South Korea wears its post-war economic miracle on its sleeve, but often that past success can distract investors from the real economic obstacles in the country’s near future. Jeffrey Shafer, head of economic and political strategies at Citigroup; Hyun Jun Taik, president of the Korea Development Institute (KDI); Michael Petit, managing director of Asia Pacific and corporate ratings at Standard and Poor’s; and Chester C. Dawson III, author and global finance editor, all presented at a panel discussion on what those obstacles would be and how Korea could overcome them.

Jeffery Shafer started off the program by noting that South Korea had just come off a less-than-stellar 2005, managing only 4-percent annual GDP growth. High oil prices were a major factor in the lackluster performance. Costly crude slows growth on a global scale, and thus dampens demand for Korea’s exports. The forecast for 2006 is 5.5-percent growth. However, uncertainty of where and how Korea will find its niche in East Asia’s rapidly changing economic order continues to hang over analysts.

Hyun Jun Taik examined South Korea’s labor market. He pointed out that the picture was not entirely grim. Though exports slowed in 2005, domestic demand and service industry expansion had picked up. Economists have long argued that Korea needed to do more to stimulate both areas. This growth hasn’t provided an employment boom though. There are more high income and low income jobs available, but few in the middle. The number of workers doing irregular contract work, instead of working in full-time positions, is also on the rise.

Michael Petit commented on the Roh administration’s heavily promoted plan to turn South Korea into a financial services hub. Though he didn’t want to be against he aspirations of the Korean people, Petit said the hub plan doesn’t constitute a real vision of how to make the entire Korean economy vibrant again. And financial centers are not easy things to establish. Historically, Petit said, financial centers have offered something unique: Switzerland provides stability, and the Bahamas provide a haven of deregulation. Korea hasn’t yet found what singular advantage it can offer.

Chester Dawson closed the discussion by noting that Korea is in a unique position. As it decides how to best liberalize its economy, it has the chance to set an example for China while avoiding the mistakes of Japan . Korea needs to avoid the familiar temptation to protection its flagship industries at the expense of its overall competitiveness, and become genuinely comfortable with foreign investment. Doing so is vital, he added, because as China continues to come into its own, it will be harder and harder to convince investors that Korea is growth opportunity.

Economic Forum

with 

Jeffrey Shafer
Head of Economic and Political Strategies, Citigroup

Hyun Jun Taik
President, Korea Development Institute (KDI)

Michael Petit
Managing Director of Asia Pacific and Corporate Ratings, Standard and Poor's

Chester C. Dawson III
Author and Global Finance Editor

Tuesday, February 28, 2006