Halting polarizing trend must be prioritized
Today 15 years ago, Korea went cap in hand to seek a bailout from the International Monetary Fund (IMF) during a period popularly known here as the ''IMF crisis.''
At the time, Korea was on the brink of collapse due to the near depletion of its foreign exchange reserves. The crisis caused big banks and large conglomerates to close and sparked massive layoffs. The local currency once tumbled to 2,000 won against the U.S. dollar and citizens rushed to sell even their gold rings to help replenish the national treasury.
Fifteen years later, the Korean economy bounced back. Gross domestic product more than tripled from $345.4 billion in 1998 to $1.162 trillion last year. Foreign exchange reserves, which had virtually dried up at the height of the crisis, grew to $323.5 billion as of the end of October, becoming the world's 7th largest.
The corporate sector has become significantly stronger. During the 15-year period, companies' cash reserves surged from 22 trillion won to 57 trillion won and their average debt-to-equity ratio plunged from 390 percent to 170 percent. Now 13 Korean companies, including Samsung Electronics and Hyundai Motor, are among the world's top 500 businesses compiled by Fortune.
However, the period has been tough for individuals, especially ordinary people, amid the ever worsening polarization. With large export-oriented companies enjoying the fruits of the economic turnaround and jobs becoming scarce, the middle class shrank. The proportion of middle-class households, as measured by the median income, fell from 75.3 percent in 1995 to 67.5 percent in 2010. By contrast, the percentage of impoverished households rose from 7.7 percent to 12.5 percent throughout the period.
As the polarizing trend escalates, people with well-paying white-collar jobs have a good time, whereas those working for small- and medium-sized companies (SMEs) and self-employed people suffer the bitter taste of the financial crisis.
In fact, household incomes are stagnant. Inflation-adjusted real wages remained at 2.73 million won per month last year, a meager 23 percent rise from 2.21 million won in 1997. Household debt swelled from 183 trillion won to 911 trillion won during the period and this explains why it's difficult to revitalize consumer spending.
Most worrisome is that low growth has become the norm in this country familiar with high growth for decades. This is all the more so, given warning that Korea's growth potential has been almost halved since the 1997 currency crisis. The Bank of Korea and other economic agencies estimate the potential growth rate of Asia's fourth-largest economy at 3.7 percent as of this year, compared with 6.1 percent tallied just before the turmoil.
Given this, top priority must be placed on pushing up economic growth in such a way as to boost productivity. Specifically, incentives are needed for SMEs that hire more people. In the long term, extraordinary measures should be made to globalize SMEs and make the service industry export-oriented.
Today 15 years ago, Korea went cap in hand to seek a bailout from the International Monetary Fund (IMF) during a period popularly known here as the ''IMF crisis.''
At the time, Korea was on the brink of collapse due to the near depletion of its foreign exchange reserves. The crisis caused big banks and large conglomerates to close and sparked massive layoffs. The local currency once tumbled to 2,000 won against the U.S. dollar and citizens rushed to sell even their gold rings to help replenish the national treasury.
Fifteen years later, the Korean economy bounced back. Gross domestic product more than tripled from $345.4 billion in 1998 to $1.162 trillion last year. Foreign exchange reserves, which had virtually dried up at the height of the crisis, grew to $323.5 billion as of the end of October, becoming the world's 7th largest.
The corporate sector has become significantly stronger. During the 15-year period, companies' cash reserves surged from 22 trillion won to 57 trillion won and their average debt-to-equity ratio plunged from 390 percent to 170 percent. Now 13 Korean companies, including Samsung Electronics and Hyundai Motor, are among the world's top 500 businesses compiled by Fortune.
However, the period has been tough for individuals, especially ordinary people, amid the ever worsening polarization. With large export-oriented companies enjoying the fruits of the economic turnaround and jobs becoming scarce, the middle class shrank. The proportion of middle-class households, as measured by the median income, fell from 75.3 percent in 1995 to 67.5 percent in 2010. By contrast, the percentage of impoverished households rose from 7.7 percent to 12.5 percent throughout the period.
As the polarizing trend escalates, people with well-paying white-collar jobs have a good time, whereas those working for small- and medium-sized companies (SMEs) and self-employed people suffer the bitter taste of the financial crisis.
In fact, household incomes are stagnant. Inflation-adjusted real wages remained at 2.73 million won per month last year, a meager 23 percent rise from 2.21 million won in 1997. Household debt swelled from 183 trillion won to 911 trillion won during the period and this explains why it's difficult to revitalize consumer spending.
Most worrisome is that low growth has become the norm in this country familiar with high growth for decades. This is all the more so, given warning that Korea's growth potential has been almost halved since the 1997 currency crisis. The Bank of Korea and other economic agencies estimate the potential growth rate of Asia's fourth-largest economy at 3.7 percent as of this year, compared with 6.1 percent tallied just before the turmoil.
Given this, top priority must be placed on pushing up economic growth in such a way as to boost productivity. Specifically, incentives are needed for SMEs that hire more people. In the long term, extraordinary measures should be made to globalize SMEs and make the service industry export-oriented.
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