This gloomy forecast can be translated as a fatal blow for the economy of South Korea. Now hopes the country had at the start of 2008 are being replaced by fears in the threshold of 2009. In this uncertain time, the South Korean government is hustling to draw an emergent act to survive till the ice melts again. The Korea IT Times met with Kwon Tae-kyun, Deputy Minister for Trade and Investment Policy of the Ministry of Knowledge and Economy to talk about the present and future of the economy. Here are some excerpts from the interview.
Q: Some worry that the trade balance will be written in red ink this year for the first time in 11 years. Can you explain to us the figures of import and export
A: For the past ten months, exports reached 366.3 billion dollars, up 21% from the same period of the last year, while imports amounted to 379.9 billion dollars, up 31%. So the trade deficit recorded 13.6 billion dollars.
In exports, petroleum-related products soared 84.1%. Ship and general machines increased 56.4% and 29.8% respectively. Contrary to this, owing to the slowdown of developed countries, the price of cars and semiconductors, the backbones of the Korean economy, dropped by 3.0% and by 9.8%.
In imports, oil, gas and steel-related products skyrocketed by 64% as their prices hit the ceiling. The worsening prices resulted in a huge deficit in trade.
Statistics also showed that the reduction of consumption in the wealthier countries amid the financial crisis affected Korean exports, merely increasing by 8.7%. It is notable that exports toward the developing countries with natural resources sharply went up by 27.5% as they increased the investment.
Q: Export will not be as usual in 2009 amid the recession of the wealthier countries. Domestic demand, as a result, is predicted to sharply slide down. How do you see the trade revenue for 2009
A: The government will announce its official assessment of world trade in early January next year. Putting aside the official assessment, we predict that exports and imports will see a big drop next year. The good news is that when the oil price continues to go down the trade balance can be in black ink.
Q: The credit crunch and the financial crisis have hit the world economy badly. They are like a tsunami as Alan Greenspan, former chairman of the US Federal Reserve, put it. The domestic financial market is no exception. In this turmoil, exporting companies face the deadlock of finance in the money market. Is the government planning any programs to help them
A: The government will maneuver various tools to support exporting companies, especially for small and medium-sized companies. It will expand the supply of liquidity to markets and will increase loans for exporting companies and expand rediscounting bills in The Export- Import Bank of Korea. By doing so, exporting companies may not feel a bottleneck of liquidity. The government also will assist them by supplying funds so that they can purchase raw materials for product manufacturing. The expansion of working funds will be helpful for them too. The government will check every day if the assistances work at the right time and right place.
Q: Despite the dark outlook, China is often cited to be a promised land. Domestic companies will do their best to go to China. What should the companies bear in mind when they enter Chinese markets
A: China has emerged as the biggest investment country for Korea since China joined the WTO. As of September this year, 19,098 Korean companies are running their businesses in China, reaching 25.7 billion dollars in investment. But the environment of business is getting worse and worse as the benefit toward foreign investment has decreased and labor protection policies have been added by the Chinese government. Labor costs also rise higher and higher. Investments should be made in Chinese domestic areas rather than in low labor cost areas. The government will help companies that find themselves in difficulty in exploring markets in China. It will also support them to set up a huge logistics and distribution complex so that they can share the space with other Korean companies.
Q: The environment surrounding world trade in 2009 might be the worst in decades. How do you think exports, for South Korea, will go next year Can you tell us the export-stimulating programs the government has
A: There is doubt that the recession in developed countries might spread over to developing countries next year. The recession will weaken demand and consumption. Those elements will affect us. The competition over the market will be sharpened. According to private research centers including the Samsung Economic Research Institute, the increase rate of exports in 2009 will shrink by one digit, only to amount to 485.5 billion dollars.
We need to do what we can to cope with the difficulties. We have to find out ways to respond to the financial crisis triggered by the US to ease the tension in the finance markets. Business circles must also go out to find new markets around the world. We have to arm ourselves with the spirit of crisis as an opportunity. Our cando spirit will pay off. It is desirable that we should separate markets into three categories. They are: the matured market, emerging market, and potential market. To meet the needs from different markets, we should adopt new marketing strategies.
Q: In times of recession, protectionism has tended to prevail around the world. Does the government have any plans to cope with it
A: There is a possibility that each country can take on protectionism amid the global economic crisis. But protectionism cannot be a solution. It will rather deepen the crisis. When protectionism prevails, emerging countries and export-driven countries, for example Korea, will suffer severe damages. The government will work together with G20 and APEC to stop protectionism from spreading. We need to seek Free Trade Agreements with more countries.