V.

Economy of South Korea

South Korea’s economy was traditionally based on agriculture but experienced extraordinarily rapid industrialization beginning in the early 1960s. After the Korean War (1950-1953), economic aid, especially from the United States, was important to the economic recovery of the country. Subsequently, the government of South Korea gave priority to the development of manufacturing, which was driven by export-led growth. In the span of a generation, South Korea grew from one of the world’s poorest countries to one of its most promising industrial powers.

Since the late 1980s, the government has allowed market forces to determine economic development. Previously, the government had exerted strong influence through a series of five-year economic plans, which had promoted industrialization. To achieve the goals of these plans, the government directly intervened in the economy by offering strong incentives to businesses, regulating foreign exchange, and implementing highly centralized fiscal policies.

South Korea’s gross domestic product (GDP) expanded by more than 9 percent yearly between the mid-1960s and the mid-1990s. By the mid-1990s economists referred to South Korea, Hong Kong, Singapore, and Taiwan as Asia’s “Four Tigers” because they rapidly achieved high economic growth and a standard of living among the highest in the world. Nevertheless, South Korea was one of many Asian countries that suffered economic decline during a regional economic crisis in 1997 and 1998. During the crisis, several of South Korea’s largest conglomerates, called chaebol, went bankrupt and collapsed.

The economic crisis highlighted underlying structural weaknesses in South Korea’s economy. Close links between government, banks, and chaebol had allowed the conglomerates to borrow heavily from domestic financial institutions to help them finance high-risk investments. In consequence, the chaebol accrued extremely high levels of debt. The collapse of chaebol, which created a high incidence of nonperforming loans, caused havoc in the banking sector. Meanwhile, the value of the national currency plummeted, losing more than half its value by the end of 1997, and inflation and unemployment soared.

In December 1997 South Korea accepted one of the largest aid packages ever arranged with the International Monetary Fund (IMF). The terms of the aid package required South Korea to pursue economic reform, including restructuring of the corporate and financial sectors. The South Korean government transferred government-owned assets to the private sector, opened the domestic market to more foreign competition, and required chaebol to lower their debt-to-equity ratios. The country’s economy recovered in 1999 and sustained growth into the early 2000s. In addition, South Korea repaid all its IMF emergency loans by mid-2001.

In 2005 South Korea’s annual budget figures showed revenues of $168.4 billion and expenditures of $184.1 billion. The GDP in 2005 stood at $787.6 billion.

A.

Labor

In 2005 the total labor force was 24 million. Of this figure, some 8 percent were engaged in agriculture, forestry, and fishing; 27 percent in industry; and 65 percent in services. Women make up 41 percent of the labor force. The principal labor organization is the Federation of Korean Trade Unions, with a membership of about 1.5 million.

B.

Agriculture

Land distribution programs were carried out in South Korea in the late 1940s, creating an agricultural system composed primarily of small, owner-operated farms. The rapid industrialization of South Korea and increasing urbanization has diminished the importance of farming to the country’s economy, and the number of families dependent on agriculture for their livelihood steadily declined beginning in the 1970s.

About 17 percent of the land in South Korea is under cultivation. More than half of the agricultural land is devoted to rice, the principal food crop. Other leading crops include soybeans, red peppers, barley, cabbages, watermelons, garlic, onions, radishes, white potatoes, red beans, corn, and sweet potatoes. Many types of fruit are grown, especially apples, oranges, grapes, persimmons, pears, and peaches. Other crops include cotton, hemp, and silk. Livestock include pigs, cattle, and goats.

C.

Forestry and Fishing

Since the late 1960s South Korea has become one of the world’s leading fishing nations, with a modern fleet operating in distant waters. Other vessels fish in nearby coastal waters. The ports of Ulsan and Masan have been developed as deep-sea fishing bases with fish-processing plants. The catch in 2004 was 2 million metric tons. Squid, mollusks, anchovies, tuna, walleye pollock, and mackerel make up the principal catches.

South Korea imports the majority of its lumber, but reforestation has provided some tree plantations for commercial use. The country’s timber harvest in 2005 yielded 4.9 million cubic meters (172 million cubic feet) of lumber.

D.

Mining

South Korea has limited mineral resources. The output of anthracite coal, the country’s leading mineral resource, was 3.3 million metric tons in 2003. Zinc ore output was 6,000 metric tons. Small amounts of graphite, iron ore, lead, tungsten, gold, silver, and kaolin (a fine clay) are extracted. Limestone mining is significant, with much of the yield used in the production of cement, the principal material used in new construction.

E.

Manufacturing

The division of the Korea Peninsula in 1948 created two unbalanced economic units. North Korea held most of the natural resources and heavy industries developed during occupation by the Japanese; South Korea contained most of the agricultural resources and a large labor pool. Industrial development in the south concentrated initially on light manufacturing of export-oriented items, especially in labor-intensive industries such as textiles and apparel, footwear, and foodstuffs. Beginning in the early 1970s, however, emphasis was placed on heavy industry. In the 1980s and 1990s Korean manufacturers branched into high-technology industries, such as computer components and semiconductors. Manufacturing is dominated by chaebol, large conglomerate companies with greatly diversified interests.

South Korea is an important producer of telecommunications and sound equipment and transportation equipment. Shipbuilding is a major industry. Other leading industries include the manufacture of chemicals, machinery, food products and beverages, basic metals, and textiles.

F.

Energy

Thermal facilities that primarily burn imported petroleum generated 61 percent of South Korea’s electric power in 2003. In the 1970s the country began to build nuclear power plants in an effort to lessen its dependence on imported oil, and in 2003 nuclear plants generated 38 percent of the country’s electricity. Another 1 percent came from hydroelectric installations. Annual output of electricity was 326 billion kilowatt-hours.

G.

Transportation

A well-developed highway system connects the major urban centers of South Korea. The country has about 97,252 km (about 60,430 mi) of main roads. The state-owned railroad system consists of 3,392 km (2,108 mi) of lines, with construction under way on a high-speed line connecting Seoul and Busan. In May 2007 passenger rail links between North and South Korea were established in a one-time trial. Although largely symbolic, many South Koreans regarded the brief resumption of passenger train traffic between the two countries as a landmark event. The country’s chief ports include Busan, Incheon, Mokpo, and Gunsan. Its merchant fleet numbers 2,820 vessels.

Korean Air Lines and Asiana Airlines provide domestic and foreign service. Incheon International Airport, which opened in April 2001, is the hub for international flights. Located 52 km (32 mi) west of downtown Seoul, the airport covers 5,600 hectares (13,800 acres) on reclaimed tidal lands between two offshore islands.

H.

Communications

Mass media have assumed large importance in South Korea. Freedom of the press has been constitutionally guaranteed since 1987, when a democratic system of government was instituted. This resulted in the reemergence of newspapers that had been banned under the preceding military regime, as well as the establishment of many new newspapers. South Korea has 60 daily newspapers, some with national circulation. In 2000 there were 364 televisions and 1,039 radios for every 1,000 people in South Korea. In 2005 there were 794 cellular telephone subscribers per 1,000 people.

I.

Currency and Banking

The unit of currency in South Korea is the won (1,024 won equal U.S.$1; 2005 average). The Bank of Korea is the bank of issue.

J.

Foreign Trade

Following the disruption of trade during the Korean War and its aftermath, exports increased at the remarkable annual rate of 27 percent from 1965 to 1980 and increased sixfold from 1980 to 1995. The country, with few natural resources and a relatively small domestic market, employed its skilled labor force to produce goods for export, thereby fueling its rapid economic growth. In 1996 South Korea became a member of the Organization for Economic Cooperation and Development (OECD), an international organization that works to coordinate the economic policies of industrialized nations.

Major imports (many of which are used to make goods for export) include industrial machinery, petroleum and petroleum products, electrical equipment, iron and steel, transportation equipment, and chemical products. Leading exports are electrical machinery, fabrics, road vehicles, telecommunication and sound equipment, iron and steel, metal goods, computer components, and apparel. Imports in 2004 were valued at $224.5 billion and exports were worth $253.8 billion.