Tuesday, November 22, 2011
KORUS FTA ratified by the parilament
The ruling Grand National Party(GNP) was able to force the KORUS FTA(Korea-US Free Trade Agreement) deal today. In fear of the growing public sentiment against the FTA due to concerns of increased income inequality, the GNP secretly put it to vote in parliament without the prescence of other main opposition parties. There is extensive criticism toward the GNP by voters. And according to the Economist, after the loss of public support in the Seoul Mayor election, the GNP will further lose support from the public for the GNP ratifying KORUS FTA in parliament without the support of the opposition parties.
Monday, November 14, 2011
Will Japan Joining the Pacific Free Trade Talks Be Beneficial To South Korea?
Japan being a close neighbor and a strong competitor to South Korea in the Asia-Pacific region, the news of Japanese prime minister's announcing that Japan would also participate in the Pacific Free Trade talks can be large determinant to the South Korean economy. Therefore, I brought articles from the Korea Joonang Daily and the New York Times to look at possibilities of Japan joining the Pacific Free Trade talks and the impacts of Japan joining.
The New York Times mainly talks about how the Japanese people and press are reacting to the prime minister Yoshihiko Noda's intention to join the Pacific Free Trade talks. The article says that most of the Japanese people are accepting the action of participating in a free trade agreement as threat to Japanese culture. Being a conservative culture, opening its market to the world's largest and influential economy is accepted as a huge threat to their traditional ways of living. Also, politically influential Japanese farmers are showing strong disagreements toward joining FTA talks. They strongly argue that their industry cannot survive the harsh competition with large industrial farming in Australia and the United States. This has been shown through strong disapproval from one of Yoshihiko Noda's coalition parties. However, if Japan does not join firms such as Toyota and Honda will loose competitive edge in price compared to Hyundai which will be exempted from tariffs in the United States and continues to benefit from low won to dollar exchange rate. The articles ends by quoting on a professor from Keio University saying that although there will be some disadvantages if Japan joins FTA talks, the disadvantages will be greater if Japan does not join the pact.
The Korea Joongang Daily is similar to the New York Times in explaining the harsh opposition that the prime minister Yoshihiko Noda is facing from the public. However, it goes further by praising the success of historical Meji Restoration by Japan during the mid 1800s. The article argues that with the historical evidence that Japanese overcomes hardships, if Japan joins the Trans-Pacific Partnership, it is likely that Japan will be able to quickly recover from its nuclear disaster. I totally agree that Japan will become a stronger competitor after it joins the TPP. However, for the evidence the article gave to support its argument is not persuasive, since it has been more than 150 years since Meji Restoration. We do not assume that an incident that happened 150 years ago will strongly prove how people will react now. I believe that the newspaper could have given better support for its argument if it mentioned successful Japanese firms such as Toyota and Honda which are strong rivals to Hyundai, a Korean firm or Sony to Samsung.
As the two articles from these two newspapers argue, it will not be easy for the Japanese prime minister to push forward the parliament to approve joining the TPP, facing so much opposition from the public. Also, traditionally Japanese leaders with the exception of Junichiro Goizumi had weak leaderships skills and less appeal to the public. So it will be hard for Yoshihiko Noda to persuade the public to agree to the parties' decision. However, since the Japanese government is strongly connected to Japanese firms allowing the Japanese firms to have strong influence over the government's decisions, I believe that Japan will eventually be able to join the TPP. Since losing price advantage and market share in the international market to Korean firms is harmful to Japanese firms, Japanese firms will likely strongly lobby Japanese politicians to approve FTA deals. However, with so much opposition from the public and especially from the rural areas, it will be a hard process. But it is a matter of time for the Japanese to join the TPP. I believe South Korea should be prepared for it but it should not rush to approve if the deal is an unequal treaty. Also, since South Korea had initiated the talks with the U.S. faster than Japan, South Korea still have time to modify its treaty so that it is a fair trade deal and does not create problems in the future. In Korea, there is a saying that "the more urgent you are, use the longer road."
The New York Times mainly talks about how the Japanese people and press are reacting to the prime minister Yoshihiko Noda's intention to join the Pacific Free Trade talks. The article says that most of the Japanese people are accepting the action of participating in a free trade agreement as threat to Japanese culture. Being a conservative culture, opening its market to the world's largest and influential economy is accepted as a huge threat to their traditional ways of living. Also, politically influential Japanese farmers are showing strong disagreements toward joining FTA talks. They strongly argue that their industry cannot survive the harsh competition with large industrial farming in Australia and the United States. This has been shown through strong disapproval from one of Yoshihiko Noda's coalition parties. However, if Japan does not join firms such as Toyota and Honda will loose competitive edge in price compared to Hyundai which will be exempted from tariffs in the United States and continues to benefit from low won to dollar exchange rate. The articles ends by quoting on a professor from Keio University saying that although there will be some disadvantages if Japan joins FTA talks, the disadvantages will be greater if Japan does not join the pact.
The Korea Joongang Daily is similar to the New York Times in explaining the harsh opposition that the prime minister Yoshihiko Noda is facing from the public. However, it goes further by praising the success of historical Meji Restoration by Japan during the mid 1800s. The article argues that with the historical evidence that Japanese overcomes hardships, if Japan joins the Trans-Pacific Partnership, it is likely that Japan will be able to quickly recover from its nuclear disaster. I totally agree that Japan will become a stronger competitor after it joins the TPP. However, for the evidence the article gave to support its argument is not persuasive, since it has been more than 150 years since Meji Restoration. We do not assume that an incident that happened 150 years ago will strongly prove how people will react now. I believe that the newspaper could have given better support for its argument if it mentioned successful Japanese firms such as Toyota and Honda which are strong rivals to Hyundai, a Korean firm or Sony to Samsung.
As the two articles from these two newspapers argue, it will not be easy for the Japanese prime minister to push forward the parliament to approve joining the TPP, facing so much opposition from the public. Also, traditionally Japanese leaders with the exception of Junichiro Goizumi had weak leaderships skills and less appeal to the public. So it will be hard for Yoshihiko Noda to persuade the public to agree to the parties' decision. However, since the Japanese government is strongly connected to Japanese firms allowing the Japanese firms to have strong influence over the government's decisions, I believe that Japan will eventually be able to join the TPP. Since losing price advantage and market share in the international market to Korean firms is harmful to Japanese firms, Japanese firms will likely strongly lobby Japanese politicians to approve FTA deals. However, with so much opposition from the public and especially from the rural areas, it will be a hard process. But it is a matter of time for the Japanese to join the TPP. I believe South Korea should be prepared for it but it should not rush to approve if the deal is an unequal treaty. Also, since South Korea had initiated the talks with the U.S. faster than Japan, South Korea still have time to modify its treaty so that it is a fair trade deal and does not create problems in the future. In Korea, there is a saying that "the more urgent you are, use the longer road."
Thursday, November 3, 2011
Comment on the Economist
There are some fund managing companies in South Korea. Also, these companies are quite popular. However, I still believe that hedge funds are bad for countries' economic growth, since they concentrate money to short-term investment rather than long-term investment, which increases volatility in the economy. Currently, I believe there is a reason why Europe and America have increased regulation toward hedge funds and that it's not a wise decision for S.Korean government to support growth of hedge funds when the global trend is to regulate and decrease the number of them.
http://www.economist.com/comment/1108445#comment-1108445
Tuesday, November 1, 2011
How Do South Korean Firms React to the European Debt Crisis?
Currently the global economic events are happening in a fast pace. Even reporters seem to have trouble catching up events happening. So, I could not find articles from reliable sources that were talking about Korean economic issues with different views. Instead, I found two articles one from a Korean source and another from a foreign source, reporting on how the Korean firms are reacting to the European debt crisis. One article is from the Wall Street Journal and the other is from Joongang Daily.
According to the Wall Street Journal's article, Korean firms are facing high premiums for dollar bond deals. Due to increased uncertainties over Europe and the United States, borrowing has become increasingly harder for bond issuers. Dollar bond dealing in Korea has stopped to standstill. Koreans now prefer to buy non-traditional funding sources like yen-denominated bonds instead of dollar-denominated bonds. Since the demand for dollar bonds are decreasing to zero, the interest costs have risen. Korean firms have reacted to this by decreasing the number of bonds they issue. To stop issuing the number of bonds as a reaction to increased bond interest costs can only happen if Korean firms have enough foreign-currency. It seems that Korean firms mananged to prepare for the European debt crisis.
After reading the Wall Street Jounral's article, readers will expect the Korean firms to reduce spending as they have decreased borrowing. However, the Joongang Daily reports show different actions from Korean firms. The Joongang Daily's article writes that Korean firms are planning to purchase European firms. Even though their income is decreasing, the Korean firms are spending more. They seem to have plenty of foreign currency to plan such purchases.
However, it should not simply be understood as Korean firms having enough foreign currency reserves but also as Korean firms having increased risk of depleting foreign currency reserves.
According to the Wall Street Journal's article, Korean firms are facing high premiums for dollar bond deals. Due to increased uncertainties over Europe and the United States, borrowing has become increasingly harder for bond issuers. Dollar bond dealing in Korea has stopped to standstill. Koreans now prefer to buy non-traditional funding sources like yen-denominated bonds instead of dollar-denominated bonds. Since the demand for dollar bonds are decreasing to zero, the interest costs have risen. Korean firms have reacted to this by decreasing the number of bonds they issue. To stop issuing the number of bonds as a reaction to increased bond interest costs can only happen if Korean firms have enough foreign-currency. It seems that Korean firms mananged to prepare for the European debt crisis.
After reading the Wall Street Jounral's article, readers will expect the Korean firms to reduce spending as they have decreased borrowing. However, the Joongang Daily reports show different actions from Korean firms. The Joongang Daily's article writes that Korean firms are planning to purchase European firms. Even though their income is decreasing, the Korean firms are spending more. They seem to have plenty of foreign currency to plan such purchases.
However, it should not simply be understood as Korean firms having enough foreign currency reserves but also as Korean firms having increased risk of depleting foreign currency reserves.
Thursday, October 27, 2011
South Korean economic growth slowing due to what reasons and will growth continue to slow?
Like so many other economies around the world, South Korean economy is being affected by debt crisis in Europe. Currently Korean government reports show that the GDP(Growth Domestic Product) did not grow as much as it did in the second quarter of 2011. Why is the South Korean economic growth becoming slower? Is it simply due to the European debt crisis? Will the economy continue to grow slower or will it recover in the fourth quarter of 2011? By comparing two articles, one from Korea Joongang Daily (one of the top four newspapers in South Korea), and another relatively short article from BBC News, we will try to find the answer to these questions.
According to BBC News, Korea's future economic perspective is gloomy. It views that Europe's economic downturn caused by the debt crisis and slowdown of the US economy will negatively affect South Korean exports. Since half of South Korea's GDP relies on exports, the article believes that the South Korean economic outlook is not bright. Also, it mentions about the high level of debt that South Korean household contains. Due to this high level of debt, the article says that households will avoid consuming, trying to pay back its debt and interests. Therefore, since two components of GDP are likely to shrink, the article says that GDP growth will not show large growths as the Bank of Korea (BOK) predicts it to be.
Korea Joongang Daily shows further pessimism to Korean economic growth but with different reasons. It mentions how the BOK's optimistic estimates of GDP growth have been proven wrong. Although the BOK says that the due to decrease in the exchange rate, exports have risen and therefore, predicts that GDP growth will rise in the fourth quarter, the article shows fear for the impact of other domestic problems to the economy. It writes that the currently due to the impact of over-investment in housing, Korean households hold large amounts of debt. This debt is causing decrease in demand for consumption. Due decrease of consumption, firms are also trying to keep hold of cash instead of investing for new facilities. According to Korea Joongang Daily article although the exports rise, due to decrease in consumption and saving, it predicts that the Korean GDP will not grow that much.
Also, the Korea Joongang Daily article shows fear for stagflation of the economy. Stagflation is an economic phenomenon which happens when prices continue to rise during recession. The current Korean economy is hard to define that it is in a recession since the GDP is increasing rather than showing negative growth rate. However, the Korean economy is surely experiencing less consumption and less investment by firms, showing signs for potential recession. This is surely a problem in Korea since even though the economy is experiencing inflation where asset prices and incomes go up, consumption is low. However, I believe it is too much of an exaggeration in the current situation to predict South Korean economy to have stagflation.
By reading two articles, it is seen that the future Korean GDP growth will not be positive as the BOK expects it to be. For the reasons for the slowdown of GDP growth, Korea Joongang Daily seems to give more reasonable reasons that explains the current economic data. Unless exports grow in large amounts, which extremely unlikely due to current economic situations in the US and Europe, Korean economic growth will cool because of decrease in consumption due to large household debt and decrease in investment by firms in reaction to the shrinking consumption.
According to BBC News, Korea's future economic perspective is gloomy. It views that Europe's economic downturn caused by the debt crisis and slowdown of the US economy will negatively affect South Korean exports. Since half of South Korea's GDP relies on exports, the article believes that the South Korean economic outlook is not bright. Also, it mentions about the high level of debt that South Korean household contains. Due to this high level of debt, the article says that households will avoid consuming, trying to pay back its debt and interests. Therefore, since two components of GDP are likely to shrink, the article says that GDP growth will not show large growths as the Bank of Korea (BOK) predicts it to be.
Korea Joongang Daily shows further pessimism to Korean economic growth but with different reasons. It mentions how the BOK's optimistic estimates of GDP growth have been proven wrong. Although the BOK says that the due to decrease in the exchange rate, exports have risen and therefore, predicts that GDP growth will rise in the fourth quarter, the article shows fear for the impact of other domestic problems to the economy. It writes that the currently due to the impact of over-investment in housing, Korean households hold large amounts of debt. This debt is causing decrease in demand for consumption. Due decrease of consumption, firms are also trying to keep hold of cash instead of investing for new facilities. According to Korea Joongang Daily article although the exports rise, due to decrease in consumption and saving, it predicts that the Korean GDP will not grow that much.
Also, the Korea Joongang Daily article shows fear for stagflation of the economy. Stagflation is an economic phenomenon which happens when prices continue to rise during recession. The current Korean economy is hard to define that it is in a recession since the GDP is increasing rather than showing negative growth rate. However, the Korean economy is surely experiencing less consumption and less investment by firms, showing signs for potential recession. This is surely a problem in Korea since even though the economy is experiencing inflation where asset prices and incomes go up, consumption is low. However, I believe it is too much of an exaggeration in the current situation to predict South Korean economy to have stagflation.
By reading two articles, it is seen that the future Korean GDP growth will not be positive as the BOK expects it to be. For the reasons for the slowdown of GDP growth, Korea Joongang Daily seems to give more reasonable reasons that explains the current economic data. Unless exports grow in large amounts, which extremely unlikely due to current economic situations in the US and Europe, Korean economic growth will cool because of decrease in consumption due to large household debt and decrease in investment by firms in reaction to the shrinking consumption.
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