IMPORTING & EXPORTING RESOURCES
(3)
ECONOMIC TIGERS
As one of the 'Four Dragons of East Asia', South Korea has achieved an incredible record of growth. Three decades ago in the 1960's, GDP per capita was comparable with levels in the poorer countries of Africa and Asia - US $87. Today it's GDP per capita is seven times India's, 16 times North Korea's and comparable to the lesser economies of the European Union - US $16,100. This success through the late 1980's was achieved by a system of close government/business ties, including directed credit, import restrictions, development of specific industries, and a major labour push throughout the South Korean population. The government promoted the import of raw materials and technology at the expense of consumer goods and encouraged savings and investment over non-beneficial consumer spending.
The change in economic growth from 1982 to 1992 (and beyond) can be attributed to the 'export - orientated' strategy adopted by economic planners. A lot of import substitution occurred as a result of this strategy (The boom of the automotive and transport machinery industry is one example).
The following statistics make a comparison between 1982 and 1992. In the areas of employment a general trend of people moving from agricultural and rural services, towards much more urban-orientated employment, the decrease in agriculture is 50%. This sharp decrease can be seen as urbanisation, or modernisation with better employment prospects in the cities for people with low-level or basically no special labour or employable skills. They are needed in manufacturing, construction, and easily trainable areas of industry.
City employment industries all increased with the exception of retail and wholesale, which supports the idea of the government sacrificing consumer goods and encouraging less consumption of non-beneficial products. Unemployment also decreased, showing growth in the economy as a whole.
In July 1997, Thailand devalued it's baht in order to make their exports competitive with China's. This was the beginning of the end as one by one all the South East Asian countries started devaluing their respective currencies so that their exports would stay attractive to foreign markets. Much of Asia's highly acclaimed growth has been financed by huge foreign investment, and with devalued currencies, foreign capital started being withdrawn and the smaller South East Asian countries were left with unproductive stagnant domestic markets. The only country that didn't significantly devaluate and challenged all the currency speculators, was Hong Kong. With it's currency pegged to the US dollar by law, Hong Kong's Monetary Authority contracted it's money supply and sent the interest rates sky-high. This was a tactic to punish currency speculators who borrow Hong Kong dollars to sell short. The core economic sectors of Hong Kong, as well as Real Estate, Banking and the Stockmarket were all severely affected by this, and the Hang Seng's reaction to this was to drop by 22% in 4 days. This 22% drop triggered massive sell-offs on Wall Street and thus caused the crash in value of all Asian stocks. The so-called 'Asian Tigers' were then left with very poor export rates, and with South Korea so heavily dependent on foreign exports, the government realised a few disadvantages to such heavy dependence.
The crisis revealed deep weaknesses in South Korea's development model, including massive credit and debt issues, massive foreign borrowing, and an unregulated financial sector. The most important thing that became understood by economists was that domestic development was perhaps not as important, but altogether just as necessary as export industries, because of situations like the '97 crisis.
By 1999 GDP growth had recovered, reversing the substantial decline of 1998. The government has enforced reform and restructure into major business groups, and pressured them to strengthen their financial base so that they have contingency plans, and that they are executed much more efficiently.
