OECD ECONOMIC SURVEYS_ KOREA - OECD

Table of contents
Assessment and recommendations
I. The Korean economy in crisis
	The macroeconomy prior to the crisis
		Sustained economic growth and falling inflation in 1996 and 1997
			Figure 1. THE PATH TO THE CRISIS
			Table 1. Expenditure components of GDP
			Table 2. Prices and wages
			Table 3. Labour market
			Table 4. Current account
		But benign macroeconomic conditions masked a host of structural problems
			Figure 2. BREAK-EVEN POINTS AND INSOLVENCIES
			Highly-leveraged firms with weak balance sheets...
				Figure 3. FINANCE OF CORPORATIONS
				Table 5. Corporate profits and financing
				Figure 4. KOREA’S CORPORATE SECTOR AT A GLANCE
			... were hit by falling export prices, exacerbating weak balance sheets,...
			... leading to a wave of insolvencies...
			... hitting a shaky financial system already undermined by poor lending...
				Figure 5. SOVEREIGN RISK AND RATIO OF DISHONOURED BILLS
	The financial crisis
		Contagion from Southeast Asia...
		... and inappropriate monetary policy...
			Figure 6. MONETARY INDICATORS
			Figure 7. INTEREST AND EXCHANGE RATES
		... leading to capital flight and crisis
			Figure 8. CAPITAL BALANCE
	The policy response
		Economic policy under the IMF agreement
			Box 1. Policy measures since the crisis
		Tight monetary policy
		Fiscal restraint
			Figure 9. FISCAL INDICATORS
			Table 6. Government budgets
	The economy after the currency crisis and short-term prospects
		Domestic demand collapses under the weight of high interest rates
			Figure 10. RECENT ECONOMIC INDICATORS
			Collapse of imports leads to massive current account surplus
		Economic prospects in the short term
			The corporate sector faces major restructuring to survive
			The response of households to the new economic paradigm
			Korea courts foreign investment...
			... but foreign investors may be wary
			The economic outlook to 1999
				Table 7. Projections for 1998-99
	The new policy paradigm and the medium-term outlook
		A medium-term reference scenario to 2003
			Table 8. Medium-term reference scenario
II. Rehabilitating the financial system
	Underdeveloped governance structures and weak credit cultures
		Prudential supervision was neglected
		Competition from non-bank financial institutions led to diminished profitability
			Table 9. Korean financial institutions’ loan and deposit market shares
		The process of liberalisation was not well considered
	The situation of banks before and after the financial crisis
		The banks are characterised by low profitability and vulnerability
			Table 10. Profitability of the banking system
		Financing strains in the industrial sector lead to declines in the balance-sheet quality of banks
	Financial system reform
		The legal and institutional framework was radically modernised
			Governance of banks will be strengthened with increased...
			The deposit insurance system will be reformed
			Financial supervision will be brought into line with...
			Loan classification, disclosure and provisioning...
			Stronger in-house risk management systems will be required
		The central bank will gain enhanced independence and...
		The capital account will be fully liberalised
		Bank restructuring
			Losses in 1997 left the banks badly under-capitalised
				Table 11. Balance-sheet position of commercial banks
			The Korean Asset Management Corporation has been given...
			Tougher policies to deal with unsound banks have emerged
			Rehabilitation plans have been provided
				Table 12. Government plan to rehabilitate financial institutions
			Measures to deal with insolvent merchant banks
	The outlook for reform
		The framework for reform is in place
		Rationalisation will play a key role
		Re-capitalisation remains an issue
			The use of public funds should be limited...
			... and conditional on performance
		Deepening capital markets is also essential
III. Corporate governance reforms
	The role of the chaebols
		Their structure and importance in the economy
			Table 13. Share of chaebols in mining and manufacturing
			Table 14. The share of the 100-largest manufacturing firms
			Table 15. Chaebols’ market share by size of industry
		The ownership and control of chaebols
			Table 16. Internal ownership of chaebols
			Table 17. Internal ownership of top thirty chaebols
			Figure 11. STOCK MARKET CAPITALISATION
	Government policies towards the chaebols prior to the crisis
	Corporate governance practices in Korea
		The role of financial institutions
			Table 18. Share ownership by type of investor
			Table 19. Financing of corporations
			Table 20. Share of non-bank financial institutions owned by chaebols
		The role of other governance agents
	The response to the economic crisis
		The reforms introduced by the government
			Enhancing shareholder protection
			Promoting the restructuring of business groups
			Increasing the transparency of corporate accounts
			Improving exit mechanisms
				The market for corporate control
				Insolvency
					Box 2. The Korean framework for insolvency
				Asset disposal
		Restructuring in the corporate sector
IV. Implementing the OECD Jobs Strategy
	Figure 12. KEY DEVELOPMENTS IN THE LABOUR MARKET
	Labour market and employment performance
		The expansion of the labour force...
			Figure 13. GROWTH OF POPULATION, LABOUR FORCE AND WORKING HOURS
			Figure 14. LABOUR FORCE PARTICIPATION RATES
			Figure 15. THE FEMALE LABOUR FORCE PARTICIPATION RATE
			Figure 16. ANNUAL WORKING HOURS
			Figure 17. EDUCATION ATTAINMENT OF THE POPULATION
			Figure 18. SCHOOL ENROLMENT RATES
		... has allowed a sharp expansion of employment...
			Figure 19. SECTORAL COMPOSITION OF EMPLOYMENT
			Figure 20. SELF-EMPLOYED AND FAMILY WORKERS
			Table 21. Part-time employment
		... keeping the unemployment rate low
			Figure 21. UNEMPLOYMENT RATE BY AGE GROUP
			Figure 22. UNEMPLOYMENT RATE BY LEVEL OF EDUCATION
			Table 22. Long-term unemployment
		Labour union issues
			Figure 23. UNIONISATION AND LABOUR DISPUTES
		Income and wage equality
			Figure 24. WAGE DIFFERENTIALS
	Policy requirements
		Box 3. The OECD Jobs Strategy: synopsis of recommendations for Korea
		Enhancing the ability to adjust and adapt
			Flexibility of employment and working time
				Table 23. Tenure by firm size and educational attainment
				Figure 25. LABOUR TURNOVER RATES BY AGE AND GENDER
			The wage formation system
				Table 24. Criteria for determining salaries of individual workers
				Figure 26. THE AGE-EARNING PROFILE
				Table 25. Minimum wages
				Table 26. Criteria for determining overall wage increases
				Table 27. Flexibility of employee compensation
				Figure 27. COMPONENTS OF EMPLOYEE COMPENSATION
			Taxes and transfers
				Figure 28. AVERAGE AND MARGINAL TAX WEDGES
				Table 28. Unemployment insurance
			Active labour market policies (ALMPs)
				Table 29. Public and private employment offices in Korea
		Increasing efficiency, innovative activity and the knowledge base
			Product market competition
				International competition
					Figure 29. THE PRICES OF AGRICULTURAL PRODUCTS IN KOREA
				Competition policy
					Table 30. Actions taken by the Fair Trade Commission
				Deregulation
			Technology and innovation
				Table 31. Korea’s R&D expenditures
			Fostering entrepreneurship
			Upgrading skills and competencies
	Recent policy initiatives
	Assessment and scope for further action
Notes
Bibliography
Annex I - Corporate sector profitability
	Table A1. Manufacturing sector sales, costs and profits
Annex II - Calendar of main economic events
STATISTICAL ANNEX AND STRUCTURAL INDICATORS
	Table A. Selected background statistics
	Table B. Expenditure on gross domestic product
	Table C. Gross domestic product by industry
	Table D. Gross domestic product in manufacturing by industry
	Table E. Cost components of gross domestic product
	Table F. Cost components of gross domestic product by industry
	Table G. Gross fixed capital formation
	Table H. Household appropriation account
	Table I. Non-financial corporate enterprises appropriation account
	Table J. General government appropriation account
	Table K. Central government appropriation account
	Table L. Balance of payments
	Table M. Imports by principal commodities
	Table N. Exports by principal commodities
	Table O. Money and credit
BASIC STATISTICS: INTERNATIONAL COMPARISONS
	BASIC STATISTICS: INTERNATIONAL COMPARISONS
	BASIC STATISTICS: INTERNATIONAL COMPARISONS (cont’d)
	BASIC STATISTICS: INTERNATIONAL COMPARISONS (cont’d)
BOXES
	Box 1. Policy measures since the crisis
	Box 2. The Korean framework for insolvency
	Box 3. The OECD Jobs Strategy: synopsis of recommendations for Korea
TABLES
	Table 1. Expenditure components of GDP
	Table 2. Prices and wages
	Table 3. Labour market
	Table 4. Current account
	Table 5. Corporate profits and financing
	Table 6. Government budgets
	Table 7. Projections for 1998-99
	Table 8. Medium-term reference scenario
	Table 9. Korean financial institutions’ loan and deposit market shares
	Table 10. Profitability of the banking system
	Table 11. Balance-sheet position of commercial banks
	Table 12. Government plan to rehabilitate financial institutions
	Table 13. Share of chaebols in mining and manufacturing
	Table 14. The share of the 100-largest manufacturing firms
	Table 15. Chaebols’ market share by size of industry
	Table 16. Internal ownership of chaebols
	Table 17. Internal ownership of top thirty chaebols
	Table 18. Share ownership by type of investor
	Table 19. Financing of corporations
	Table 20. Share of non-bank financial institutions owned by chaebols
	Table 21. Part-time employment
	Table 22. Long-term unemployment
	Table 23. Tenure by firm size and educational attainment
	Table 24. Criteria for determining salaries of individual workers
	Table 25. Minimum wages
	Table 26. Criteria for determining overall wage increases
	Table 27. Flexibility of employee compensation
	Table 28. Unemployment insurance
	Table 29. Public and private employment offices in Korea
	Table 30. Actions taken by the Fair Trade Commission
	Table 31. Korea’s R&D expenditures
FIGURES
	Figure 1. THE PATH TO THE CRISIS
	Figure 2. BREAK-EVEN POINTS AND INSOLVENCIES
	Figure 3. FINANCE OF CORPORATIONS
	Figure 4. KOREA’S CORPORATE SECTOR AT A GLANCE
	Figure 5. SOVEREIGN RISK AND RATIO OF DISHONOURED BILLS
	Figure 6. MONETARY INDICATORS
	Figure 7. INTEREST AND EXCHANGE RATES
	Figure 8. CAPITAL BALANCE
	Figure 9. FISCAL INDICATORS
	Figure 10. RECENT ECONOMIC INDICATORS
	Figure 11. STOCK MARKET CAPITALISATION
	Figure 12. KEY DEVELOPMENTS IN THE LABOUR MARKET
	Figure 13. GROWTH OF POPULATION, LABOUR FORCE AND WORKING HOURS
	Figure 14. LABOUR FORCE PARTICIPATION RATES
	Figure 15. THE FEMALE LABOUR FORCE PARTICIPATION RATE
	Figure 16. ANNUAL WORKING HOURS
	Figure 17. EDUCATION ATTAINMENT OF THE POPULATION
	Figure 18. SCHOOL ENROLMENT RATES
	Figure 19. SECTORAL COMPOSITION OF EMPLOYMENT
	Figure 20. SELF-EMPLOYED AND FAMILY WORKERS
	Figure 21. UNEMPLOYMENT RATE BY AGE GROUP
	Figure 22. UNEMPLOYMENT RATE BY LEVEL OF EDUCATION
	Figure 23. UNIONISATION AND LABOUR DISPUTES
	Figure 24. WAGE DIFFERENTIALS
	Figure 25. LABOUR TURNOVER RATES BY AGE AND GENDER
	Figure 26. THE AGE-EARNING PROFILE
	Figure 27. COMPONENTS OF EMPLOYEE COMPENSATION
	Figure 28. AVERAGE AND MARGINAL TAX WEDGES
	Figure 29. THE PRICES OF AGRICULTURAL PRODUCTS IN KOREA