By Graham Earnshaw
SEOUL, Dec 21, Reuter – Last week’s presidential election in South Korea has cleared up many political uncertainties, but the country’s booming economy is still expected to slow in 1988 due to growing export difficulties and simmering labour unrest.
The surprisingly big win by government candidate Roh Tae-woo last Wednesday, in spite of charges of election fraud, gave investors a strong confidence boost, enough to send the Seoul stock market soaring five per cent late in the week.
Investors see Roh’s victory as a sign that the political upheavals of the past year are near an end and that the economic strategy of President Chun Doo Hwan, due to step down in February, will remain in force.
“We are going to basically see a continuation of present economic policies, certainly less change than if the opposition had won,” said George Long, an analyst at stockbrokers W.I. Carr.
At least one of the defeated opposition candidates has called for massive public action to pull down Roh’s government before he even has a chance to form one, but most analysts seem to believe the protests will be short-lived.
“In the short-term there may be some upheavals, but in the mid- to long-term, I think political stability will be achieved,” Economic Planning Board expert Yoon Yeung-dae said in a telephone interview.
President-elect Roh, a former general, has no experience in the economic field, but the analysts said they did not see that as a disadvantage.
“The economy is being run by economic technocrats, and that will continue, although you will see some faces changing,” said Chase Manhattan Bank’s country manager Arjun Mathrani.
Once Roh takes office, he will need the help of those technocrats to grapple with two major problems — trade friction resulting from South Korea’s booming exports and labour’s demand for big wage increases early next year.
The government is now predicting growth in 1988 of eight per cent after 12 per cent this year and 12.5 per cent last year. But some analysts think it may drop lower, which could have serious implications for an economy addicted to high growth rates.
“What’s going to hit them is the fall in export orders when the U.S. economy begins to feel the effects of (the stock fall in) October,” said Henry Morris, analyst with merchant bank Kleinwort Benson.
“They’ll really get a kick in the shins then. They will realise that the domestic economy is still far too thin. Domestic demand alone won’t carry them up to the growth predictions they have made,” Morris added.
Another analyst said: “If there is slower growth in exports, then (economic growth) could fall to six per cent.”
Immediately after Roh’s victory, both the U.S. and the European Community served notice they intended to get tough to force South Korea to open up its market more to foreign firms and to stick to the rules of international commerce.
Thanks partly to the rising yen making Japanese exports more expensive, South Korean firms have done better than they ever dared hope in the past couple of years.
Exports this year will be up more than 30 per cent as South Korea muscles into areas previously monopolised by Japan, including cars and audio-visual consumer goods.
Its current account surplus for 1987 is expected to top 10 billion dollars after a 4.6 billion dollar surplus in 1986.
“They will have to watch the current account surplus,” said Chase Manhattan’s Mathrani. “They can’t allow it to continue to grow. It is getting too much for the U.S. to take.”
But if the pessimists are right and the U.S. economy goes into recession in the wake of Black Monday, then the problem of the current account surplus could disappear pretty quickly.
“There is a big question about what will happen next year,” said W.I.Carr’s Long.
“There is big pessimism about the world economy after the stock market crash, and many predict a decline in U.S. demand. South Korea’s economy is export-driven, so if it happens there is a serious possibility that it would push South Korea into a lower growth environment,” he added.
“These rates of growth are impressive by Western standards, but unsatisfactory for South Korea,” said Morris. “They don’t have a social services network here. There is no dole, so if kids cannot get jobs it can have a serious effect.”
On the domestic front, workers who won big wage increases earlier this year after bitterly fought strike actions, are expected to try for more of the same once Roh takes office.
“In April, we will see a resurgence of labour activity. They used to use very strong-arm tactics to suppress labour, but it is a very different environment now from that before the election,” said Long.
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