The Seoul city government has not decided how to use all of the sports facilities that the capital now boasts. Some economists are worrying about inflation. And government officials are casting a wary eye on new demands from Washington for an opening of South Korea’s farm markets.
But the closing of the Olympic Games has left businessmen, politicians and bureaucrats alike with a euphoric feeling that everything is coming up roses for the South Korean economy--at least in the long run.
“One hundred eighty hours of (NBC) telecasting!” exclaimed Kim Young Do, president of Jindo Co., South Korea’s largest furrier. “It’s unimaginable how much it would cost to buy that much advertising for Korea.”
“Everyone knew all about Los Angeles even before the Olympics there,” he said. “But Korea needed the publicity,” especially among less developed nations and Communist countries, with which South Korea is just starting to enjoy substantial contacts.
The country will emerge from the Olympics, remarked Kim Young Sam, who finished second in a four-way presidential election last December, “with new confidence and hope for the future.”
And in politics, the one arena where some forecasters were worried, Kim said, the Olympics “will provide momentum for reconciliation and harmony.”
Already, the Olympics have given rise to some very tangible economic benefits. Seoul looks forward to getting years of use from the sports facilities and athletes’ housing built for the games. A spokesman for the city government said it still has not decided how it will use the facilities, adding that Seoul National University has been commissioned to make recommendations.
Desperately needed improvements in sewage, inner-city expressways, telephone facilities and subway lines were all speeded by the Olympics--and Seoul residents will also enjoy those benefits for years to come.
In 1981, when Seoul won its bid to host the games, the telephone system, for example, was so inadequate that homeowners had to pay a deposit of $660 and wait two years to have a phone installed. Jammed circuits often made the phones that did exist unusable. Now, the phone system is one of the most modern in the world.
“South Korea may have a downturn, but it won’t be because of the Olympics,” said economist Suh Suh Sang Mok, now an national assemblyman with the ruling Democratic Justice Party. “I don’t think in the short term the Olympics will make an impact at all.”
In President Roh Tae Woo’s view, the benefits started flowing with the awarding of the Olympics to Seoul in 1981. Roh credits that with enabling South Korea to turn its international trade from chronic deficit into stable surplus in 1986--"a year earlier than expected"--by drawing attention to the products of the Olympics’ host nation.
And now, for the first time, officials are beginning to talk about South Korea assuming the additional burdens of its rising status that American trade negotiators have been urging it to do.
A high-ranking government economist, who insisted on anonymity, said South Korea will assume the developed nation status of an Article 8 International Monetary Fund member “several months after the Olympics” and plans, somewhat later, to remove government controls on foreign exchange rates and let the won, South Korea’s currency, become a freely convertible international currency.
In West Berlin last week, at an annual meeting of the International Monetary Fund and the World Bank, Finance Minister Sakong Il confirmed publicly for the first time that South Korea will assume Article 8 status. He was less specific about the timing, however.
Nations accepting Article 8 status must remove restrictions on foreign exchange transactions.
Sakong also declared that Korea, even before it makes the move, will accept still more growth in the value of the won, which will make exporting more difficult. Previously, Korean officials had strongly resisted American calls to let their currency appreciate.
The won has risen against the dollar by slightly more than 10% this year and for the first time is certain to outstrip gains in Japan’s yen in 1988.
Drop in Trade Surplus
A presidential commission that will soon issue a report on restructuring the South Korean economy will reportedly recommend opening up the country’s agricultural market to imports, although only over a 20-year period. The recommendation, if approved, will mark an about-face in government policy, but government officials acknowledged that it is not likely to blunt American demands that South Korea remove barriers to imports of farm products.
There is other good news for the United States.
With American exports to this nation soaring by more than 40%, South Korea’s trade surplus with the United States is expected to fall by more than $1 billion this year, to around $8 billion. It would be the first decline since South Korea began enjoying a string of annual trade surpluses with the United States in 1982.
Spending for the Olympics, according to organizers, was $3.4 billion (at the current exchange rate)--$2.1 billion of it in direct investment and $1.3 billion in indirect forms. But it was spread out over the past seven years, said Maeng Jung Ju of the Economic Planning Board’s coordination office.
Therefore, he added, “we aren’t worried about any inflationary impact from the Olympics.”
Inflation does loom as a new problem, economists say, but the cause of it is Korea’s export success.
One high government official said the nation now faces a “surplus crisis.” Burgeoning expansion of the money supply caused by the surpluses is threatening to bring back double-digit inflation, he said.
Thanks to Olympics-boosted tourism and export gains, the surplus in current accounts--the sum of trade and such nontrade transactions as tourism, shipping and insurance payments--promises to set another record, rising as high as $11 billion. Through August, it had already reached $8 billion, surpassing the government’s goal of holding it to $7 billion for the year. Last year, it was $9.8 billion.
Pressure From Unions
Although the Bank of Korea was desperately trying to siphon off the flood of incoming cash by issuing bonds to absorb excess funds in the money supply, consumer prices had risen 5.3% in the first eight months of the year, the highest increase since 1981, when prices went up 21.3%. Consumer prices have not increased by more than 3% in any year since 1984.
New activism by long-suppressed labor unions is also creating pressure from rising wages.
By August, a new wave of labor disputes had produced wage increases of 13.5% on top of a total of 19% in two rounds of wage increases in 1987. Yet, not until this year were wage increases expected to outstrip gains in productivity.
Although real GNP rose 11.8% in the first half, growth is expected to slacken off to about 8% to 9% in the last six months and remain at that level next year, Maeng of the Economic Planning Board said.
“But we call that coming back to normal,” he added.
Signs of a downturn, however, remain more in the realm of predictions than performance. Although factory operating ratios have declined slightly, electronics, steel and auto producers are swamped with so many orders that in September they tried--unsuccessfully--to persuade workers to extend their normal 10-hour working days to increase production. Koreans seeking to buy cars are put on waiting lists.
Foreign confidence in South Korea, moreover, is on an unprecedented upswing. Foreign investment tripled last year to exceed $1 billion for the first time and was rising by 67% this year.
Nonetheless, export growth rates, Maeng insisted, will drop from 27% in the first half of the year to 19% in the last half.
In the long term, the Olympics have opened up new vistas.
The post-Olympic period, said Suh, the economist and assemblyman, “will be a good opportunity to improve relations with centrally planned economies.”
Hosting the Olympics also focused new attention upon South Korea in neighboring Japan, where Korean products previously had been looked down upon. Now, with exports growing by more than 50%, even the persistent deficit with Japan is shrinking dramatically. A 20% reduction in red ink from last year’s $5.2 billion is expected, economists say.
Overseas assets held by South Korean firms were growing so fast that the nation’s net foreign debt had been reduced to $13.6 billion by the end of July. Government economists were predicting that the nation could become a net foreign creditor by the end of next year, or two full years earlier than had been expected as recently as the beginning of this year.
Over and above all these buoyant economic trends, the Olympics spotlight has made the world notice South Korea. Opposition politician Kim Young Sam has predicted that the games would make South Korea “a nation too significant to ignore.” Last week, the World Bank and the International Monetary Fund, at their meeting in West Berlin, signaled their agreement.
South Korea, it was announced, will chair the two international financial institutions’ annual meeting in Washington next year and will assume the responsibility for preparations for the meeting.