Posted by: rbbadger | November 12, 2008

South Korea and the lessons of 1997

1997 was a horrible year for South Korea, all things considered.  During the last year of President Kim Young-sam’s term, there was the Sampoong Department Store collapse in which a major department store in Seoul imploded killing many people.  The Asian financial crisis also hit here hard.

It began innocently enough, I suppose, with the news that Thailand was going to devalue its currency.  Like with China, the Thai baht was pegged to the dollar at a certain rate.  The Malaysian ringgit also fell, but neighbouring Singapore, while undergoing a short recession, came back fighting. 

Alan Greenspan, in his memoirs, spoke of how he felt confident at the time that Korea would weather the crisis well, given that they had over $25 billion in US dollar reserves, more than enough to prop up whatever problems might come along.  What Greenspan and others didn’t know was that the Bank of Korea had played games with those reserves.  When the financial crisis hit here, they couldn’t defend their currency and the won immediately dropped like a stone.  Eventually, Korea had to be bailed out by the IMF, but it did make a good recovery.  This time, the Bank of Korea has over $260 billion in foreign exchange reserves.

It is my hope that the officials of the Bank of Korea and the Ministry of Strategy and Finance have learned their lessons this time around.  The effects of the crisis are beginning to be felt here, though maybe not as badly as back at home, but the effects are definitely noticed.  As a manufacturing economy, Korea’s economy will slow given that they derive a lot of their income from exports.  Ssangyong Motors, one of the major manufactures of cars here has announced that they will be cutting back.  Samsung Renault has also indicated that they will likewise cut back a bit.  Hyundai and Kia, the two biggest automobile manufacturers, will probably do likewise.  One company that everyone is becoming very concerned about is Daewoo.

Daewoo is a major manufacturer of cars, buses, appliances, and much else.  They are owned by GM back in the states, a buy that was very controversial at the time.  GM Daewoo has announced that they will be closing their factories for about a ten-day period.

The Korean government would still like to see the Korea-USA FTA passed, but the incoming Obama Administration has indicated that they’re not happy with it, especially as it results to American auto imports.  American automobiles are sort of a rare sight here.  Currently, the Korean government slaps hefty tarrifs on them and I’ve only seen American car dealerships in rich neighbourhoods.  However, when the time comes for me to return to the USA permanently, I probably will by an American-made car, say something made by Kia, Hyundai, or Toyota!  Toyota and Hyundai now have large factories in the USA.  Kia is now a subsidiary of the vast Hyundai Group.  Toyota especially has been a model corporate citizen, often choosing to locate their factories in poorer areas of the country and thus creating many, many jobs.  Their employees are very well treated and the auto worker’s union so far has not found many takers on a plan to start a union in Toyota’s factories.  Hyundai has done likewise.


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