Doo Yong Yang
Korea Institute for International Economic Policy
YOUR SITE HERE
CONTENTS
1. Recent Economic Performance
2. Economic Changes since the Crisis
3. Challenges and Opportunities from the crisis
4. Implication for Regional Monetary and
Cooperation
Recent Economic Performance
2. Economic Changes since the Crisis
3. Challenges and Opportunities from the crisis
4. Implication for Regional Monetary and
Cooperation
‹
Economic Growth
ƒ GDP recorded $887.4 billion in 2006
ƒ Per Capita GDP reached over $18,000 in 2006
ƒ GDP growth rate was 5% in 2006
10,000
Growth Rate
20,000
8,000
15,000
15.0
10.0
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
GDP
per Capita GDP
-10.0
Growth Rate
06
20
04
20
20
02
00
20
98
19
96
19
94
-5.0
19
0
19
0
0.0
92
5,000
2,000
5.0
19
10,000
4,000
90
6,000
Share of Consumption to GDP is
slightly increasing since 1998
But investment is slightly picking up in 2007
Investment is decreasing since the crisis
60
100%
80%
40
60%
20
40%
20%
19
94
19
96
19
98
20
00
20
02
20
04
20
06
90
92
19
88
19
86
19
84
19
82
19
80
19
78
19
76
19
74
19
72
19
19
0%
19
70
0
Private consumption
Investment
06
20
04
20
02
20
00
20
98
19
96
19
94
19
19
90
19
92
-20
-20%
Government Spending
Net Export
-40
-60
fix ed inv estment
construction
facility
Saving has been declining, but
corporate saving is increasing since the
crisis
Labor productivity is gradually
decreasing
Labor productiv ity
35.0
8.0
30.0
7.0
25.0
6.0
20.0
5.0
15.0
4.0
10.0
3.0
2.0
5.0
1.0
2006 4
2007 1
2006 3
2006 2
2005 4
2006 1
2005 3
2005 1
2005 2
2004 3
2004 4
2004 1
2004 2
2003 4
2003 2
2003 3
2002 4
2003 1
2002 3
2002 1
2002 2
2001 4
2001 3
-1.0
2001 1
2001 2
03
05
20
01
97
99
corporate
20
20
19
95
91
93
indiv idual
19
19
19
89
87
83
81
79
85
priv ate sav ing
19
19
19
19
19
19
19
77
0.0
19
19
75
0.0
Export increase supported by robust
global demand
Term of Trade deteriorate since the
middle of 1990s
Term of Trade
150.0
140,000.0
120,000.0
100,000.0
80,000.0
60,000.0
40,000.0
20,000.0
0.0
100.0
50.0
export
19
9
19 01
9
19 12
9
19 23
9
19 34
9
19 51
9
19 62
9
19 73
9
20 84
0
20 01
0
20 12
0
20 23
0
20 34
0
20 51
06
2
19
9
19 01
9
19 12
9
19 23
9
19 34
9
19 51
9
19 62
9
19 73
9
20 84
0
20 01
0
20 12
0
20 23
0
20 34
0
20 51
06
2
0.0
import
Term of Trade
Won/dollar rates are closely related with the current account balance
1,350
5,000
1,300
4,000
1,250
3,000
1,200
2,000
1,150
1,000
1,100
1,050
0
1,000
-1,000
Current Account
950
KRW/USD
Ap
Ja
r-0
2
Ju
l-0
2
O
ct
-0
2
Ja
n03
Ap
r-0
3
Ju
l-0
3
O
ct
-0
3
Ja
n04
Ap
r-0
4
Ju
l-0
4
O
ct
-0
4
Ja
n05
Ap
r-0
5
Ju
l-0
5
O
ct
-0
5
Ja
n06
Ap
r-0
6
900
n02
-2,000
Won/dollar exchange rates reached almost long-run equilibrium level
DIFFERENC
160
40
140
30
20
120
10
100
0
80
60
40
-10
EQUIRIBRIUM_REER
-20
REER
-30
20
-40
-50
:0 0 :0 0 :0 0 :0 0 :0 0 :0 0 :0 0 :0 0 :0 0 :0 0 :0 0 :0 0 :0 0
:0 1 9 :0 6 0 :1 1 2 :0 4 3 :0 9 5 :0 2 6 :0 7 7 :1 2 9 :0 5 0 :1 0 2 :0 3 3 :0 8 5 :0 1
8
8 8 9 9 9 9 9 9 9 0 0 0 0
19 19 19 19 19 19 19 19 19 20 20 20 20
19
1 9 88 :0
1 9 89 :0 1 :0
1 9 90 :0 1 :0 0
1 9 91 : 1 :0 0
0
1 9 92 :0 1 :0 0
1 9 93 : 1 :0 0
0
1 9 94 :0 1 :0 0
1 9 95 :0 1 :0 0
1 9 96 :0 1 :0 0
1 9 97 :0 1 :0 0
1 9 98 :0 1 :0 0
2 0 99 :0 1 :0 0
2 0 00 : 1 :0 0
0
2 0 01 :0 1 :0 0
0
2 0 2 : 1 :0 0
0 0
2 0 03 :0 1 :0
0
2 0 4 :0 1 :0 0
2 0 05 :0 1 :0 0
06 1 : 0
:0 0 0
1:
00
0
Interest rate has been lower since the crisis, and
the risk premium has reduced, but prevailed
Call Rate
30.00
30.00
25.00
25.00
20.00
20.00
15.00
15.00
10.00
10.00
5.00
5.00
01 11 09 07 05 03 01 11 09 07 05 03 01 11 09 07 05 03 01 11
1/ 9 1/ 9 2/ 9 3/ 9 4/ 9 5/ 9 6/ 9 6/ 9 7/ 9 8/ 9 9/ 0 0/ 0 1/ 0 1/ 0 2/ 0 3/ 0 4/ 0 5/ 0 6/ 0 6/
9
19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20
1995/05
1995/11
1996/05
1996/11
1997/05
1997/11
1998/05
1998/11
1999/05
1999/11
2000/05
2000/11
2001/05
2001/11
2002/05
2002/11
2003/05
2003/11
2004/05
2004/11
2005/05
2005/11
2006/05
2006/11
2007/05
0.00
0.00
Government Bond
Corporate Bond
Unemployment rate is stabilized
in lower level, but out of labor force
increased
Inflation rate is lowered
umemploymnet rate
inflation rate
8.0
10.00
7.0
9.00
6.0
8.00
7.00
5.0
4.0
6.00
5.00
3.0
4.00
2.0
3.00
1.0
0.0
2.00
1.00
19
9
19 9/0
9 6
20 9/11
0
20 0/0
0 4
20 0/09
0
20 1/0
0 2
20 1/0
0 7
20 1/12
0
20 2/0
0 5
20 2/10
0
20 3/0
0 3
20 3/08
0
20 4/0
0 1
20 4/06
0
20 4/1
0 1
20 5/0
05 4
20 /09
0
20 6/0
0 2
20 6/07
0
20 6/1
07 2
/0
5
0.00
1 3 5 7 9 1 1 3 5 7 9 1 1 3 5 7 9 1 1
6/0 8 7/0 8 8/0 8 9/0 9 0/0 9 1/1 9 3/0 9 4/0 9 5/0 9 6/0 9 7/0 9 8/1 0 0/0 0 1/0 0 2/0 0 3/0 0 4/0 0 5/1 0 7/0
8
19 19 19 19 19 19 19 19 19 19 19 19 20 20 20 20 20 20 20
CONTENTS
1. Recent Economic Performance
Economic Changes since the Crisis
3. Challenges and Opportunities from the crisis
4. Implication for Regional Monetary and
Cooperation
Macro Economic Policy
Inflation Targeting and Flexible Exchange Rate Regime
• Since 1998, Korea adopted inflation targeting with free floating exchange regime,
However, in the early stage, the level of target is too high (9% of CPI), In 1999, the target
range lowered to 3% of core inflation. Currently 3% +_ 0.5 of three years’ average CPI
•However, there is a potential conflict between inflation targeting and exchange rate
35.00
Won/dollar Volitility
2,500.0
40
30.00
2,000.0
25.00
30
1,500.0
20.00
1,000.0
(%)
20
15.00
10
0.0
/ 0 3 / 1 0 / 1 8 / 2 4 / 0 1 / 0 7 / 1 5 / 2 2 / 2 8 / 0 5 / 1 1 / 1 9 / 27 / 0 2 / 0 9 / 15 / 2 3 / 3 1 / 0 6 / 1 4
/ 0 1 / 0 8 / 0 3 / 1 0 / 0 6 / 0 1 / 0 8 / 0 3 / 1 0 / 0 6 / 0 1 / 0 8 / 0 3 / 1 1 / 0 6 / 0 1 / 0 8 / 03 / 1 1 / 0 6
96 9 9 6 9 9 7 9 9 7 9 9 8 9 99 9 9 9 0 0 0 0 0 0 0 0 1 0 0 2 0 0 2 0 0 3 0 0 3 0 0 4 0 0 5 0 0 5 0 0 6 0 0 6 0 0 7
9
2 2 2 2 2 2
1 1 2 2 2 2 2 2 2
1 1 1 1 1
Call Rate
W on/dollar rate
-20
2004년 5월
2003년 5월
2002년 5월
2001년 5월
2000년 5월
1999년 5월
1998년 5월
1997년 5월
1996년 5월
1995년 5월
1994년 5월
1993년 5월
1992년 5월
1991년 5월
1990년 5월
1989년 5월
1988년 5월
1987년 5월
1986년 5월
1985년 5월
1984년 5월
-10
0.00
1983년 5월
0
1982년 5월
500.0
5.00
1981년 5월
10.00
Financial Market Development
1. Government-led financial market restructuring
2. Bank-focused capital clean-up
3. M&A of financial institutions by government
The banking sector is healthy
Nation-wide banks, in trillion won
1998
2001
2002
2003
2004
Before-tax profits
Net profits
-3.2
9.0
9.0
10.7
12.8
-10.1
3.6
3.7
0.3
6.0
-10.1
3.4
2.9
0.2
5.9
Return on equity (per cent)
-48.63
16.30
10.95
0.87
18.23
Return on assets (per cent)
-2.99
0.79
0.56
0.04
0.89
Total loans (A)
263.9
353.2
432.2
463.9
473.0
Substandard loans or below 1 (B)
19.0
11.7
10.6
13.1
9.4
Ratio to total loans (%) (B/A)
7.2
3.3
2.4
2.8
2.0
Loan loss reserves (C)
12.1
8.8
8.8
10.7
9.1
Reserves to substandard loans or below1 (%) (C/B)
63.8
75.3
83.5
82.1
96.6
Capital adequacy ratio (B/S ratio)
8.22
10.81
10.46
10.34
11.31
4,164
4,052
4,304
4,345
4,333
Net profits minus loan loss provisions
After-tax profits
Number of branches
1. Includes loans classified as substandard, doubtful and estimated loss.
Corporate Sector
There are fundament changes in corporate sector since the crisis
1. Economic criteria is major factor in determining the bankruptcy rather
than previous non-economic criteria
2. Corporate restructuring market has developed since the crisis. KAMCO, CRC, CRV
,CRF, PEF
2. Rehabilitation procedures are improved but heavily concentrated in the financial
restructuring rather than operational restructuring
3. Despite the improvement in financial statement, overall profitability remained weak
because of large interest burden and lack of operational restructuring, but recently
increasing due to lower debt/equity ration
There has been a marked improvement in the health
of the corporate sector
The manufacturing sector
1997
1999
2000
2001
2002
2003
2004
Financial indicators
Debt-equity ratio
396.3
214.7
210.6
182.2
135.4
123.4
104.2
Total borrowing-assets ratio
54.2
42.8
41.2
39.8
31.7
28.3
24.0
Current ratio
91.8
92.0
83.2
97.9
106.1
109.8
117.0
Asset turnover ratio
0.90
0.82
0.96
0.98
1.08
1.10
1.20
Operating profit-sales ratio
8.3
6.6
7.4
5.5
6.7
6.9
7.6
Labour cost-sales ratio
11.4
9.8
9.7
10.0
10.1
10.3
9.7
Labour cost-total operating cost ratio
13.6
11.5
11.5
11.7
11.9
11.8
11.3
-0.3
1.7
1.3
0.4
4.7
4.7
7.8
6.4
6.9
4.7
4.2
2.6
1.9
1.3
10.6
11.5
10.5
9.4
7.7
6.8
5.9
129.1
96.1
157.2
132.6
260.3
367.1
575.8
Profitability indicators
Ordinary profit-sales ratio
Financial expense-sales ratio
Average interest rate
Interest coverage ratio 1
1. The ratio of operating profits to interest expenses.
450
400
Korea 97'
Debt/Equity Ratio
350
300
Korea 98'
250
Japan
Korea 99'
Thailand
Korea 00'
Pakis tanIndones ia HongKong
Finland
Korea 01'
GermanyNorway SwedenNetherland
Mexico
Philippine US
Malay s ia
Singapore
UK
Taiwan
Colombia
Peru Korea 06’ Chile
200
150
100
50
0
0
1
2
3
4
ICR
5
6
7
8
CONTENTS
1. Recent Economic Performance
2. Economic Changes since the Crisis
Challenges and Opportunities from the crisis
4. Implication for Regional Monetary and
Cooperation
1. More Open Economy
Real sector
Capital flows
(Export+Import)/GNI
100.0
(inflow+outflow)/GDP
0.15
90.0
80.0
70.0
0.10
60.0
50.0
0.05
40.0
30.0
0.00
-0.05
19
8
19 7
8
19 8
8
19 9
90
19
9
19 1
92
19
9
19 3
9
19 4
9
19 5
96
19
9
19 7
98
19
9
20 9
00
20
0
20 1
0
20 2
0
20 3
0
20 4
05
20
06
0.0
-0.10
02
04
20
20
00
20
98
19
94
96
19
19
92
19
90
19
86
84
88
19
19
19
82
19
19
10.0
80
20.0
Foreign equity investment has increased dramatically
Share of foreign investment in equity market
KO SPI
60.0%
2,000.00
1,800.00
50.0%
40.0%
30.0%
1,600.00
1,400.00
1,200.00
1,000.00
800.00
10.0%
0.0%
1 월 1 월 1 월 1 월 1월 1 월 1월 1월 1 월 1 월 1 월 1 월 1 월 1월 1월
년 2년 3년 4년 5년 6년 7년 8년 9년 0년 1년 2년 3년 4년 5년
1
9 99 99 99 99
9
9 00 00 00 00 00 00
9
9
19
1
1
1
1
1 9 1 9 1 9 19
2
2
2
2
2
2
600.00
400.00
200.00
0.00
19
9
19 5/0
9 1
19 5/0 /03
9 6 8/
19 /0 10
9 3
19 6/1 /16
9 7 0/
19 /0 21
9 5
19 8/0 /28
9 1
19 8/0 /02
9 8
19 9/0 /09
9 3
20 9/1 /16
0 0 0/
20 /0 21
0 5
20 1/0 /27
0 1 1/
20 /0 01
0 8
20 2/0 /08
0 2 3/
20 /1 15
0 0
20 3/0 /20
0 4 5/
20 /0 27
0 1
20 4/0 /01
0 8
20 5/0 /07
0 5 3/
20 /1 14
0 0
20 6/0 /19
0 6 5/
/1 26
2/
31
20.0%
Most foreign capital inflows are concentrated in equity market
FDI
Equity
Bond
LTborro
wing
1998
10.3
74.7
3.2
11.8
1999
7.6
90.0
1.5
0.9
2000
11.3
86.2
1.2
1.3
2001
5.8
94.4
0.5
-0.6
2002
5.5
94.8
0.7
-1.0
2003
4.3
94.2
1.2
0.3
2004
7.6
90.2
1.8
0.5
(%)
Equity premium turn into positive
25
20
15
10
5
0
-5.05 .12 .07 .02 .09 .04 .11 .06 .01 .08 .03 .10 .05 .12 .07 .02 .09
95 95 96 97 97 98 98 99 00 00 01 01 02 02 03 04 04
19-1019 19 19 19 19 19 19 20 20 20 20 20 20 20 20 20
-15
-20
-25
-30
02
20 / 06
02
20 / 0
02 9
20 / 1
03 2
20 / 03
03
20 / 0
03 6
20 / 0
03 9
20 / 12
04
20 / 0
04 3
20 / 06
04
20 / 0
04 9
20 / 1
05 2
20 / 03
05
20 / 0
05 6
20 / 0
05 9
20 / 12
06
20 / 0
06 3
20 / 0
06 6
20 / 09
06
20 / 1
07 2
/0
3
20
100
50
fix ed inv estment
construction
-20
-40
0
-60
facility
20
20
20
20
19
19
19
19
19
19
19
19
19
19
19
19
06
04
02
00
98
96
94
92
90
88
86
84
82
80
78
76
74
72
150
19
70
300
19
foreign reserv es
19
2. More Risk Averse
- Global Imbalance
More prudent in public sector: increasing foreign reserve
More risk averse in private sector: decreasing investment
60
40
250
200
20
0
3. More Flexible Exchange Rates
Exchange rate appreciates more than most Asian economies
Inflation targeting is appropriate for SOE (Chung, Jung and Yang, 2006)
140
130
120
110
100
90
80
70
01
7-
01
-0
1-
01
20
06
-0
20
05
20
In d o n e s ia
M a la y s ia
Ta iw a n ( C h in a )
06
-0
1-
7-
01
01
-0
05
20
04
20
04
20
7-
01
-0
1-
01
-0
7-
01
-0
120
03
-0
20
02
20
C h in a
Ko re a
S in g a p o re
03
-0
1-
7-
01
01
-0
02
20
01
20
01
20
7-
01
-0
1-
01
-0
7-
01
-0
100
-0
20
00
20
01
60
Ja p a n
P h ilip p in e s
Th a ila n d
4. More Liquidity
More liquidity in the market create asset price hike (Kim and Yang, 2007)
Figure 1: Composite Stock Price Indexes1—ASEAN-4, PRC and Korea
(end of week, 7 January 2000 = 1002, local index)
300
262
250
Figure 3: Property Indexes for Selected East Asian Economies 1
(2000Q1=100)
600
Thailand 505.5
500
Indonesia 222
200
182
166
315.4
Thailand
PRC
150
151
300
270.9
146
Korea
100
Malaysia
400
Malaysia
Singapore
200
254.5
209.4
Japan
Philippines
0
7-Jan00
1
126.8
100
50
Hong Kong, China
58.6
Indonesia
0
1982Q1 1984Q1 1986Q1 1988Q1 1990Q1 1992Q1 1994Q1 1996Q1 1998Q1 2000Q1 2002Q1 2004Q1 2006Q1
25-Oct00
13-Aug01
1-Jun02
20-Mar03
6-Jan04
24-Oct04
12-Aug05
31-May06
Weekly averages of PRC (Shenzen), JCI (Indonesia), KLCI (Malaysia), PCOMP (Philippines), SET (Thailand).
Source: OREI staff calculations based on Bloomberg data.
19-Mar07
1
TPREAL Index (Japan), SESPROPO Index (Singapore), KLPRP Index (Malaysia), JAKPROP Index (Indonesia),
SETPROP Index (Thailand), HSP ndex (Hong Kong, China).
Source: Bloomberg.
CONTENTS
1. Recent Economic Performance
2. Economic Changes since the Crisis
3. Challenges and Opportunities from the crisis
Implications for Regional Monetary and
Financial Cooperation
1. Regional Monetary and Financial Cooperation should be strengthened
- current challenges in Asia’s EME can’t be solved by individual economies
2. CMI phase II should more focused on structural issues such as policy cooperation in
order to solve the major challenges in the region
3. Financial Market integration is crucial for regional economic growth, and provide a
possible solution for global imbalances