S. Korea’s Export Boom Raises Fears of Crisis With U.S.
Demand for Hyundai motor cars is running so heavy that the company’s workers are putting in 70-hour workweeks--10 hours a day, seven days a week. Twice a month, they get Sunday off.
Factories in South Korea’s other export-oriented industries also are roaring ahead, averaging 66-hour workweeks--11 hours a day with Sunday off.
So great is the demand for both traditional exports--textiles and footwear--and new overseas best sellers--videocassette recorders, microcomputers, cars, auto parts, forklifts, air conditioners and even portions of aircraft bodies--that the country is having trouble obtaining the needed parts and raw materials.
Early this month, the Ministry of Trade and Industry was reported to be planning to restrict exports of selected raw materials and parts to cope with shortages in the textile, steel, electronics and petrochemical industries.
Investments in new production facilities are rising by more than 20% a year.
Although newspapers here are filled with speculation about an “export crisis” that could arise from U.S. pressure on South Korea to raise the value of its currency, the won, “the only crisis they are facing now is the difficulty in manu facturing fast enough to meet export orders,” said one American economist here, who asked not to be identified by name.
Boom is the word for South Korea’s economy, as it continues to expand from last year’s real growth of 12.2%.
The explosive growth has been ignited by a dramatic gain in competitiveness against Japan as the yen climbed by more than 50% against the dollar, while the won rose only 3%. Sharp declines in the price of oil imports and international interest rates have also helped.
The performance in 1986, however, was more than a boom. It marked a turning point in South Korea’s 42-year struggle to rise from poverty since the peninsula regained independence from Japan at the end of World War II in 1945.
A series of historic achievements, including the beginning of what is expected to be a chronic trade surplus, was recorded.
First Surpluses
The nation enjoyed its first trade surplus, of $4.4 billion. It also recorded its first surplus, of $5.2 billion, in current accounts, the sum of trade and non-trade transactions such as tourism earnings, shipping and insurance.
After years of growing reliance on foreign loans, which had made the country the world’s fourth-most-indebted nation, South Korea also reduced its total foreign debt for the first time, cutting it by $1.8 billion to $45 billion.
Perhaps most significant of all, also for the first time, South Korea managed to save more than it spent on investment, ending decades of reliance upon foreign borrowing to finance new factories and other investment. Now, at least, South Korea can pay for its own growth.
Also during 1986, the non-inflationary nature of the growth was firmly established. With wholesale prices down by 2.2% and consumer prices held to an increase of only 2.3%, South Korea completed its fifth year of low, single-digit price increases after decades of double-digit inflation.
Now, South Korean policy-makers are mainly concerned about the possible political fallout from their economic success. Fear of pressure from the United States for appreciation of the won currency tops the list.
Despite public acknowledgement by South Korean officials that the won will rise in value this year, “there is a real obsession that they cannot let the won appreciate too rapidly,” the American economist said.
Little Effect on Dollar
Although the Bank of Korea pegs the won’s value to a basket of foreign currencies, it adds in “policy factors” when determining exchange rates.
Officials refuse to forecast how much the won will be allowed to rise, but newspapers here reported that businessmen foresee a 5% gain. An extrapolation of government forecasts shows that a 3.5% increase in value against the dollar for the year is likely.
Whether the won rises by 3.5% or 5% against the dollar, neither figure is likely to have any effect on the trade surplus with the United States.
Although still dwarfed by Japan’s surplus of $58.6 billion and Taiwan’s of $15.7 billion in trade with the United States, the South Korean imbalance has been building up rapidly. The country’s first surplus with the United States appeared only in 1982, but climbed to $7.3 billion last year from $4.8 billion in 1985, and is likely to top $10 billion this year.
“If trends from 1980 continue, it will reach $21 billion by 1990,” Ambassador James Lilley warned in a Feb. 4 speech. But South Korean officials say they will not let that happen.
Shift From Japan
“It is our real intention to keep our surplus with the United States at almost the same level as last year,” Jin Nyum, an assistant minister of the Economic Planning Board, said in an interview.
He cited a “shift-from-Japan” policy that the government has been advocating for years as the main factor that will constrain the surplus. Recently, the government has added specific incentives--such as low-interest loans of 5% to companies that shift their purchases of parts and machinery from Japan to the United States--to its jaw-boning.
“Some new sales have appeared, as a result,” an American official said.
As Japanese manufacturers have suffered a decline of competitiveness with the yen’s appreciation, Americans now have “a golden opportunity (to sell to Korea). They should take advantage of it,” Jin said.
He said South Korean officials and industrialists will take a shopping list of 146 machinery and raw material items on two buying missions to the United States this year, and will tell U.S. executives: “Now, it’s your turn to meet our expectations.”
The first of the missions, which will be led by Trade and Industry Minister Rha Woong Bae, will visit Washington, Boston, Chicago, Houston and Los Angeles between Feb. 26 and March 10.
It reportedly plans to announce $1 billion worth of purchases, $700 million of which will go to buy three 747-400 aircraft from Boeing of Seattle and four MD-11s from St. Louis-based McDonnell-Douglas. The MD-11s will be made at McDonnell-Douglas’ Long Beach plant.
Forecasts Differ
Jin also cited parts, machine tools, wheat, feed grains and soybeans as American products for which South Koreans would increase their purchases this year.
Americans, however, do not expect gains in South Korean purchases to offset the explosive proportions of Korean exports to the United States. Last year, they rose 34.1%, with the United States buying 40% of everything South Korea exported.
Worse yet, U.S. exports to South Korea have shown “almost no increase” for three years, the American economist said.
He also said Korean forecasts for 1987 appear to be unrealistically low, both for gross national product growth and for exports. He predicted that South Korea’s GNP will grow by 10%--”fueled by exports to the United States”--and foresaw a current accounts surplus of more than $7 billion.
The government’s Korea Development Institute has predicted a $5.6-billion current accounts surplus. Official forecasts call for only an 8% growth in the GNP, with exports rising 13%.
South Korea’s global exports last year expanded with such force, by 26.1%, that, starting from a higher base, percentage growth must decline, pulling GNP growth down with it, Jin said.
