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UNCLAS SECTION 01 OF 03 SEOUL 002006 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EFIN EINV ENRG ETRD KS
SUBJECT: SOUTH KOREA ECONOMIC BRIEFING - DECEMBER 2009 
 
¶1. (U) This cable is sensitive but unclassified and not/not intended 
for Internet distribution. 
 
In This Issue 
------------- 
 
-- Economy Records 3.2 Percent Quarterly Growth 
-- ROKG, IMF Optimistic About 2010 
-- ROKG Plans to Expand Stake in IMF and World Bank 
-- ROKG Plans "Business Summit" for G20 
-- Labor Productivity Below OECD Average 
-- Consumer and Business Sentiment Down 
-- South Korea Joins OECD Development Committee 
-- Central Bank to Adopt Broader Inflation Target in 2010 
-- Double-Digit Export Growth Buoys MKE Plans for Trade 
-- Job Market Falls for First Time in Four Months 
-- Central Bank Maintains Key Rate at Two Percent 
-- ROKG to Propose Regulation of Global Capital Flow 
-- Samsung Opens Micro-credit Bank 
 
Domestic Economy 
---------------- 
 
¶2. (SBU) Economy Records 3.2 Percent Quarterly Growth: The BOK 
announced December 11 that real GDP for the third quarter grew 3.2 
percent from the previous quarter, representing the largest 
quarter-on-quarter growth since the first quarter of 2002.  The 
year-on-year change was an increase of 0.9 percent.  Meanwhile, the 
third quarter's real gross national income (GNI) rose 0.4 percent 
from the second quarter. 
 
¶3. (SBU) ROKG, IMF Optimistic About 2010: 
 
The ROKG, IMF, and other observers project ROK economic growth of 
between 4.3 and 5 percent for 2010.  The Bank of Korea (BOK) on 
December 10 forecast 4.6 percent GDP growth, with projected growth 
of 0.7 percent in the first half of 2010 compared to the latter half 
of 2009.  It also predicted economic growth to be driven by the 
private sector in 2010.  The BOK said GDP in the fourth quarter of 
2009 would rise 0.3 percent from the previous quarter and 0.2 
percent year-on-year. 
 
Meanwhile, during a December 7 visit to Korea, an International 
Monetary Fund (IMF) delegation said Korea bears no risk of a double 
dip recession and should be ready to normalize monetary stimulus 
measures in a few months, perhaps by raising the benchmark interest 
rate as a possible step.  The IMF forecast Korea's GDP growth to be 
0.25 percent in 2009, the highest projection among major 
international organizations.  For 2010, the IMF raised its forecast 
from 3.6 percent to 4.5 percent growth. 
 
Recent Projections of 2010 South Korea's Economic Growth: 
 
-- Ministry of Strategy and Finance   5.0 percent 
-- Korea Development Institute        5.5 percent 
-- Bank of Korea                      4.6 percent 
-- IMF                                4.5 percent 
-- OECD                               4.4 percent 
-- Samsung Economic Research          4.3 percent 
-- LG Economic Research               4.6 percent 
-- SC First Bank                      4.8 percent 
 
¶4. (SBU) ROKG Plans to Expand Stake in IMF and World Bank: In an 
effort to increase the value of Korea's "brand," the Presidential 
Council on Nation Branding on December 11 announced it would 
increase Korea's stake in the IMF and the World Bank to a level 
equivalent to the ROK's GDP-to-global economy ratio.  This ratio is 
currently 1.95 percent for Korea, while its stakes in the IMF and 
World Bank are only 1.34 percent and 1.01 percent, respectively. 
 
¶5. (SBU) ROKG Plans "Business Summit" for G20: At a breakfast 
meeting with members of the ruling Grand National Party, President 
Lee Myung-bak said that over 400 of the world's major companies will 
be invited to the G20 summit in Seoul next year.  Lee explained that 
the Seoul Summit would include corporate events because it will be 
the first regular meeting of the G20 after the global economy enters 
the recovery phase.  Although few details are available, we 
understand planning for IT and other industry-specific meetings is 
 
SEOUL 00002006  002 OF 003 
 
 
also underway. 
 
¶6. (SBU) Labor Productivity Below OECD Average: According to the 
Ministry of Knowledge Economy (MKE) and the Korea Productivity 
Center on December 3, Korea's labor productivity (added-value per 
employee)was USD 57,204 in 2008, ranking 22nd among the 30 OECD 
member countries.  This was an advance from 23rd in 2003 but still 
lower than other industrialized countries.  In particular, labor 
productivity in the services sector totaled USD 33,233, which 
represented a mere 44.8 percent of productivity in the U.S. and 59.9 
percent of productivity in Japan. 
 
¶7. (SBU) Consumer and Business Sentiment Down: The BOK announced on 
November 25 that the consumer sentiment index for November fell to 
113, down four points from October.   After rising eight consecutive 
months, the index's six sub-indices all edged downward, but remained 
above the benchmark of 100.  Likewise, the BOK said that its 
Business Survey Index (BSI) of manufacturing business conditions for 
November stood at 89, down three points from October.  The BSI had 
dipped to as low as 43 in February but rose to 92 in October, the 
highest level in six years. 
 
¶8. (SBU) South Korea Joins OECD Development Committee: On November 
25, the OECD's Development Assistance Committee (DAC) by unanimous 
consent admitted Korea as its 24th member.  Korea, as the first 
country to transform itself from a DAC beneficiary into a DAC 
benefactor, is dramatically raising the profile of its development 
programs.  The ROKG has committed to tripling Official Development 
Assistance spending to 0.25 percent of its Gross National Income by 
2015, and plans to host the 2011 High-Level Forum on Aid 
Effectiveness. 
 
¶9. (SBU) Central Bank to Adopt Broader Inflation Target in 2010: The 
BOK announced that its 2010-12 inflation target will be three 
percent with a tolerance range of plus or minus one percent, which 
is twice the current range.  The increased range reflects concern 
that increasing international oil prices and a weakening won could 
increase the possibility of greater inflation volatility. 
 
¶10. (SBU) Double-Digit Export Growth Buoys MKE Plans for Trade: MKE 
stated on December 1 that exports amounted to USD 34.27 billion in 
November, up 18.8 percent from a year earlier, marking the first 
month of year-on-year export growth since October 2008.  Imports 
also increased, totaling USD 30.22 billion, up 4.7 percent from 
November 2008.  Accordingly, the November trade surplus reached USD 
4.05 billion, surpassing the surplus of USD 3.63 billion recorded in 
October.  Meanwhile, the MKE announced plans to make Korea one of 
the world's eight major exporters by reaching USD 1.3 trillion in 
trade volume and USD 650 billion in exports by 2014.  This goal 
would require Korea to increase exports by an annual average of 12.5 
percent over the next five years.  To this end, the government will 
proceed to create trade infrastructure including financial system 
improvements related to exports.  In 2010, exports and imports are 
expected to rise 13 percent and 21 percent, respectively, from 2009 
to USD 410 billion and USD 390 billion, resulting in a trade surplus 
of about USD 20 billion. 
 
¶11. (SBU) Job Market Falls for First Time in Four Months: The Korean 
economy lost 10,000 jobs in November, with many businesses remaining 
reluctant to hire new workers amid the continued uncertain global 
economic outlook.  Despite improving overall macroeconomic 
conditions, the job market here has remained sluggish throughout the 
year.  The government's hiring of temporary workers in various 
sectors sustained the labor market but those effects have diminished 
in recent months.  According to a report of the National Statistical 
Office on December 16, the number of employed stood at 23.8 million 
last month, down 10,000 from a month earlier, marking the first 
decline in four months.  The number of unemployed was 819,000 in 
November, up 69,000 from the previous year, with the seasonally 
adjusted jobless rate rising to 3.5 percent from 3.4 percent. 
 
Finance and Structural Policies 
------------------------------- 
 
¶12. (SBU) Central Bank Maintains Key Rate at Two Percent: On 
December 10, the BOK Monetary Policy Committee announced it would 
keep the benchmark interest rate at 2.0 percent, maintaining a 
record-low rate for ten straight months.   The BOK stated in its 
 
SEOUL 00002006  003 OF 003 
 
 
current economic development report that real economic activity 
continues to recover.  However, growth in facilities investment 
slowed, and the amount of completed construction work declined.  The 
central bank added that the economy will maintain positive 
quarter-on-quarter growth amid lingering uncertainties. 
 
¶13. (SBU) ROKG to Propose Regulation of Global Capital Flow: A 
senior finance ministry official said on December 17 that Korea 
would propose at the G20 a mechanism to curb international capital 
movements, particularly "hot'' money, to ease the side effects of 
cross border money flow on emerging economies.  Deputy Strategy and 
Finance Minister Shin Je-yoon said the short-term speculative money 
movements across the globe are wreaking havoc on many countries, 
particularly ones that heavily rely on trade and other international 
transactions.  The ROKG, he continued, would put forward separate 
agendas for the developed, emerging and developing countries:  the 
strengthening of financial market regulations for advanced 
countries, cross border capital movement regulation for emerging 
economies, and development financing for developing countries. 
 
¶14. (SBU) Samsung Opens Micro-Credit Bank: Samsung Group, the 
nation's top business conglomerate, opened a microcredit bank on 
December 15 that will lend money to low-income earners at relatively 
low interest rates.  The group launched the bank in Suwon, Gyeonggi 
Province, where its affiliates, such as Samsung Electronics, are 
headquartered.  The Bank will handle 300 billion won (USD 254 
million) in funds over the next 10 years financed by affiliates of 
the group.  The microcredit concept has been promoted by the 
Financial Services Commission (FSC) in the aftermath of the 
worldwide economic turmoil.  Besides Samsung, other major chaebols, 
such as Hyundai Automotive and LG groups as well as commercial 
lenders such as Kookmin Bank, are looking to follow suit and set up 
loan opportunities for those in need.  The FSC aims to encourage 
local conglomerates and lenders to establish more than 20 branches 
by next May with an eventual goal of increasing the tally to 
hundreds in the near future.  The overall amount of the fund is 
expected to reach 2 trillion won (USD 1.7 billion) over the next 10 
years and approximately 200,000 people who would otherwise struggle 
to obtain loans from banks due to low credit ratings are likely to 
benefit. 
 
STEPHENS