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RUCPDOC/USDOC WASHDC 9460
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RUEHRC/DEPT OF AGRICULTURE WASHDC
RHEBAAA/DEPT OF ENERGY WASHDC
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RUEHBJ/AMEMBASSY BEIJING 6986
RUEHGP/AMEMBASSY SINGAPORE 7510
RUEHHK/AMCONSUL HONG KONG 4048
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RUEHIN/AIT TAIPEI 4296

UNCLAS SECTION 01 OF 03 SEOUL 001873 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ENRG ETRD KS
SUBJECT: SOUTH KOREA ECONOMIC BRIEFING - NOVEMBER 2009 
 
¶1. (U) This cable is sensitive but unclassified and not/not intended 
for Internet distribution. 
 
------------- 
In This Issue 
------------- 
 
-- Korea's Trade Dependency Over 90 Percent 
-- Foreign Currency Reserves Continue to Rise 
-- International Organizations Raise ROK Economic Outlook 
-- Production Soared 11 Percent in September 
-- Overseas Construction Orders Jump to USD 32 billion 
-- ROKG to Expand Overseas Agriculture Aid 
-- Trade Surplus Drops in October on Falling Exports 
-- Tax Office Targets Illegal Capital Outflow 
-- Korea's Current Account Resurged in September 
-- Korea Ranks 26th in World Prosperity Index 
-- Korea Waives Building Restrictions in Seoul to Attract 
   FDI 
-- Hynix Sale Facing Tough Road Ahead 
-- Domestic Banks Lose 1.2 Trillion Won in Derivatives 
   Trading 
-- Government to Aid Shipbuilding and Shipping Industries 
 
Domestic Economy 
---------------- 
 
¶2. (SBU) Korea's Trade Dependency Over 90 Percent: The Ministry of 
Strategy and Finance (MOSF) reported the total trade dependency in 
2008 reached a record-high 92.3 percent.  Trade dependency is 
defined as exports plus imports divided by gross domestic product. 
Korea's dependency on trade had been in the 50-70 percent range 
since the year 2000.  Surging by nearly 30 percentage points last 
year, Korea now ranks 11th in trade dependency out of 93 countries 
surveyed in 2008.  The dependency for the first six months of this 
year declined to 83.8 percent due to sluggish external demand caused 
by the global economic crisis. 
 
¶3. (SBU) Foreign Currency Reserves Continue to Rise: The Bank of 
Korea reported that foreign currency reserves swelled by USD 9.94 
billion from September to USD 264.19 billion at the end of October, 
the largest amount since posting USD 264.25 billion in March 2008. 
Monthly gains over the past eight months have reached USD 62.65 
billion.  With the current pace, foreign reserves are expected to 
break a record high in November. 
 
¶4. (SBU) International Organizations Raise ROK Economic Outlook: On 
November 10, the World Bank raised its forecast for Korea's economic 
growth for 2009 from -3 to -3.5 percent to -0.7 percent.  The Bank 
also raised its forecast for Korea's 2010 GDP growth to 3.7 percent 
from its previous projection of two percent.  The World Bank 
attributed its upgrade to Korea's improved export competitiveness. 
Meanwhile, the Organization for Economic Cooperation and Development 
(OECD) said on November 19 that the Korean economy will expand by 
4.4 percent next year, hinting that it will undergo a V-shaped 
recovery.  OECD 
Secretary General Angel Gurria advised, however, that the government 
should maintain its economic stimulus measures because growth was 
still at an early stage and appeared to be mostly driven by 
state-led expansionary policies. 
 
¶5. (SBU) Production Soared 11 Percent in September: The NSO said 
that production in the mining, manufacturing, electric, and gas 
industries increased 11 percent from a year earlier in September, 
rising for three consecutive months.  On a month-on-month basis, 
production grew 5.4 percent from August, swinging back after 
dropping 1.3 percent a month earlier.  Sales of consumer goods 
gained 1.8 percent from August and 6.7 percent from a year earlier, 
while facilities investment jumped 18.8 percent month-on-month and 
5.8 percent year-on-year. 
 
¶6. (SBU) Overseas Construction Orders Jump to USD 32 billion: 
According to the Ministry of Land, Transport and Maritime Affairs 
and the International Contractors Association of Korea, overseas 
construction orders granted to domestic companies totaled USD 32.3 
billion as of November 3, 2009, exceeding USD 30 billion in annual 
terms for the third consecutive year and marking the third largest 
total since 1965, when Korea began overseas construction projects. 
 
SEOUL 00001873  002 OF 003 
 
 
The figure is expected to reach USD 40 billion by year-end. 
 
¶7. (SBU) ROKG to Expand Overseas Agriculture Aid: On November 17, 
ROKG officials announced an increase in agricultural aid to 
developing countries suffering from chronic food shortages.  In a 
keynote address at the Food and Agriculture Organization's (FAO) 
food security meeting in Rome, Chang Tae-pyong, Minister of Food, 
Agriculture, Forestry and Fisheries, said South Korea will donate 
150,000 tons of rice to the Asian Emergency Food Reserve Program. 
This follows a September announcement that the country would provide 
USD 100 million in aid over the next three years to help improve 
food security issues for developing economies. 
 
¶8. (SBU) Trade Surplus Drops in October on Falling Exports: Korea's 
trade surplus fell slightly in October from a month earlier as 
exports declined and imports slightly increased.  According to the 
Korea Customs Service (KCS), the nation's trade surplus stood at USD 
3.63 billion in October compared to USD 4.7 billion the previous 
month.  Exports fell 1.6 percent on-month to USD 34 billion in 
October, while imports rose 1.8 percent to USD 30.3 billion.  On an 
annual basis, exports fell 8.5 percent and imports dropped 16 
percent from a year before.  In the first ten months of the year, 
cumulative exports reached USD 294 billion, down 19.7 percent from a 
year ago, while cumulative imports fell 31.5 percent on-year to USD 
260.3 billion.  KCS predited the nation's trade volume would expand 
in the coming months from rising imports of oil products. 
 
¶9. (SBU) Tax Office Targets Illegal Capital Outflow: The National 
Tax Service (NTS) created an "Overseas Tax Evasion Report Center" on 
November 18 to crack down on offshore tax evaders and monitor 
illegal capital outflows.  The Center will collect and analyze 
information on suspicious investments offshore, and coordinate with 
foreign agencies to share information on tax crimes.  In particular, 
NTS will monitor firms which open shell companies in tax havens 
overseas and then remit money to the ROK. 
 
¶10. (SBU) Korea's Current Account Resurged in September: The Bank of 
Korea (BOK) stated that thanks to a soaring trade surplus in goods, 
the current account surplus amounted to USD 4.2 billion in 
September, more than double the figure recorded in August.  Both 
imports and exports in September sharply rose by USD 2.78 billion 
and USD 4.89 billion from the previous month to USD 29.7 billion and 
USD 35.2 billion, respectively, while the year-on-year drops in 
imports and exports narrowed to 23.9 percent and 7.9 percent. 
 
¶11. (SBU) Korea Ranks 26th in World Prosperity Index: According to 
the Financial Times, Korea ranked 26th out of 104 countries in the 
Legatum Group's Prosperity Index.  The Legatum Group (a London-based 
independent research, policy and advocacy organization) created the 
index, which is based on nine factors, including democracy, economy 
and governance. Korea received high scores in economic base, 
entrepreneurship/innovation, education and governance, while needing 
improvement in individual liberty.  Finland ranked first in the 
index. 
 
Finance and Structural Policies 
------------------------------- 
 
¶12. (SBU) Korea Waives Building Restrictions to Attract FDI: In the 
interest of promoting foreign investment, the Ministry of Knowledge 
Economy (MKE) will waive the factory building restriction at 
non-industrial complex zones in the Seoul metropolitan area for 
foreign companies making large investments in Korea.  Foreign 
companies must plan to invest at least USD 30 million to qualify for 
the exemption. 
 
¶13. (SBU) Hynix Sale Facing Tough Road Ahead: Creditors of Hynix 
Semiconductor have agreed to sell their combined stakes in the 
world's second largest memory chipmaker through an open bidding 
process. However, officials doubt that the INcheon-based technology 
firm will find the right buyer by next month.  The collective 
28.07-percent stake is worth about 4 trillion won (USD 3.5 billion). 
 Korea Exchange Bank (KEB), representing creditors, plans to issue 
invitations for the auction to domestic companies between November 
25 and December 15.  The action follows Hyosung Group's recent 
decision to retract its bid.  Although top Hynix sources are hoping 
that one of the nation's top-10 conglomerates will register a bid, 
POSCO, LG Group, SK Group and Hyundai Heavy officials have told 
 
SEOUL 00001873  003 OF 003 
 
 
local media they are not interested.  Creditors may also sell 10 to 
15 percent stakes to institutional investors through block sales if 
the public auction is unsuccessful. 
 
¶14. (SBU) Domestic Banks Lose 1.2 Trillion Won in Derivatives 
Trading: The Korea Institute of Finance (KIF) estimated that five 
major domestic banks - Kookmin, Woori, Shinhan, Korea Exchange and 
Hana - have lost 1.2 trillion won (USD 1 billion) from investments 
in derivatives in the first half of this year.  The think tank also 
claims the losses are in stark contrast to the success of two major 
foreign banks - Citibank Korea and Standard Chartered Korea - which 
enjoyed combined gains of 495.4 billion won (USD 430 million) from 
derivatives transactions during the same period.  The institute said 
that the seven banks earned 601.4 billion won (USD 545 million) in 
products for the first half in 2008, but lost 406 billion won (USD 
368 million) in the second half of last year due to the global 
financial crisis that swept the world in August 2008.  Outstanding 
derivatives contracts held by all seven banks fell 13.8 percent 
year-on-year to 1,398.4 trillion won (USD 1.216 billion) by the end 
of June.  Standard Chartered Korea ranked in the top spot with an 
outstanding balance of 328.9 trillion (USD 286 billion), followed by 
Shinhan Bank (244.2 trillion won or USD 212 billion) and Citibank 
Korea (203.4 trillion won or USD 177 billion). 
 
¶15. (SBU) Government to Aid Shipbuilding and Shipping Industries: On 
November 9, the government announced intentions provide more 
liquidity to the shipbuilding and shipping industries.  Based on the 
decision, the government will expand financial aid for companies in 
ship manufacturing and ease requirements on the loan-to-value ratio 
for shipping companies.  This program will most likely impact 
smaller shipbuilders, but will be open to all 
shipbuilding companies with liquidity problems. Con- currently, the 
government will continue restructuring the eight shipbuilding 
companies that received grades of C and D in a credit risk 
evaluation, and encourage them to redirect their businesses into 
repair dockyards or ship component factories. 
 
STEPHENS