COUNTRY ANALYSIS

Of

SOUTH KOREA

FINAL REPORT
by
Sachin Dixit (16A1HP030)
Sonali Chandalia(16A1HP046)
Hemant Gumber (16A1HP078)
Saudamini Dixit (16A1HP079)
Shubham jhamer(16A1HP081)
Ashish Raut (16A1HP082)

2nd Year-PGDM International business (Section-B)

27th September, 2017

Institute of Management Technology, Hyderabad

As submitted to
Professor Steven Raj
Table of Contents
Introduction..............................................................................................................................3
Gross Domestic Products.........................................................................................................4
Economic Activity...........................................................................................................................4
Production Activity.........................................................................................................................4
Growth over the last decade...........................................................................................................5
Sluggish Domestic Demand............................................................................................................6
Net Export of Goods and Services..................................................................................................6
GDP Per Capita...............................................................................................................................7
Demography.............................................................................................................................8
Population Pyramid........................................................................................................................8
working vs total population............................................................................................................8
Consumer Price Index.............................................................................................................9
Major Weights for CPI...................................................................................................................9
Contributors of CPI......................................................................................................................10
Transportation and global fuel prices..........................................................................................11
Food Inflation................................................................................................................................12
Index of Industrial Production.............................................................................................13
BALANCE OF PAYMENT..........................................................................................................14
Investment for environmental pollution control.........................................................................14
External Indicators................................................................................................................15
Balance of Trade....................................................................................................................17
Top 5 Exporter Commodities.......................................................................................................18
Top 5 Exporter Country-..............................................................................................................18
Top 5 Importer Commodities.......................................................................................................19
Top 5 Importer Country...............................................................................................................19
EXCHANGE RATE......................................................................................................................20
Monetary and Financial Policy.............................................................................................21
Policy Rates....................................................................................................................................21
Exchange Rates.............................................................................................................................22
Policy Rate and Money Supply....................................................................................................22
Policy Rate and Loan Growth......................................................................................................23
Stock Index and Market Capitalization......................................................................................23
Public Finance........................................................................................................................24
Revenue..........................................................................................................................................24
Budget............................................................................................................................................25
Debt................................................................................................................................................25
Introduction

South Korea has developed into one of Asia's most affluent countries since partition in 1948.
The Communist North has slipped into totalitarianism and poverty. The republic was
proclaimed in 1948 and received UN-backed support from the US after it was invaded by the
North two years later. The Korean War ended in 1953 without a peace agreement, leaving
South Korea technically at war for more than fifty years. The following four decades were
marked by authoritarian rule, during which government-sponsored schemes encouraged the
growth of family-owned industrial conglomerates, including the Hyundai and Samsung
groups. They helped transform South Korea into one of the world's major economies and a
leading exporter of cars and electronic goods. PARK Chung-hee took over leadership
of the country in a 1961 coup. During his regime, from 1961 to 1979, South
Korea achieved rapid economic growth, with per capita income rising to
roughly 17 times the level of North Korea.
South Korea is spread across 99,720 sq Km. The terrain is mostly hilly and mountainous with
wide coastal plains in west and south. 63.9% of the land is covered with forests and
agricultural land includes 18.1% of the total area.
It has a total population of 51 million approximately (June 2017) with a population growth
rate of 0.5%. It has a life expectancy of 77 years (men) and 84 years (women). The major
religions followed here are Buddhism and Christianity. With approximately 70% of the
country considered mountainous, the country's population is primarily
concentrated in the lowland areas, where density is quite high; Gyeonggi
Province in the northwest, which surrounds the capital of Seoul and contains
the port of Incheon, is the most densely populated province; Gangwon in the
northeast is the least populated.
South Korea over the past four decades has demonstrated incredible economic
growth and global integration to become a high-tech industrialized economy. In
the 1960s, GDP per capita was comparable with levels in the poorer countries
of Africa and Asia. In 2004, South Korea joined the trillion-dollar club of
world economies.
South Korea's export-focused economy was hit hard by the 2008 global
economic downturn, but quickly rebounded in subsequent years, reaching over
6% growth in 2010. The US-Korea Free Trade Agreement was ratified by both
governments in 2011 and went into effect in March 2012. Between 2012 and
2016, the economy experienced slow growth – 2%-3% per year - due to
sluggish domestic consumption, a drop in foreign demand for South Korean
exports, increased competition from regional rivals such as China and Japan,
and declining investment. The administration in 2016 faced the challenge of
balancing heavy reliance on exports with domestic restructuring efforts in the
country’s shipbuilding and shipping industries.
The South Korean economy's short-term challenges include a potential loss of
consumer confidence due to issues with its mobile phone industry, as well as
uncertainty stemming from a tumultuous domestic political situation. In the
long-term, South Korea must deal with a rapidly aging population, inflexible
labor market, dominance of large conglomerates (chaebols), and the heavy
reliance on exports, which comprise more than 40% of GDP. South Korea’s low
overall unemployment rate masks problems with high youth unemployment, low
worker productivity, high labor underutilization, and low female participation
in the workforce. The government has tried to implement structural reforms, but
continues to face significant headwind from vested interests.
Gross Domestic Products

Economic Activity
Despite the political and geopolitical turmoil going around, South Korean economy is
showing resilience. The recent data shows, Real GDP for the most recent quarter (2017 Q1)
grew up by 2.88% from its previous growth rate of 2.41%( 2016 Q4). The major contribution
to growth comes from robust increase in Capital formation at a rate of 3.53%, which is at an
all-time high. Exports for the recent quarter have also shot up and contribute to growth at rate
of 5.13%, the highest in last 20 quarters, owing to improvement sign in business sentiments
and manufacturing sector. While imports have risen sharply too negating the impact of
exports. Private and Government consumption expenditure show a sluggish pattern with
growth rate of meagre 1.02% and 0.41% respectively. Private consumption growth is pinned
down due to high household debt burden.

Contribution to GDP (% quarterly)

6.00
5.00
4.00
3.00
2.00
1.00
0.00
-1.00
-2.00
-3.00
-4.00
2012 2013 2014 2015 2016 2017

Private Government Gross capital formation

Net Exports GDP

Production Activity
On the production side, major contribution comes from the Service sector contributing at a
growth rate of 1.12% in recent quarters up from 1.04%( 2016 Q4). Manufacturing sector has
also contributed with a robust growth rate, 1.41% (2017 Q1) from 0.86% (2016 Q4),
followed by Construction activities, Electricity and Mining & quarrying.
 Contribution to GDP by sector (% Quarterly)
6.00 4.50

4.00

3.50
4.00
3.00

2.50
2.00
2.00

1.50
0.00
2012 2013 2014 2015 2016 2017 1.00

0.50

-2.00
Services Construction Electricity Manufacturing Mining 0.00
Agriculture
GDP (RHS) % Quarterly

Growth over the last decade

South Koreas growth map has been really interesting. In 2007 GDP growth rate was 5.46. it
took hit when global financial crisis hit the economies across globe. It coped up with the
crisis very strongly and a growth of 6.5% was registered in 2010, one of the strongest
growing economy at that time. But the fortunes did not last long, in the following years
demand from households fell because of debt burden and low job opportunities bringing
down the growth rate to 2.29% in 2012. The economy has been struggling since then to grow
at a rate around 2.5-3%. GDP growth rate in 2016 was 2.89%. Given the highs and lows the
economy on an average grew at rate of 3.33% over the last 10 years which again is below the
global GDP growth rate.

GDP Growth Rate (% annual)

7.00%

6.00%

5.00%

4.00%

3.00%

2.00%

1.00%

0.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Expenditure on GDP Average

Sluggish Domestic Demand
South Korean households are highly burdened with debt since a long time now. The
households face higher lending rated amid rising interest rates in the Unites States leaving
them with very little discretionary spending. Same is visible in the chart below where
domestic demand from both private households and government is low. The only
contribution comes from fixed capital formation mainly because of the growing service base,
manufacturing and construction activities because of the export oriented economy.

Domestic demand

6.00

4.00

2.00

0.00

-2.00

-4.00
2012 2013 2014 2015 2016 2017
Private Consumption Government Consumption Gross Fixed capital formation

In recent news, country’s central bank warned that the number of households vulnerable to
debt default could rise as debt servicing capacity comes under strain amidst rising interest
rates. This tells that domestic demand is set to be underpinned unless fiscal and monetary
actions are taken to check this. And growth will be accelerated by service and manufacturing
sector only.

Net Export of Goods and Services

Net Export of Goods & Services (% ann)

6.00 4.00
5.00 3.50
4.00 3.00
3.00 2.50
2.00 2.00
1.00 1.50
0.00 1.00
2012 2013 2014 2015 2016 2017
-1.00 0.50
-2.00 0.00
-3.00 -0.50
-4.00 -1.00

Net Exports Imports (LHS) Exports (RHS)

GDP Per Capita
Growth in GDP per capita has been higher than growth in GDP. Having said that GDP per
capita growth has reduced from 2007 in the following years from around 7% to 4.21% in
2016. The declining trend has been consistent from year 2010-2014 where in population of
korea increased much faster. Reduced infant mortality rate and increased expected life
resulting in higher aged population. Higher aged population depends on pension for their
survival and don’t contribute to GDP as they don’t take up any economic activity. Hence
GDP per capita fell down except for the last year where in GDP growth has been good.

GDP v/s GDP Per Capita (% annual)

10.00%
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

GDP GDP per capita

Demography

Population Pyramid
The population pyramid for 2016 shows that maximum population is between 45-49 years
and the population is normally distributed between the ranges 25-64 years. The country has
high birth rate and low mortality rate which makes the distribution fat at both the ends. The
country has high life expectancy which goes up to 80-90 years.

working vs total population

Working Population Total Population

50,503,933
2,016
27,035,000.0

50,293,439
2,015
26,913,000.0

50,074,401
2,014
26,536,000.0

49,846,746
2,013
25,873,000.0

49,608,451
2,012
25,501,000.0

49,356,652
2,011
25,099,000.0

In last five years there has been a steady increase in the working population, because there
has been increase in the labour force as the young population of the country is coming in that
bracket, with this continuation of trend, we can expect a decline in the working population as
the maximum range of people are in the age bracket of 45-55, this will affect the GDP per
capita of the country which will see a decline, soon south Korea will be having an old
population
Consumer Price Index

Major Weights for CPI

Weights for Inflation

19%

45%

19%

7%
11%

Agricultural, livestock, and marine products Petroleum products

Industrial products excluding petroleum Electricity, water, and gas
Services/others

This charts shows the major factors for the CPI Rates in South Korea, the data is taken for the
first quarter of 2017, we can clearly interpret that services and petroleum product is
contributing more than two third of the increase in CPI index, this can be link to the increase
in global crude oil prices which has led to the increase in these two sectors,
In services basket one of the major component is transportation which also slightly being
pushed upwards due to increase in the global fuel prices and also few services which has seen
a 19.4 percent jump in insurance premiums and a 4.5 percent increase in management fees for
apartments. But considering the historical data the CPI index for services has always been on
the higher side. In the Agriculture, livestock and marine products the main cause is due to
sharp rise and fall in the prices of vegetables in the segment of Agriculture.
The lowest weight among the all Is of industrial product, this is because south Korea is strong
in manufacturing sector, and is coping up with the domestic demand of the industrial
products.
Contributors of CPI

3.00
CPI w.r.t Contributors
2.50
2.00
1.50
1.00
0.50
0.00
2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1
-0.50
-1.00
-1.50
-2.00
Services Electricity, water, and gas
Industrial products excluding petroleum Petroleum products
Agricultural, livestock, and marine products CPI

The consumer price inflation has been steady between 0.5 and 1 from 2015 Q1 to 2015 Q3,
this balance has been maintained due to the rise in the prices of the service sector and
decrease in the price of the petroleum products. These two parameters are the most weighted
when computing CPI for south Korea.
But clearly in the recent quarters as the Global oil price are on the rise, the petroleum related
product prices have pushed up and hence there has been an increase in the CPI.

Monthly Inflation w.r.t Core Inflation

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

CPI for all item CPI excluding food and energy

The core inflation reflects the relationship between prices of the basic products and the
buying power of the consumer. As we can see the buying power of the consumer have not
relatively increased with respect to the basic goods and services, the line has increase and
stayed there from the months of 2014-11 to 2015-9.
The CPI for all items reflects the same trends as the global oil price, all items includes the
petroleum and its products. We can also see that the inflation rate has hit 2% only twice in
last five years.
The central bank of south Korea has cut down its interest rate many times during these 5
years and now recently to 2% to tackle disinflation, which has led to slight increase in the
CPI for all the items. The low inflation rate is also due to the moderate growth of the South
Korean economy.

Transportation and global fuel prices

Transportation cost VS Glopal fuel Price

4.0 120.0

2.0 100.0

0.0 80.0
2014Q1 2014Q2 2014Q3 2014Q4 2015Q1 2015Q2 2015Q3 2015Q4 2016Q1 2016Q2 2016Q3 2016Q4 2017Q1

-2.0 60.0

-4.0 40.0

-6.0 20.0

-8.0 0.0
Transportaion Global Petroleum Price

In this chart, we can clearly see the response of transport sector to the changes in the global
fuel price. This clearly indicates South Korea large volume of imported crude oil goes in to
cater the transport demand, Crude oil imports to South Korea went up by 4.9 percent in the
first quarter of 2017, to 278.18 million barrels. The main driver behind the increase was a
104.5-percent jump in imports from Iran, to 18.54 million barrels. This made Iran the second-
largest exporter of crude to Korea, behind Saudi Arabia
The country remains one of the top ten oil consumers in the world. As of 2015, it ranked
eighth, with average daily consumption of 2.4 million barrels,
Overall oil product consumption in South Korea is seen to rise by 2.2 percent this year, a
substantial decline from 7.6 percent a year ago due to a higher prices and a slowdown in the
growth of the national economy. Yet last year’s consumption increase, to 921.5 million
barrels, was unusual and a result of the oil price crash.
though the net exports are higher than the net imports, but the large chunk of the imports is of
crude oil
Food Inflation

Food Inflation
30.000

20.000

10.000

0.000
2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017
1/4 2/4 3/4 4/4 1/4 2/4 3/4 4/4 1/4 2/4 3/4 4/4 1/4 2/4 3/4 4/4 1/4 2/4 3/4 4/4 1/4
-10.000

-20.000

-30.000

Fresh food Fresh fish Fresh vegetables Fresh fruits

The volatility in the fresh vegetable segment is of the abrupt surge and dip of the price of the
cabbage which is the most consumed vegetable in south Korea. The cabbage is used in the
popular dish called kimchi. The main factor to the volatility of fresh vegetable is due to
unpredictable and uncontrollable weather conditions.
To control the food inflation early in 2010 the govt. of the country declares a war on inflation
which involved a series of regulation policies coupled with free trade agreements (FTAs).
The new policies allowed government to enforce fairer pricing practices and also awarded
subsidies to targeted industries for lowering prices. The FTAs reduced tariffs on imported
goods, especially food imports from China and the United States. This has resulted in stable
the inflation rates after 2012. But lately due to the avian flu the price of the egg and egg
related food items has risen up. Adding to this is fuel prices has also increased and hence
increased transport cost of food items which is aiding food inflation in Q1 of 2017
Index of Industrial Production

The index of industrial production measures the change in output in Manufacturing, Mining
and utilities. Based on our report is was found that IIP rose by 0.1 percent in July
2017followed by an upwardly rise from June 2016. The industrial production declined during
2008 depression but gradually recovered over the years. Industrial production is expected to
rise by approximately 6% by end of this present quarter. Looking forward, we can predict
growth rate to be high by approximately 2.5% by the the end of 2020.

IIP for Nations

21%
32%

23%

4% 21%

　　　 U.S.A 　　　 China 　　　 Japan

　　　 EU 　　　 Southeast Asia

As far as index are concerned, USA leads the chart followed by the china, japan, EU. Most of
the production is being done by the US followed by the emerging markets such as China,
Japan, South East Asia to name a few. USA invest a lot in South Korean Economy because of
its technical expertise. Also, the cost involved in manufacturing is very less as compared to
that in developed country like USA where per hour labour wages are high and working days
are less at the same time.

IIP- PRODUCTION

　　　
electrica Manufac
l ture of
equipm Beverag
ent es
19% 21%

　　　
Other 　　　
Machine Precisio
ry and n and
Equipm Optical
ent Instrum
19% ents,
Manufac 21%
turing
20%
Based on our data, it can be inferred that the major production is focus on the manufacturing
of beverages and precision and optical instruments. South Korea is known for the electronics
hub as here major portion of Semiconductor device like Integrated Circuits, Circuit Boards
are made. If we go by present trend we can infer that South Korea can be the next Asian
country hub because of its Geographic location and proximity to ports as goods can be
applied easily and cheaply from south Korea to other countries.

Balance of Payment
It is defined as the record of all economic transactions between the resident of all country and
the rest of the world in a particular period (can be monthly, quarterly, annually).

B al anc e O f Pay me nt
180,000.0
v a lu e in m illio n U S $

160,000.0
140,000.0
120,000.0
100,000.0
80,000.0
60,000.0
40,000.0
20,000.0
0.0
-20,000.0

Year in quaRters

　　　 Balance of goods 　　　　　　 Exports of goods

　　　　　　 Imports of goods (fob)

From the graph, we can infer that the balance of payment is mostly on the positive side with
small growth rate from one period to other. Post 2008, it is mostly increasing as most of the
countries are investing in South Korea and it is becoming an important place for investors to
invest.

Investment for environmental pollution control

ENVIRONMENTAL POLLUTION CONTROL
4,500,000
4,000,000
3,500,000
3,000,000
2,500,000
2,000,000
1,500,000
1,000,000
500,000
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Public organization
Manufacture of Basic Metal Products
Manufacture of Radio, Television and Communication Equipment
Manufacture of Electrical Equipment
Other
Total
Pollution control is measured in decibel. From this we can infer that major pollution is
coming from the Manufacturing of the basic metal products and the manufacturing of radio,
television and other communication equipment. Over the years it is increased as the large
number of manufacturing units have established

External Indicators

Since 2009 South Korea has been recording trade surpluses due to exports growth. The
country exports mainly machinery, transport equipment, oil, iron, steel and plastics while it
imports oil, electrical machinery, natural gas and food. Main trading partners are: China (26
percent of total exports and 21 percent of total imports) and the United States (13 percent of
exports and 10 percent of imports). Others include: Japan, ASEAN countries and Germany.

Current account (in USD Billion) (LHS) Current Account as a percentage of GDP (RHS)
35 10.000%
30
8.000%
25
6.000%
20
15 4.000%

percentage
USD Billion

10 2.000%
5
0.000%
0
-2.000%
-5
-10 -4.000%

South Korea’s current account balance as a percentage of GDP has been rising after a great
decline in 2011. South Korea’s export in 2008, declined from 433.5 billion to 373.6 billion
which is approximately about 59.9 billion USD. This somehow does not affect the economy
much as South Korea’s government had imposed strategic economic plan in order to
minimize and escape from the global recession in 2008. It is called ‘cash for clunkers’
program that will give a tax break of 2 million won ($1,900 USD) to drivers who replace a
nine-year-old or older with a new car.  It shows that South Korea always had current account
surplus until 2008, where it experienced major current account deficit for the first time since
2004 to 2011.
The global crisis in 2008 highly affected South Korea as the US reduced their export of oil.
Due to low supply of oil, the price of oil rose up. This had increased South Korea’s import as
they had to pay more for oil crude. Furthermore, exports of South Korea declined in 2008
making the condition worse.
 Direct investment (in USD Billion) Portfolio investment (in USD Billion)
25
20
15
10
5
0
USD Billion

-5
-10
-15
-20
-25

The Korean government's attitude toward foreign direct investment is positive, and senior
policy makers clearly realize the value of FDI. Following the 2008-09 global financial crisis,
FDI has continued to increase steadily. We observe that in the last few quarters the foreign
direct investment was maximum around quarter 2 of 2014 and declines subsequently. It again
increased in the last quarter of 2017 and first quarter of 2017 but decreased in second quarter
of 2017 from 6.9 USD Billion to 3.3 USD Billion.

The foreign portfolio investment of South Korea was at an all-time high in the last quarter of
2016 but declined in the first quarter of 2017 from 20.06 USD Billion to 8.03 USD Billion. It
increased by 3.17 USD Billion in the second quarter of 2017.
Balance of Trade

Balance of Trade
200,000,000 160,000,000

140,000,000
150,000,000
120,000,000
100,000,000
100,000,000

50,000,000 80,000,000

60,000,000
0
40,000,000
-50,000,000
20,000,000

-100,000,000 0

Trade Balance Exports (USD $)

Moving average (Exports (USD $)) Moving average (Exports (USD $))
Imports (USD $)

Balance of trade is negative in south Korea which means that the exports are more as
compared to the imports. From the graph, it can be interpreted that between 2006-2008 there
was trade surplus in the economy but prior to 2008 it is mostly trade deficit which means they
are producing in good number within the country. In the long run they might earn huge profit
as it an important for trade destination in Asia continent.

Top 5 Exporter Commodities

Key Export in $ billion

12%

12% 36%

17%

24%

Integrated circuits Cars Refined petroleum

Passenger & cargo ships Vehicle parts

Nicknamed as the Land of Morning Calm, exports from south Korea amounted to US $ 495.5
Billion during 2016 up by approx. 36.3 % since 2009 when GREAT RECESSION came but
year over year down by -6%.
South Korea relies largely on exports to fuel its economy. It is the 5 th largest export economy
in the world and the third most complex economy according to Economics Complexity Index
(ECI,2015). It mainly focusses on the Electronics industry (semiconductors, wireless
telecommunication equipment), refined petroleum, passenger and cargo ships, motor vehicles
to fuel its economy.

Top 5 Exporter Country-

Key Exporters

6%

23%
48%

12%
11%

China, peoples' republic of Hong kong(BR) Japan

U.S.A Vietnam

China is the largest exporter for South Korea as they mostly purchase electronics equipment
from South Korea, having a 48%share of the total exports of South korea.

Top 5 Importer Commodities

Key Imports in $ Dollars

8%
12%
40%

16%

25%

Crude Petroleum Integrated Chips Petroleum Gas Refined Petroleums Cars

South Korea imports almost 40% of its total imports in Crude Petroleum followed by the IC
chips, Petroleum Gas, Refined Petroleum’s and Cars.
Top 5 Importer Country

Key importers

3%
22%
42%

32% 1%

China, peoples' republic of Hong kong(BR) Japan

U.S.A Vietnam

China is the largest importer for south Korea followed by Hong Kong, Japan, Vietnam. In
South Korea, most of the trade is done within Asia Continent.

Exchange rate

Exchange Rate
2,000.00

1,800.00 1,776.22
1,674.28
1,600.00
1,513.60 1,494.10
1,485.16
1,422.96 1,456.26
1,400.00 1,381.26 1,393.89 1,397.08 1,416.26

1,257.50 1,262.82 1,247.50

1,200.00 1,199.34 1,222.24
1,167.60 1,138.90 1,153.30
1,043.80 1,071.10 1,055.30
1,012.07
1,000.00 1,013.00 1,004.66
929.60 938.20
859.90 833.33
800.00 781.83

600.00
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Won Per United States dollar Won Per Japan Yen(100Yen) Won Per Euro

Most of the trade are done in US Dollars followed by Japan Yen and Euros. This graph shows
variation of exchange rates from 2004 to 2013.Japn yen is fluctuating over years.
Stocks

Stocks
12
listed capital stock/m arket capitalization

10

Month wise Data

Monetary and Financial Policy

Policy Rates
After the Lehman Brothers collapse in September 2008, the financial sector and foreign
exchange of Korea took a toll. Due to the international financial unrest and worldwide
recession, the economy shrank rapidly. But the financial and foreign exchange markets
stabilised quickly and the economy started recovering from 2009, the Bank of Korea
continued to improve the financial market condition.
Policy Rates
3.5

2.5

1.5

11

0.5

0
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
Sep-13
N ov-13
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
N ov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17

-0.5

To determine the Base Rate, The Monetary Policy Board of the Bank of Korea meets eight
times per year. The Base Rate has an impact on the call rate. It is the overnight interbank
lending rate and it leads to short and long-term changes in market rates and deposit and loan
rates. The Bank of Korea has been lowering its base rate since 2011 shortly after increasing
it. It has been continuously lowered from 3.25% in 2011 to 1.25% in May 2017 and has been
steady since.

Exchange Rates
Exchange Rates
1400.0

1200.0

1000.0

800.0

600.0

400.0

200.0

0.0

Won/USD Won/JPY
nd
Since the 2 quarter of 2009, the Korean market has been quickly regaining stability in the
foreign market. The foreign exchange market in Korea is divided into two:
a) OTC Markets- it consists of customer markets where foreign exchange bank deals with
customers such as exporters, importers, non-residents, travellers.
b) Interbank Market- In this market, the foreign exchange banks deal among themselves.

Foreign exchange transactions are largely in the area of payments and receipts. The chart
above shows Won per US Dollar and Won per Japan Yen. The Korean Won has appreciated
against the major currencies in the past 3 years and holds almost steady.

Policy Rate and Money Supply

Policy Rate and Money Supply

3.50 2.00%

3.00
1.50%
2.50

1.00%
2.00

1.50
0.50%

1.00
0.00%
0.50

0.00 -0.50%

Policy Rate Broad Money

Due to the lowest interest rates in South Korea since the last 4 years, the money supply in the
country has seen growth. The country’s M2 or Broad Money was 2182 Trillion Won
(Average) in 2015 which was the highest that the country had ever seen with the interest rate
as low as 1.50%.

Policy Rate and Loan Growth

Policy Rate and Loan Growth

3.50 4.00
3.00 3.00
2.50
2.00
2.00
1.00
1.50
0.00
1.00
0.50 -1.00

0.00 -2.00

Policy rate Loan Growth

The growth in loans by households has seen a lot of fluctuations since the past three years. It
has been negative in the last year as less and less loans were being demanded.

Stock Index and Market Capitalization

Stock Index and Market Capitalization

2,500.00 2,000,000,000,000
1,800,000,000,000
2,000.00 1,600,000,000,000
1,400,000,000,000
1,500.00 1,200,000,000,000
1,000,000,000,000
1,000.00 800,000,000,000
600,000,000,000
500.00 400,000,000,000
200,000,000,000
0.00 0

Stock Index Mkt. Cap

The Stock prices have seen an increasing trend since 2014. It has increased from 1942 Won
to 2348 Won. The stock prices have recovered lost ground since 2009 and has emerged in the
market.
Public Finance

Revenue

Revenue - Expenditure
400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Gross Revenue Gross Expenditure and Net Lending

Government spending in South Korea has been less than that for most countries in the world
(excepting the other rapidly growing Asian economies of Japan, Taiwan, and Singapore).
From 2000 onwards government budget has been increasing till 2016 at 16910 billion Won.

During early years before 1980 government used to plan budget keeping defence sector at
crucial place. After 1990 the government was studying plans to lower defence expenditures.
Government started spending towards social spending around 1990s and continued it in
coming years. Expenditure is mainly towards goods and services, interest payments and
subsidies as compared to capital expenditures like purchase of inventories and intangible
assets and acquisition of fixed assets. Moreover, ordinary expenditure; being the highest
contribution towards gross expenditure; has shown an increase smooth trend over the time
period as compared to capital expenditures which also remained stable around 34000 Billion
Won during 2010 to 2013.

The government revenue structure is virtually totally dependent on taxes. It has also increased
over the time period from 2000 to 2016 i.e. 135811 Billion Won to 371264 Billion Won;
respectively. Also, current revenue accounts for more than 90% of the gross revenue as
compared to contribution of capital revenue all over the time period of 2000 to 2016.
Budget
Budget Surplus/Deficit
25,000 4.000

20,000 3.000

15,000 2.000

10,000 1.000

5,000 0.000

0 -1.000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

-5,000 -2.000

Net Lending Budget balance VS GDP%

Budget balance has shown a tremendous growth in year 2002 as well as in 2007 and onwards.
There was a huge deficit of 17260 Billion Won in 2009 as compared to surplus of 15831
Billion Won in 2008 because of the impact of 2008 financial crises.
South Korea was going in a recovery phase in 2010; after 2009’s huge deficit. Budget
balance has shown a declining trend after 2010 till the year of 2015. Observation has shown
an increase thereon i.e. 16910 Billion Won in 2016.
Net lending has shown an unstable picture. It was huge in the year 2000 at 19481 Billion
Won and also more than 3 times in the year 2009 at 18049 Billion Won as compared to
previous year net lending’s balance of 5480 Billion Won. Also, there was a dip in 2003 year
and same after 10 years i.e. 2013 year of 2509 Billion Won and 1789 Billion Won.

Debt

Government Debt

700.0 40.0

600.0 35.0

30.0
500.0
25.0
400.0
20.0
300.0
15.0
200.0
10.0
100.0 5.0

0.0 0.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Government Debt (Trillion won) Vs GDP (%)

Government debt has shown an increasing trend from the given time period and also it has
been a crucial element when compared to ‘as a % of GDP’. Government debt has been
increased from 111.2 Trillion Won in 2000 to 590.5 Trillion Won in the year 2015. General
account and for the stability of foreign exchange accounts for more than 74% to total
government debt and Housing fund, public fund, net debt for the local government and others
account for nearly remaining 26 % of government debt.

External Debt

460.00 0.140

440.00 0.120

0.100
420.00
0.080
400.00
0.060
380.00
0.040
360.00 0.020

340.00 0.000

gross external debt (Billions won) Gross External Debt VS GDP%

External debt of five years (quarter-wise) from the year 2012 to 2017 (2nd quarter) has
shown a hump-like nature. It increased from 2012 to 2014’s 2nd quarter i.e. 406.4 Billion
Won to 452 Billion won and again shown a declining trend thereafter till the end of 2016‘s 1
quarter at 389.2 Billion won. In the 2nd quarter of 2017 it is showing gross external debt of
407.3 Billion Won; accounting for 0.105% of total GDP of 388821.40 Billion Won External
debt account for nearly 0.115% (average) of GDP all over the years.