 2002 was an impressive 6.2%, despite anemic global growth, followed by moderate 2.8% growth in 2003. In 2003 the National Assembly approved legislation reducing the six-day work week to five days.

Real value added by manufacturing rose by an annual average of 6.9% in 1997-2001, faster than the real average annual growth rate of 4.1% for the economy as a whole. Instead, the developments in manufacturing reflect the fact that hitherto neglected areas of the services economy have been catching up fast. One sign of this has been the rise in employment in the services sector. Between 1997 and 2001 the share of services in employment rose from 66% to 70% of the total, while that in manufacturing fell from 23% to 19.5%.

Expenditure on GDP is characterized by an extremely high proportion of gross fixed investment, mainly by the private sector and, until the end-1997 financial crisis, mainly through bank financing. The share of gross fixed capital formation in GDP averaged just fewer than 30% in 1997-2001. The figure would doubtless have been even higher, but for the sharp fall-off in business investment in the recession year of 1998.

Companies, especially semiconductor firms, undertook much of the investment growth in the 1990s in the export boom years of 1994-95.

Main agriculture products are rice, root crops, barley, vegetables, fruit; cattle, pigs, chickens, milk, eggs; fish. Main Industries are electronics, telecommunications, automobile production, chemicals, shipbuilding, steel

CHALLENGES FACING KOREA
The key long-term challenge is to continue the rapid convergence to the average income level in the OECD area by accelerating productivity growth as inputs of labour and capital slow. The government's emphasis on maintaining high growth is reflected in the recently established goal of doubling per capita income from $10 000 to $20 000, although the time frame is unspecified. Also, there is considerable scope for convergence to sustain high growth, as Korean labour productivity (per hour worked) is far less than high-income OECD average.

Much like other high-income countries,
maintaining macroeconomic stability in the face of spending pressures stemming from exceptionally rapid population ageing and developing a social safety net, are some of the long-term challenges.

Another challenge is to ensure that the labour market functions effectively by encouraging more co-operative and favourable industrial relations, enhancing employment flexibility and limiting dualism in the labour market, which has negative implications for equity.

Further, it is essential to continue the reform agenda launched after the 1997 crisis. Also, it is essential to make competitive pressure stronger by overcoming the regime of extensive government intervention in the economy, improving competition policy. Given the role played by international trade and foreign direct investment in Korean success, continuing with the policy of openness will be justifiable.
South Korea Mortgage



In the Korean mortgage system consumers have to pay approximately 80% of the

home price up front, and pay the remaining loan in 5-20 years. So majority of consumers cannot afford to purchase expensive finishes when they initially buy their apartment. The US manufacturers report that consumers are beginning to replace domestically produced interior goods with US-made goods because they are not satisfied with the quality of domestically produced goods.

Housing Market In Korea

The housing market in Korea is very special in nature and is called chonsei; its literal meaning is the 'total rent.' In case of the chonsei system, the tenant pays an upfront lump-sum amount of deposit to the owner for the use of the property with no additional requirement for periodic rent payments.Interest earnings on the lump sum deposit income to the owner during the contract period.

The deposit is then returned to the tenant when the contract expires, otherwise the owner is in breached of contract and the Korean legal system grants the tenant a right of full control over the property until the owner returns the deposit. That is, the deposit money of tenant is legally protected as an asset that can be claimed against the collateral value of the property.

Housing Process In Korea

In the periods of the Korean conflict, many of the national housing stock and economic infrastructure are being destroyed and caused the Korean government to make restrictions to the housing finance market so as to channellize credit into the industrial sector for several decades. Still the mid-1990s, homeownership opportunities financed via mortgage loans was possible to most households in Korea.

The housing finance system chonsei has been widely spreaded in Korea, with the rapid urbanization for the last few decades.

The Population and Housing Census Report (2000) has stated that the total number of households in Korea is 14.31 millions, out of which 7.75 million (54%) are homeowners and 4.04 million (28%) are under chonsei contracts (the remaining households are under monthly rents).

The housing system chonsei works in a way that effectively allows owners to leverage their investments by pulling out significant deposits that are used to purchase additional properties. It also allows owners to skirt government rental price controls and ownership restrictions.

The chonsei contract wipes out the likelihood of tenant's default on the rental payment as the deposit is maximized till periodic rents are zero.

Chonsei System in South Korea.

This system is more beneficial for the landlords and the tenants as well. For the landlords
• The chonsei is regarded as a financial instrument, which satisfies many household's credit demands.
• Able to use the chonsei deposits to fund other investments e.g. real estate purchases or capital for businesses.
In the view of the tenants
• As long-term mortgage loans are not widely available in the country rather chonsei becomes the tool of building equity for buying a house.
H1 export figures reveal disappointing trend
Our Bureau
NEW DELHI, Nov. 1
DESPITE the Commerce Ministry's unbounded optimism in not revising the export target of 12 per cent in the wake of gloomy global trade scenario, the performance of the export sector continues to remain dismal with the first half of export growth register ing a negative 1.95 per cent at $20,967.81 million as compared to $23,385.65 million in the corresponding months of 2000.
A rough calculation, based on trends of last year, reveals that to hit the current fiscal target of 12 per cent over and above last year's performance, exports should fetch $49,647 million. Last year, exports fetched $44,328 million.
Given the trends noticed during the first half, in order to achieve 12 per cent growth in the remaining six months from October 2001 to March 2002, exports must yield $28,679 million which works out to an average of 25 per cent growth in every month of t he second half of 2001-02.
In the existing external environment where there has been a simultaneous slowdown in the US, the European Union and Japan, the three principal markets India traditionally banks itself on to pull its export growth, it would be an uphill task for Indian ex porters to record a sustained growth of 25 per cent per month to hit the 12 per cent export target as set out by Mr Murasoli Maran, trade experts opine.
India's imports during April to September 2001 at $25,930.68 million represents a meagre growth of 1.81 per cent over the level of imports valued at $25,468.96 million in April-September 2000. Thanks to the softening trend in crude oil prices, the oil im port bill was less by 8.1 per cent during the first half of the current fiscal at $7,629.7 million ($8,300.7 million).
Non-oil imports during April-September 2001 are estimated 6.6 per cent higher at $18,300.98 million ($17,168.26 million).
Reflecting the repercussions of the tragic events in the US on September 11, India's exports to this major destination suffered a jolt. Exports during September 2001 at $3,516.77 million was 8.61 per cent lower than the level of $3,848.09 million in Sept ember 2000. Similarly, imports during September 2001 was 1.46 per cent lower at $4,185.87 million ($4,247.75 million).
Notwithstanding the negative growth in exports and tepid growth in imports, trade deficit during the first half of the current fiscal was higher at $4,962.87 million ($4,083.31 million).
Official sources told Business Line here that the perceptible fall in the country's exports is in consonance with the global trends where the world trade growth itself has been forecast to be zero this year. An internal study on export performance of Asi an countries made by the Economic Division of the Commerce Ministry shows that except China, which has logged an export growth of 4.13 per cent during April to August 2001, the latest available, export growth in 10 Asian countries revealed negative trend s.
The study said the highest negative growth has been seen in the Philippines at -19.79 per cent followed by Korea -15.15 per cent, Singapore -12.68 per cent and Malaysia -12.68 per cent. Further analysis of sector-wise export performance of these countrie s show that all the major sectors of exports have been hit hard during the current year.
In the case of Indonesia, oil and gas exports constitute 18 per cent of its total exports and both these sectors showed negative growth. The data for September 2001, which is available for only two countries, shows a high negative growth rate of 43 per c ent for Taiwan and a negative growth rate of 17 per cent for Korea, reflecting the impact of the terrorist attack on the US, the principal market for many Asian economies including India.