Korea enjoyed rapid economic growth in the 1980s, with particularly astonishing growth from 1986 to 1988. At that time, the figure topped 10%, with inflation remaining below 3%. An annual trade surplus of over US$10 billion was enough to imbue people with pride. External economic conditions also worked in the country’s favor. Interest rates and international oil prices were low, while exchange rates also moved to the nation’s advantage.
Fast Growth Thanks to Favorable Economic Conditions
Advanced and emerging economies began to work on alternative energy sources and promote energy saving in the wake of the oil crises in the 1970s. Petroleum exports from OPEC member nations declined; chipping away at the solidarity among them. Saudi Arabia, the world’s largest oil-producing country, opted to increase its production, thus dragging down the international price to below US$20 per barrel.This provided a huge opportunity for Korea, which relied upon the energy-guzzling heavy and chemical industries for economic growth.
In the mid 1980s, the US government’s Reaganomics exacerbated the twin deficit problem, that is, fiscal and trade deficit, and this finally affected the foreign exchange market. The purpose of this was to restore export competitiveness by depreciating the dollar. Other leading economies adopted tight monetary policies in order to prevent the value of their currency from dropping vis-a-vis the US dollar. The trend resulted in an economic slump, causing G5 member nations to agree to an appreciation of the Japanese yen.
This, in turn, led to higher competitiveness for Korean exporters, with the prices of raw materials dropping. As a result, Korea succeeded in emerging from its chronic current account deficit.
Labor Movement in Full Bloom in 1987
However, there were some downsides as well. One such problem was unreasonable labor relations which were a result of the previous military dictatorship and patriarchal social traditions.
Things changed from the 1980s, when a substantial number of laborers became self-conscious as their average income increased along with their level of education and awareness of democracy.
The nationwide strikes of 1987 were triggered by the establishment of a labor union for Hyundai Engine, located in Ulsan City, on July 5. Other Hyundai subsidiaries in the city followed suit, with labor unions organized in Mipo Shipbuilding, Hyundai Heavy Electricals and Hyundai Precision & Industries Corporation.
On August 17, approximately 30,000 workers belonging to these unions staged a rally in front of the main office of Hyundai Heavy Industries. The following day, no less than 60,000 workers held a demonstration march towards the Municipal Stadium of Ulsan City, forming a 4km-long procession. The spirit of these protests spread across the country through Masan, Changwon and Geoje Cities.
These workers demanded an improvement in working conditions, increased wages and democratization in the workplace. The number of strikes that took place during a three month period was double that of the preceding ten years, with the number of participants involved more than five times more. Approximately 1,400 labor unions were newly established, bringing the total to over 4,100.
As a result, the number of labor union members skyrocketed to 1.27 million by the end of 1987.
The collective labor movement of that year was the largest of its kind in Korea since the modern definition of the term 'wage earner’ first appeared. Prior to this, labor campaigns had been led by female workers in industries such as apparel manufacturing, but following this the focus shifted toward male laborers in the heavy and chemical industries.
Real-time Financial Transaction System and Accession to OECD
On August 12, 1993, then president of Korea, Kim Young-sam, issued an emergency order to implement a real-name financial transaction system. The government had allowed alias-based, or secret financial transactions, in order to increase national savings and accelerate economic growth.
However, demand for the new system had been soaring due to issues such as corporate and political slush funds. The real-name financial system, which is considered one of the most monumental accomplishments of the former president, is considered to have taken economic justice in Korea to another level.
The Kim Young-sam administration declared the concept of globalization in 1994 and aimed for OECD membership. Korea finally acceded to the OECD in October 1996, thus joining the ranks of developed nations.
On one side, Korea’s sovereign credit rating jumped thanks to the accession and Korean enterprises and banking companies able to borrow money with greater ease from foreign banks, international agencies, etc.
On the other side, however, a lack of preparation led to some burden on the domestic economy as all foreign currency, capital and trade transactions were instantly liberalized.Numerous experts pointed out at that time that severe risks would result from the opening of the capital market amid a worldwide economic downturn.
They were not wrong, with Korean banks, after accession to the OECD, borrowing more and more money from their foreign counterparts, thus increasing the size of foreign debt and giving rise to the financial fiasco of 1987.
IMF Bail-out: Moment of Truth
Those who were pessimistic about the accession were proven right. The Asian Financial Crisis of 1997 shook the domestic economy to its foundations, with the unprepared and hasty pursuit of global standards producing severe side effects across society.
|1983||Number of population exceeds 40 million|
|1988||President Roh Tae-woo takes office, National Pension System
implemented, Seoul Olympic Games held and Korea becomes an IMF
Article 8 Nation
|1989||Overseas trips fully liberalized|
|1990||Market average exchange rate system introduced|
|1992||Samsung Electronics develops 64M DRAM for the first time in the
|1993||First civilian government organized, headed by President Kim Young-
sam, real-name financial transaction system implemented
|1994||Samsung Electronics unveils the world’s first 256M DRAM, POSCO
lists on the New York Stock Exchange (a first for a Korean corporation)
|1995||Total exports surpass US$100 billion and per-capita GDP reaches
|1996||Korea accedes to the OECD, the predecessor of what is now SK
Telecom kicks off commercial telecom services
|1997||Hanbo Steel and Kia Motors go bankrupt, exchange rate fluctuation
limit is expanded from 2.25% to 10% per day, request for a bail-out
loan made to the IMF
|1998||President Kim Dae-jung and the Government of the People were
inaugurated, Depositor Protection Act is introduced
|1999||Financial Supervisory Service is established, Daewoo Group goes out
|2000||Financial Holding Companies Act and related enforcement ordinance
are enacted, inter-Korean summit held for June 15 Joint Declaration,
National Basic Livelihood Security Act is introduced
|2001||IMF Bail-out program ends, Seoul/Incheon International Airport opens
Korea-Japan World Cup is held
|2002||Korea-Japan World Cup is held|
|2003||President Roh Moo-hyun is inaugurated, FTA signed with Chile|
|2006||Comprehensive Real Estate Holding Tax is introduced|
|2008||President Lee Myung-bak comes into office, policy for low-carbon
green growth and Four River Restoration Project are introduced
|2011||Trade volume exceeds US$1 trillion|
|2012||KORUS FTA takes effect|
|2013||President Park Geun-hye inaugurated as the first female president of
Korea, creative economy and economic democratization emerge as hot topics
The problem was that the government was simply content with past economic growth, as well as failing to deal with fast-changing international conditions, while the corporate and banking sectors went too far in expanding their business by taking out astronomical loans.
The number of jobless people totaled 1.5 million, with companies cutting their employees’salaries one after another. Inflation affected households greatly, with Daewoo Group, which had recklessly diversified its business under the slogan of global management, going up in smoke in 1999.
A credit economy for stronger purchasing power emerged as a way of overcoming the crisis, but too many credit cards were issued, thus causing another problem.
The government was able to pay back 100% of the IMF relief loan, totaling US$19.5 billion,in August 2001, and therefore exit the bail-out program. The then Kim Dae-jung government focused on the growth of venture firms, with these efforts laying a cornerstone for the country to become the information and communications technology(ICT)powerhouse it is today.
In 2011 and 2012, Korea broke the US$1 trillion mark in terms of trade volume, and becoming the world’s eighth-largest trading nation in the process.
The volume, which had exceeded US$100 million in 1947, quickly grew to over US$500 million in 1964, US$11.3 billion in 1974, US$100 billion in 1988 and US$500 billion in 2005.
In the meantime, thanks to the government’s export-centered economic development policy, the total exports from the country surged from US$0.1 billion in 1964 to US$1billion in 1971, US$10 billion in 1977 and US$100 billion in 1995. In 2011, Korea recorded US$500 billion in cumulative exports, becoming only the 8th country in the world to do so.
Major export items also showed some change during the period. In the 1970s, textile goods took up more than 40% of total exports, followed by plywood (11.8%) and wigs (10.8%). Shoes and clothes were two of the main items in the 1980s.
In the 2000s, semiconductor chips, petrochemical products, marine vessels, mobile phone and automobiles took the baton. The number one export destination for Korean exporters changed from the US to China in 2003, with emerging economies also increasing their importance. However, the material and component manufacturing and service sectors still have a long way to go, with the number of leading items remaining rather small.