This economic wave may be too high for South Korea to crest, a country whose economy is 90 percent exports. To make things worse, the wind blows unfavorably for the cargo ships that carry Made in Korea products to the rest of the world. The surge of the waves and the whip of the winds seem to undermine the Land of the Morning Calm. And the prediction that South Korea may see a record deficit in trade in 2009 amid a global recession is the cloud that casts a dark shadow over the country 13th in trade volume. Can South Korea, a land of can-do spirit, overcome the perfect storm of a crisis in 2009 Unfortunately, a "yes" does not come easily.
A negative atmosphere surrounded the 45th Trade Day on November 30. On that day, Korea celebrated its achievements in trade by presenting gold and silver awards to businesspeople who dedicated their careers to expanding exports for the past year. But the congratulatory mood was not like those of previous years since the world economy has not found its lowest point of the curve yet.
Even though the forecast for 2009 is not bright for South Korea, there were a fair number of achievements in 2008. The total amount of exports reached 400 billion dollars and the trade volume including imports will have exceeded 800 billion dollars by the end of the year. Statistics showed that the total exports as of the end of October increased to 21.0 percent compared to the same period of last year, reaching 366.3 billion dollars. But the expenditure for imports set off the advantage of the weak won as the cost of imports and oil prices skyrocketed amid the strong dollar. The total amount of imports amounted to 380 billion dollars, an increase of 31.5 percent compared to last year. It has taken 13 years for South Korea to reach 400 billion dollars in exports since Korea exceeded 100 billion dollars in 1995. The 10 largest countries in export volume required an average of 17.2 years to exceed 400 billion dollars.
This year's exports feature a peculiar characteristic in that the expansion is mainly thanks to exploring new markets in developing countries whose abundant natural resources give the capital for imports. The exports to these countries have increased 27.5 percent. The Korea International Trade Association recommended business circles to strengthen their efforts to march into emerging countries with natural resources that are cash cows for them rather than the US and EU that are suffering a severe financial crisis.
The drop of semiconductor prices also deepened wrinkles nationwide. Semiconductors were on top of the best exporting lists last year, but this year they fell to fifth. Autos dropped from second to fourth, and computers from seventh to tenth. The top two items have experienced some severe shrinkage. Lee Hee-beom, Chairman of Korea International Trade Association, said: "As the world economy in 2009 is not bright, the voyage of the Korean economy will not be easy." He emphasized that our entrepreneurs should explore new markets. As he pointed out, what matters is the course ahead. The conclusion of all the predictions that every economic research group has reached is that the seas will surely be rough. Two major elements that affect the Korean economy are the worsening signals from the US and the revealing recession of the global economy. The unprecedented crisis of the US economy will be fatal to Korea, as it is Korea's major trade partner. Import orders from the US will sharply drop. The same will happen with the EU, which is directly linked to the US in trade. Hyundai Auto is already in the swirl of a typhoon; it is considering reducing car production for the first time in almost three decades.
Barack Obama's new administration is likely to be a hindrance as President-elect Obama may seek policies that consider the US economy first. He already declared that his new administration will reconsider the Free Trade Agreement with South Korea. He is also not favorable to Korean autos. He wants South Korea to open its auto market as widely as the US. During his presidential campaign, he said repeatedly that US auto companies should be protected. After the election, he supported a bail out for auto companies including General Motors in the same way that the Senate endorsed a bailout for AIG.
Experts worry about the future. Jung Man-won, CEO of SK Networks, once said in a seminar that money is not circulating well in global financial markets, adding that a company was heard to borrow money at an annual interest rate of 15 percent. He concluded that if interest rates exceed 12 percent, no companies can survive financially. Lee Jae-won, CEO of Suprema, raised his voice in warning that small and medium-sized companies have fallen into the deep well of KIKO, an option-trading contract based on the exchange rate. "Many small companies bought KIKOs to make money, thinking that the exchange rate will go down rather than go up. But contrary to expectations, the won to dollar exchange rate has skyrocketed, leaving a great loss of money to small companies," said Lee. Lee Kyung-tae, chief of the Institute for International Trade, pointed out that almost all banks are reluctant to let their money flow in the market. "The government needs to have the tools to make money go to exporting companies that demand money," said the Chief.
The problem is next year. If things get worse, the Korean economy that has overcome a lot of obstacles may experience a deep downturn.