The following report is available for public reading
Ministry of Finance & Economy 1997 Financial Report
Economic forecasts, Russian Economic Crisis, Korean Trade and Imports |
Summary of 1997 Performance
Actual performance in FY 1997
Korea's GDP growth remained steady and on track with 26.6 trillion KRW government budget for FY 1997. Government spending remained healthy with increased oversight of government agencies through cooperative frameworks that ensure independency and security of the finance ministry. Korea's spending in outflow payments was restricted to trade imports from: Germany, Italy, Rattanakosin, Norway, and Ukraine as well as arms imports from Germany, Italy, & the United States. Korea's exports continued to grow with a surplus of exports to Italy, and balanced trade with Germany, Ukraine, and Norway. With no official trade documents, it is largely viewed Korea-Rattanakosin trade balance remains nominal and insignificant, while still growing and expectations for a Korean surplus in trade.
South Korea in November had a GDP growth of 7.2%, adding 2.18 trillion KRW in government GDP through taxation as a result of median income rising, and export increases to Italy and Germany. South Korea is projected to add 2.48 trillion KRW in December, bringing total GDP growth over the past 6 months of Q3 and Q4 of FY 1997 to 15.3 trillion KRW. Korea's government continues to raise expectations for a healthy growth and strong foreign investment in 1998.
South Korea announced in November the signing of a $3 billion USD agreement with the international monetary body of the General Assembly, receiving grant funding to cover civil projects. Reassuring economic stability and high growth in the upcoming year. With the grant, South Korea was able to repay in advance, the capital costs of its healthcare reforms, infrastructure program, and educational spending in 1997. Showcasing strong international cooperation, and the continued need for global engagement to strengthen each other. South Korea prepared a $150 million grant package for Ukraine in the area of corruption, justice, and prison reforms. South Korea also prepared a $400 million aid package grant for Pakistan to promote girls education, STEM education, and clean water resources, signifying Korea's growing role in advisory assistance and carrying-forward a global effort to eradicate poverty, raise HDI, and support democratic regimes.
In 1997, South Korea’s government in Q3 maintained a healthy growth rate with raising standards of living, HDI levels, and human capital growth. Supported by strong economic and educational policies since the 1960s, South Korea’s domestic market remains highly lucrative and growth. Korea’s middle class continued to grow at higher rates, and while Q4 expectations declined in September, they bounced back in October and continue to remain growing in November.
South Korea’s credit rating remains high, with a stable and reliable debt repayment scheme, strong government institutions, and a commitment by all political parties to pursue responsible economic policy. South Korean macroeconomic policy remains highly based on the export-oriented market economy, and is signified by the signing of the Korea-Germany Free Trade Agreement and Korea-Italy Free Trade Agreement.
Government Budget
(trillion won, %)
| | 1997 Budget
(A) | 1998 Budget Proposal
(B) | Changes | |
B-A | % | | | |
Total Government Revenues
- Tax Revenue | 214.3
242.3 | 247.1
268.2 | 32.8
25.9 | 7.9
10.7 |
Total Government Expenditures | 200.5 | 229 | 28.4 | 7.1 |
((Fiscal Balance)) Surplus in the consolidated fiscal budget by ~30 billion KRW in totality
(Government Debt) Government debt is expected to continue to grow, but remains within 16% of expected GDP. Compared with the previous year however, government debt fell from 32.6% percent to GDP to 24% percent.
Government Policy Aims and Outlooks 1998-1998
The government will work for decent job creation and stronger welfare, pushing towards income-led growth.
- Revise support to simulate decent job creation in the private sector: Reform the incentives for foreign investment and reshoring businesses in a way to promote employment and stimulate new industries, and introduce tax breaks for SMEs that hire more, including women trying to return to work after maternity leave
- Improve employment services for young adults: Launch various kinds of programs to match young job seekers to SMEs, such as building up DBs for SME employers and job seekers, and launching job training programs for vocational school graduates, and help find jobs overseas
- Work to increase public sector jobs as fast as possible through front-loaded budget spending
- Work to improve income
- Minimum wage increase: Successfully carry out the minimum wage support , which should be temporary, work to refine the minimum wage system, and revise the EITC and other welfare benefits to reflect the effect of the minimum wage support
- Protect employees: Revise regulations on unpaid wages to make it easier for employees to collect their unpaid wages (employees can claim unpaid wages 2 months after the payment delay, a cut from the current 7 months), and increase the supervision of such unfair practices
- Promote cooperation between large conglomerates, SMEs and employees: Develop models for cooperation and profit sharing, work on tax and other incentives to promote cooperation, increase the large conglomerate-SME cooperation fund , encourage large conglomerates to expand cooperation to SMEs that are not their affiliates, come up with a mid- to long-term roadmap to phase out promissory notes, and improve the evaluation system and give corporations increased incentives if they provide a good example
- Work on a performance-based pay system: Develop different performance-based evaluation standards for different jobs, as well as a guideline to ensure equal pay for men and women
- Ensure work-rest balance: Gradually introduce reduced working hours and expand support for the wage cut that may follow, and promote taking annual leave, such as taking 2-week summer vacation
- Reduce the burden of living expenses in 5 areas of housing, healthcare, education, transportation and communications
- Housing: Increase public housing for rent
- Healthcare: Expand the range of treatment covered by the National Health Insurance
- Education: Expand a 50 percent tuition cut and improve student loan programs to reflect the borrower’s future income as well as to ease the repayment burden
- Transportation: Work to reduce public transportation costs
- Communications: Introduce a new mobile plan with reduced costs
The government will work for the outcomes of growth to be felt by every household, small businesses and provinces by correcting unfair practices, promoting cooperation and boosting local economies.
- Get rid of unfair practices: Increase penalty for unfair practices, and introduce measures to get rid of unfair treatment of contractors providing goods or services, franchisees and subcontractors
- Work to improve corporate governance: Work to introduce a stewardship code and set out stewardship by the national pension fund and other institutional investors
- Boost local economies: Work to develop industrial clusters nationwide, and work to reform local governments’ fiscal systems to be less dependent on the central government
- Protect small businesses: Reduce the burden of credit card transaction costs, and work to help them avoid being victims of gentrification
- Seek fairer taxation: Work on tax revision in mid- to long-term perspectives, impose tax on rental income and examine the revising of property taxes, and increase the EITC and other support for the working class
- Work for a social economy: Establish infrastructure necessary, such as statistics, financial system and distribution channels
- Reform the public sector to be more responsible, voluntary and innovative: Revise evaluation standards, introduce a ‘same pay for same job’ system, and work to get rid of cronyism
The government will work for the economy to maintain growth momentum, and will strengthen its risk management.
- Increase investment: Increase spending on housing, public safety and urban renewal
- Boost consumption: Promote tourism, and revise the anti-graft act
- Prepare households and corporations for interest rate hikes: Work to increase fixed rate loans and expand financial consulting services, launch workout programs for mortgage borrowers, such as sale and leaseback, and expand corporate bond purchase programs if necessary
- Strictly manage external risks: Closely monitor global financial markets, expand IR meetings to investors in Berlin, Rome and New York, and cope with protectionism and other trade related issues, such as those concerning Korea-Germany FTA and Korea-Italy FTA
- Work to increase birth rates by providing support which reflects different need in different time: Provide affordable housing for the newly married and make various kinds of daycare services available
- Promote woman employment: Work to raise the female employment rate, such as by promoting the use of maternity leave, encouraging women to return to work after maternity leave and outlawing discrimination against women in workplaces
- Work to ease senior poverty: Increase national pension benefits given to poor seniors and reduce the number of seniors left out of the national pension plan, promote private pension plans by giving tax incentives, expand basic pension benefit recipients, and promote reverse mortgage pension schemes
Ministry economic slowdown Indicators: Asia-Pacifica
The Ministry of Finance and Economy’s latest economic assessment for Asia and the Pacific highlights rising downside risks to growth in the context of a Russian economic crisis and looming global slowdown. Growth in Asia softened in the late half of 1997, driven by a rise in government spending and low credit intake and tax revenue, with continual decline in fixed investment and exports. Consumption largely held up, helped by supportive policies across the region initiated by the Governments of Korea and Rattanakosin.
In India, growth decelerated sharply in recent quarters but, with a large population, maintained a relatively healthy rate with government taxation policy and domestic consumption to soften the blow in low trade exports and capital inflow. Supported by recent fiscal policy boosts to domestic corporations, India still however, remains an area of high risk to due to high government spending and a debt ratio of over 160.18% to its current credits, and being only able to cover 57.5% of its sovereign debt with current currency reserves. India is an area of concern and highlighting the need for continued monitoring. The announced monopolization of Indian defense firms is also an area of concern, limiting freedom of market opportunities for foreign corporations, the legal implications of a government anti-trust suit, and possible investor sell-offs due to government intervention.
Rattanakosin’s debt to credit ratio exponentially grew in the past quarter, with debt growing at 47.89% compared to credit accumulation of 2.29%. The Kingdom’s estimated sovereign wealth and foreign reserves are estimated at $1 billion, not enough to cover the 17.88 billion difference. South Korea remains worried for future economic instability caused by a collapse of the Kingdom's foreign reserves to protect the Baht and its free falling effect on the KRW. Rattanakosin's economic growth however remained healthy, however, its close economic relationship with Russia serves as a primary warning, for possibly economic instability if the Russian economy completely collapses.
Ultimately, the Asia-Pacifica Region like Europe is at risk for economic slowdown as Government spending raises above available taxes, however, Government bonds and exports remain weak, and as a result, the traditional method of borrowing remains a risk for many Governments. Korean investors have been warned against pursing investments in India, Russia, and Nexus Group subsidiaries. South Korea's Finance Ministry continues to collect data publicly released and collected by the NIS to provide the best picture for government policy and interactions. Concerns over countries abilities to be able to completely pay for future projects, as well as purchases made by the Korean Government remain high for European countries, and Korea.
South Korea maintained a healthy export to import balance in the FY1996-1997 in nominal trade export value compared to import. However, government purchases outside the areas of trade, namely weapons, defense, vehicles, equipment, and services in areas from Germany and the United States have made real balance favorable to the latter. Still, South Korea benefited from these trades, ensuring a robust economic consumers market and a strong national defense.
