RESTRICTED Report No. EAP-25a This eport is for official use only by the Bank Group and specifically authorized organizations or perscms It nay not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION THE ECONOMIC SITUATION AND PROSPECTS OF THE REPUBLIC OF KOREA September 13, 1971 East Asia and Pacific Department CURR~CY lýUIVALIETS 1 iJ,S. dollar * 370 wo WQa US$ 0,003 This report is based on the findings of an Economic Mission which visited the Republic of Korea in June/July, 1971. The Mission was canposed oft William M. Gilmartin Chief of Mission Shinji Asanuma General Economist Russell J. Cheetham General Economist Constantinos Doultainos Debt Anayst Lorne Sonley Agricultural Economist Miss Cynthia Noronha Secretary The mission had the benefit of the earlier findings of an Bconomic Mission headed by Mr. Shu-Chin Yang (September/October 1970), and an Industrial Sector Survey Mission headed by Mr. F. T. Moore (November/ December 1970). Messrs. Yoshiaki Abe, Renato R. Rossi and Rogelio 0. David assisted the Missions, respectivey, in transportation, agricultural and statistical matters. TABLE OF CONTENTS Page '0. BASIC DATA MAP SUMMARY AND CONCLUSIONS i irv CHAPTER I - Recent Economic Patterns and Policies 1 Trends in Development 1 Structural Ciange 2 Population, Employment and Income Distribution 3 Origins of Rapid Development Policy Patterns; Industrialization 6 Agricultural Development and Policy 7 Resource Policies and Management 8 CHAPTER II - Korean Development Plans 1 Basic Development Strategy 11 Macro-Economic Framework 12 Social. Development 14 Sectoral Development Policies and Investment Allocation 15 Domestic Resource Mobilization 18 The Contribution of Exports 18 Imports 20 The Role of Foreign Finance 20 Uncertainties in Plan Execution 21 CHAPTER III - Industrialization: Problems and Policies 23 Industrial Strategy 23 Problems and Prospects of Industrial Development 25 The Role of Government and Government Incentives 26 Conclusion 28 CHAPTER IV - Agricultural Development: Problems and Policies 29 Growth Potential and Constraints 29 Agricultural Development Policy 30 Issues in Agricultural Development Pblicies 32 CHAPTER V - Resource Management in the Plan Period 36 Uncertainties in Resource Management 36 Resource Mobilization 37 Foreign Trade Promotion and Policies 39 The Need for Adjustment 42 Elements of Flexibility in the Plan 43 Table of Contents (cont'd) Page No. CHAPTER VI - Foreign Financing and External Debt 45 Five-Year External Financing 45 External Requirements, 1972 and 1973 4S Borrowing Prospects 48 Debt and Debt Service Prospects 49 ANNEX - Development and Probles of Major Manufacturing Industries APPENDIX - Statistical Tables BASIC DATA - REPUBLIC OF KOEA Area 98,438 sq. km. Population (end of 1970) 32.06 on Growth rate (1970) 2.iv i Density (per sq. km.) 326 Gross National Product Total (1970 at current prices) 2,562 billion won Annual average real rate of growth (1965-70) 11.3% Per Capita GNP (1970) $223 equivalent Industrial Origin of Real GNP (1970) 100% Agriculture, Forestry and Fisheries 26% Mining and Manufacturing 28% Economic Overhead and Construction 13% Other Services 33% Gross Domestic Expenditure 1965 1969 1970 (current prices; as percentage of aDP) Consumption 84 84 Private 84 Public 10 11 11 Gross Capital Formation 14.8 30.4 26.2 Gross Domestic Saving 8.2 19.1 16.3 Public 1.8 6.4 6.4 Private 6.4 12.7 9.9 Resource 2a 6.6 11.3 9.9 Public Finance (current prices, in billion won) Current Revenue 91 370 521 Current Expenditure 81 248 310 Surplus 10 122 211 Capital Expenditure 41 231 221 Receipts from Counterpart Funds 33 17 28 Money and Credit (,anual rate of change in percent) Money Supply 33 46 41 Time and Saving Deposits 112 77 27 Total Bank Credit Outstanding 42 60 32 a/ This figure has not been adjusted by the result of the 1970 censuss which shows an average annual growth rate of 1.9% between 1966 and 1970. 1965 1969 1970 Price Indices (percent increase), Consumer Prices (Seoul) 13.6 10.1 12.7 Wholesale Prices 10.0 6.8 9.1 Balance of Payments (in million U.S. $) Merchandise Exports (f.o.b.) 175 658 882 Merchandise Imports (f.o.b.) -16 -1,650 -1,804 Deficit -241 -992 -922 Receipts from Military Expenditures 74 249 232 Other Services, not -27 -51 -113 Balance on Goods & Service Account -194 -794 -803 International Liquidity (in million US $) Gross Foreign Exchange Reserves 146 550 584 Month's Imports of Goods & Services 43 3 IMF Quota 18.8 50 50 IMF Drawings (outstanding) - 12.5 12.5 Net Inflow of Foreign Capital (in million U.S. $) Grants 203 2kh 180 Loans -3 634 608 Direct Investment - 16 65 Total 200 894 83 External Debt Total outstanding external debt (disbursed) with maturity of over one year at the end of 1970s $1,907 million. Amortization and interest payment on these debts during 1970 was $278 million, or 20.2% of export earnings. Exchange Rate (end June 1971). Bank's selling rate: 370 won to the dollar. OREA KLO s.... rvnco oodr Pacde Kuhwookcho oc.Monn •.d * CHUNCHON UCiHongb Kongnung * •....K A N G W Muk EOUL Wonn "ee. ongri ý3 Cho N...ORg C H N GC H ON .*.. 0 CHONGJU S U T H * '.• Andong CHUNGCG AECSE Changho g * *K,chon 0CHONJU .*GKynl . °••°.*A N G oKWANGJU Mh.san O su sonAN REPUBLIC OF KODRE:A Internabional boundory °" 0oos . Provincial boudary -- -- - - Mo,n roods Railways CongEJn 0 20 4,0 60 a? 100 CHEJU KItOMETERS SEPTEMBER 1971 IBRD 1762R2 SUMMARY AND CONCIUSIONS Recent Economic Situation i. Korea will this year complete its Second Five-Year Plan of develop- ment with one of the most impressive records among the developing countries of economic growth during the 19601s. This year the real growth rate of the economy will probably again be near the 12% average rate for the 1967-71 Plan period. Export achievements, starting from a low base, have been even more outstanding with a probable, gain this year of about 25% and a 33% average annual increase for the five-year period. Most of the export gains have been in manufactured goods; the biggest increases have been in textiles and garments, wigs and plywood. ii. With this economic expansion, the per capita income of the Korean population (now 32 million) has risen sharply from about $115 in 1965 to about $250 at presento This per capita improvement has also been helped by effective family planning efforts and a decline in the rate of population growth from about 3% at the beginning of the sixties to less than 2% at present. Income improvements have probably been unevenly distributed, however. mainly because agriculture has lagged far behind the industrial-urban parts of the economy. Real wages also lagged for a time. However, distribution of the gains of development has probably improved since 1965 because of rising wage increases in line with productivity, improvement of farm prices relative to non-farm prices, movement from agricultural to non-agricultural employment, and supplements to rural income by increasing off-farm employment of farm family members. iii, Heavy investment has been required to sustain Korea's rapid economic growth with the investment rate of the economy ranging in the last five years between 25% and 30% of GNP. This has been well beyond Korean saving capabi- lities, even though the public saving effort has been impressive and the national saving rate has doubled over the last five years. However, with saving at about 16% of GNP (the 1970 rate), the gap between saving and invest- ment remains as much as 10% of the national product. This confronts Korea with chronic difficulties in financial management to meet the investment requirements of the rapidly growing Korean economy. The problem is reflected both in heavy and increasing reliance on external capital inflows and also on continuing credit expansion with inflationary consequences. The extent of monetary expansion has been considerably curbed in recent years and price increases,have been much less than in the early 1960's. Nevertheless, inflation continues at around 10% a year and this, with associated movement of the foreign exchange rates, seems an accepted element of economic policy. iv. Pinancial management problems have been particularly pressing since 1969 when, with a surge of investment of 30% of GNP., the economic growth rate reached a record 16% and capital inflows rose to $900 million. These inflows were largely in the form of loans and investment, in contrast to the early 1960's when they were much smaller and mainly official grants. Hence, debt service has also risen rapidly in recent years to about 20% of exports. v. Because of these 1969 iifbaiances, the Government took measures in 19:70 to reduce the rates of increase ir i-vestment and growth and to curb further expansion in foreign capital requirements. In response to these measures the 1970 investment rate fell, the growth rate came down to about 10%, and foreign capital inflows leveled of. The sharply moderated expan- sion of credit, money supply and prices has continued this year. However, with industrial activity and import demand again running high in the first half of 1971, additional stabilization mearures were deemed necessary. Hence, the exchange rate, which had been rising gradually after the deval- uation of 1969, was again raised sharpi.y in mid-year. This, in combination with related credit restraint, is expected to slow the increase in imports in the second half of 1971 as compared with the first. Nevertheless, there may be some adverse effect on exports from the recent import tax imposed by the U.S., and foreign capital inflows may again be about $800 million or so this year. Foreign debt service will probably be about 21% of exports. Key Development Iasues vi These problems of r6eurce management reflect the underlying difficulty of living with the wide difference between the investment require- ments of rapid growth and domastic saving, Hence, Korea's ability to raise more savings and to manage effectively both domestic and foreign resources will be among the issues of key importance for the future of rapid economic growth. Another of Korea's key problems will be the ability to transform as well as expand the industrial structures while achieving concurrently a large and varied increase in manufactured exports. A third key problem, important not only for economic growth but alac for the quality and general benefits of growth, will be the extent to which productivity and incomes in agriculture can be increased. There are, of course, other economic issues which will be important determinants of Korea's future economic development pattern. But these three, the mobilizatici and management of domestic and foreign resources, the effectiveness of further industrialization, and the improvement of agriculture are perhaps the mcst important, vii., These three problsrs and how to deal with them are given prominent place in Korea's Thiy;d Five-Year Economic Development Plan for 1972-76. Before discussing.the new Plan, a brief further word may be added about the issues which these problems raisee viii, The wide gap between the high investment rates and the lagging saving rates has ben filsd, as indicated, by large increases in foreign borrowing. It is probably unrealistic to expect that net financing from abroad, after deducting foreign debt service, can be relatively as important in-the future as ir. the past. Ware net transfers to continue in the same relative importance, the aiount of gross foreign borrowing, already high at around $800 million would have to reach levels in a few years which would be very large indeed because of the large amount of debt servicing. Hence, the crucial importance of moilising and effectively managing more domestic resources relative t investment in thH future than in the past. ix. The problems of industrialization and industrial export growth are also likely to be somia:hat different during the next few years than they have been during the recent paste Rapid economic growth depends on a still more - iii - rapid growth of industry. And the latter implies a departure from the past pattern of light industrial expansion toward a relatively greater emphasis on intermediate and heavy manufactures. The reasons for this are declining opportunities in the domestic market for expanding light industry faster than the increase in domestic incomes, and the uncertainties that inter- national markets would be able to sustain rapid industrial growth in Korea in the longer run on the basis of light industry. Internationally, the uncertainties stem from severe and probably increasing competition, rising Korean labor costs and foreign market restriction. The shift toward heavier industrialization, while at the same time accelerating industrial exports, may not be easy. Capital intensities in the heavier industries will be higher, lags between investment and output will be longer and the technical problems of capacity utilization may be more complex. While industrial exports will continue for sometime to be mainly the products of light industry, the increasing reliance on domestic capital and intermediate goods may adversely affect costs relative to world competition. These are already high and may for a time be somewhat higher. However, Korea has little choice but to brave the uncertainties of deepening the industrial structure if it is to stay on the fairly rapid course of development of which it seems capable. At the same time, there are difficult considerations in deciding how rapidly and at what expense the deepening process should be pressed and how this may affect industrial export capabilities. At present, exports involve promotion measures which, on average, are estimated roughly to cost 100 won per dollar of export receipts. Rapidly expanding industrial exports, with the possibi- lity of some increase in average unit costs by international comparisons, will raise the difficult question of how large a cost in subsidies to impose on the domestic economy in order to ensure that exports will be kept competitive. It is also difficult to decide on exchange rate depreciation, or export subsidy, or some combination of the two as the best, or least burdensome, way of carrying these export promotion costs. xe The agricultural problem is one of resolving differences among objectives and of devising the technological and institutional means to make better use of Korea's considerable agricultural potential. The problem of objectives centers on rice and the question of emphasis to be placed on further rice development as compared with other agricultural possibilities - and at what cost? Official rice policy is to push rapidly toward self- sufficiency at relatively high rice prices. Rice prices are already high by international comparison, perhaps high enough to keep marginal rice lands from better alternative uses. But this is more than a problem of appropriate incentives for improving rice cultivation and,avoiding excessive concentra- tion on rice. It is, in addition, a problem in distribution because incomes from farming lag behind those in the rest of the economy. xi. Agricultural development, including the exploitation of opportu- nities for greater diversification in crops and livestock will require, in addition to higher expenditures, a considerable advancement in the technology available to farmers, and also better institutions and arrangements for agricultural credit and the distribution of other inputs. The development of improved technologies has lagged. It has been concentrated mainly on rice but even here the selection and dissemination of higher yielding varieties - iv - has been slow. Acceleration depends not only on research and institutional arrangements, but also on improved irrigation facilities and better water management. And with this goes the whole package of inputs and practices necessary for improved rice husbandry. If there are shortcomings of this kind in rice farming, they are even greater in other agricultural pursuits. The problems of improving upland cultivation and livestock management have not really been tackled on any scale. xii. The opportunities appear large for improving Korean agriculture, and financial provision for agricultural development is to be considerably increased. But the course of agricultural improvement is likely to be difficult. The official objective of an average 4.5% rate of agricul- tural growth appears reasonable, given the time necessary to clarify objec- tives, improve water availability and management, and develop and disseminate the technologies and inputs for higher yields and rice and for a more varied agriculture. The time required seems likely, however, to be longer than allowed for in official expectations and plans. Government Policies xiii. Korea's Third Five-Year Economic Development Plan, which is to be implemented during 1972-76, proposes substantial expansion and structural change in agriculture and industry and a very large increase in exports within a.fairly stable financial framework and a manageable balance of payments. The Plan would maintain a still high but somewhat slower, economic growth rate of 8.6% a year, a decline in the rate of increase of investment and imports, large increases in domestic saving, and declining net capital inflows within a more or less constant level of gross foreign capital requirements. Popula- tion growth would be reduced to about 1.5% a year and the per capita income target would be close to $400 (in 1970 prices) by 1976. The Plan also emphasizes a better distribution of development gains than in recent years which would result mainly from an increase in the agricultural growth rate from 3% to 4.5% a year, while industrial growth would slow down from around 20% to about 13%. Investment would also slow down, while savings would rise, thus narrowing Korea's resource deficit to 5% or 6% of GNP instead of the recent 10% or more. It is this combination of trends in investment and saving with a threefold increase in exports which is expected to reduce the net foreign capital inflow and keep gross external inflows of foreign loans and investments to about $4 billion for the five years, or an average of $800 million a year. This is not much more than the recent level, and even with some discount of the export objectives, it would not appear to pose an unmanageable debt and debt service problem. xiv. There is, of course, the possibility that resource requirements, relative to availabilities, may in fact diverge considerably from the Plan, as occurred during the Second Plan period. While the ambitions of the Plan seem justified in the light of Korea's past development record, there appears also to be the possibility of shortfalls in domestic resources and of larger than planned external resource requirements if Korea were to pursue an inflexible course towards the Plan objectives. - v - xv. Uncertainties affecting the Plan resource assessment appear greatest in heavy industrial and industrial export expansion, in the time required to reach the agricultural targets, in possible overruns in invest- ment costis, and in reaching the increased saving targets. In all these respects the objectives of the Plan appear to rest on fairly optimistic assumptions. Assumptions which are less optimistic, but also reasonable, suggest the possibility of much larger resource shortages than indicated in the Plan if the same objectives were to be pursued under less favorable circumstances. xvil Should this happen, external capital requirements could well reach levels which would create serious foreign debt and debt management difficul- ties. The additional foreign financing requirements could be serious if, for example, exports were to fall, say $500 million, short of the 1976 targets, and if the costs of the investment program were to be 10% higher than esti- mated. Both of these appear to be realistic possibilities. Furthermore, there is reason to think that domestic saving could well fall short of the Plan's ambitions, even with a considerable effort, by perhaps 10% or 15%. Should some or all of these contingencies occur, the consequences in terms of foreign financing requirements and external debt and debt service could be quite serious unless Korea were to make appropriate adjustments in its economic plans. On the other hand, an examination of the elements of greatest uncertainty in the Plan suggest that the range of adjustments neces- sary to maintain a manageable domestic and foreign resource position would not be of really serious consequence for Korea's economic aims. Fortunately there would appear to be ample scope within the investment program for postpone- ment, reduction and somewhat longer construction schedules. These kinds of adjustments could offset the effects of some of the adverse possibilities on foreign financing requirements without significantly reducing Korea's economic growth ambitions as set forth in the Plan. Adjustments of the order of 10% would seem possible in the investment program, through reductions and resched- uling, which would not be of critical importance in the medium term to growth in output. These would be mainly in infrastructure programs, especially highways and other transport, and in long gestation industrial and to some extent,agricultural programs. The possibilities for avoiding some shortfall in the saving objectives seem more doubtful. It may be concluded,nevertheless, that there is sufficient room for adjustment in the Plan without departing significantly from the growth plans. The more probable among adverse contingencies that might materialize need add no more than, say 10% or 12%, to Korea's gross external borrowing requirements over the next five years0 This would increase gross external borrowing to about $4.5 billion from the Plan estimate of $3.9 billion. It would represent annual borrowing require- ments of about $800 million a year in 1972 and 1973 rising to about $1 billion a year in,1975 and 1976. For the next two years private credit flows can be expected at about $500 million leaving official bilateral and multilateral borrowing needs of about $300 million a year in terms of new commitments. Such foreign borrowing would not seem an unmanageable prospect in terms of availabilities and debt and debt service requirements. - vi - xvii. Of course, with Korea's large existing external debt, it is desirable that the additional official borrowing be on is favorable terms as possible and that credits continue to be available at concessional rates. While more favorable terms would not have much impact during the Plan period, it would help to keep Korea's debt within manageable limits beyond this period. Assuming average additional private debt on terms of 8% interest and 10 years repayment, and average additional official debt at 7% interest and 15 years repayment, the debt service ratio, allowing for additional borrow- ing as indicated, would be about 21% in 1976 and 16% in 1980. While these are high ratios, they should be quite manageable for a country with the growth capabilities and consequent favorable economic prospects of Korea. xviii. The above is meant to suggest probable ranges of departure from the Plan and their consequences for external financing requirements. Of course, more adverse developments could still occur which would necesitate adjust- ments in economic plans of such magnitude as to curb investment to the point that the 8.6% growth target would have to be reduced. The probabilities of this do not seem high, but should it prove necessary in the interest of keeping within a manageable level of resource requirements, it is the apparent intention of the Government to adjust economic policies accordingly. Adjust- ments to curb the pace of the econony have been made, as noted, since the feverish pattern of 1969. Despite the stabilizing measures that have been taken, however, the pace of the economy during 1971 will probably turn out to have been faster than was expected or planned when policies for the year were set at budget time. Therefore, the adjustment in economic growth from this year's rate of 12% to an average rate of 8.5% for the Plan period, which starts next year, may have to be more abrupt than would have been the case if 1971 had turned out to be a more moderately paced year. Nevertheless, the necessary adjustments should be manageable, and Korea's agreements with the IMF on credit expansion, foreign borrowing, and reserve levels are in accord with this policy. Chapter I RECENT ECONOMIC PATTERNS AND POLICIES Trends in Development 1. Korea is currently continuing along the rapid course of economic development which it has been following since 1963. This year's gain in national output will again be high - probably higher than the 10% real increase of 1970, depending on the still uncertain but promising harvest. The all-time record increase was 16% in 1969. 2, In this rapid growth process, the structure of the Korean economy has been transformed from the sluggish agricultural-rural pattern of the post-Korean War years to the dynamic semi-industrialized urban pattern of the present. Agricultural output, while fluctuating widely with the weather, has progressed satisfactorily by international comparison during the 1960ts, but it has been far outdistanced by manufactured output which has increased by about 25% a year since 1966 and probably will be at about 20% in 1971. 3. Along with manufacturing development, the second outstanding structural shift of the economy has been toward exports. The export sector has grown from negligible proportions in the early 1960's to more than 20% of national expenditure at present. The rate of increase in exports, at 37% a year since 1966, was even faster than manufacturing. Export growth is running somewhat less this year, but the increase is still likely to be about 25% more than receipts in 1970. 4. Korea's unusual export achievements have not, however, meant an easing of balance of payments difficulties. The import requirements of rapid development have been high.,despite the virtual elimination of most finished consumer goods imports through import substitution. The growth rate of imports since 1966 has been just about as fast as for exports. Consequently, trade imbalances have continued and in absolute terms have increased very substantially. The goods and services deficit, which was about $200 million in 1965 was a little more than $800 million in 1970. This year, with imports running somewhat above expectations, the deficit will probably again be as high and perhaps somewhat higher than last year. These deficits have been counter-balanced by large capital inflows into expanding Korean investments, from both public and private sources abroad. These inflows have been more than sufficient to cover the payment deficits so that official foreign exchange reserves have increased from $235 million in 1966 to about $535 million at mid-1971. 5. The domestic side of the large balance of payments deficits has been the considerable lag in saving behind the rising rate of investment. Saving rates have gone up from negligible levels in the early 1960's and behind the rapidly rising rate of investment. The wide gap between saving and investment is indicative of the magnitude of Korea's task in reconciling the pressures of a dynamic economy for expansion with an adequate measure of financial stability. It is a demanding task in fiscal and monetary management to encourage saving, improve resource allocation, promote exports, discourage imports, and foster the inflow of external capital. - 2 - Annual price increases have declined from about 20% in 1963-65 to average during 1966-70 of'about 8% in wholesale prices and about 11% in consumer prices. 6. Recently, particular efforts to moderate the expansionary pressures were necessitated by widening imbalance3 during 1968 and 1969, especially in the foreign accounts. Credit expansion, which had reached over 60% in 1968 and 1969, was reduced by half in 1970 and has been further cut to about 25% in 1971. The exchange value of the won, which has been on a gradual decline since the devaluation of 1969, was further devalued at one stroke by U.5% in June 1971. At the same time, advance deposit requirements for imports were sharply increased, The moderating influence of the 1970 measure did have a marked'restraining effect on imports and on private investment, especially in construction. Deficits on the foreign goods and services accounts leveled off in 1970 for the first time since 1965. The expansion of credit, money supply and prices continued to be moderate in the first half of 1971. However, in other respects, especially industrial activity and import demand, the temperature of the economy rose again in the first half of 1971,and prompted the devaluation and related restraints in June. The effects of these measures on the course of the domestic and foreign economy for 1971 as a whole remain to be seen. The measures are, however, indicative of Government efforts to hold the expansionary forces of the economy within manageable bounds, Structural Change 7. The transformations that rapid growth have worked on the structure, of the Korean economy during the 1960's have been dramatic. At the begin- ning of the decade agriculture conributed about 40% of GNP and manufacturing about 16%. By 1970s the sharE of manufacturing had gone up to nearly 22% and agriculture had come down to 28%. The proportion of the working popula- tion in farm households shifted from about 60% in the early 1960's to about 50% at the present timaQ Even iore spectacular has been the change in the relative importance of madium and large scale industries in industrial out- out. About two-thirds was from radium and one-third from large industries in 1960. By 1968, this division was almost completely reversed.. Industrial- ization also played a key role in the very rapid development of the export sector with 84% of commodity oxports in 1970 consisting of manufactures compared with less than 20% in 1960. Industrial growth has been fastest, exceeding 20% a year during the decade, in textiles, wood products, chemicals (especially fertilizer), petroleum products, electrical machinery, and transport equipment. 8. Accompanying and supporting these major structural changes in the economy has been a large expansion in the infrastructure facilities, as indicated in Table 1. - 3 - Table 1 Infrastructure Expansion in the Sixties 1960 1970 Installed power capacity (000 km) 367 2,288 Freight cars (nos.) 9,541 14,407 Automobiles (nos.) 31,339 129,371 Steel cargo ships and tankers (000 G/T) 119 843 Public roads (km) 27,169 37,247 Paved roads (km) 967 3, h34 Telephone subscribers (nos.) 86,604 481,207 Building permits, industry and business (nos.) 5,733 ('65) 9,679 Building permits, public service and education (nos.) 1,060 ('65) 2,645 Elementary and midd:e schools (000) 5.7 7.6 Water supply (000 m / day) 429 1,729 Population, Employment and Income Distribution 9. The impact of this rapid transformation of the economy on the Korean population (about 32 million at mid-1971) has been substantial but probably uneven. The average per capita income in 1971 is probably about $250 or about 2½ times what it was 10 years ago. The unusually rapid in- crease in per capita income was, of course, mainly due to the large gains in outputs but it was also facilitated by a sharp decline in the rate of population growth from nearly 3% a year in the early 1960's to less than 2% at present. This was the result of an aggressive and effective family planning program and a population apparently receptive to birth limitation; an attitude that has probably been facilitated by the marked economic improve- ments and rapid urbanization. 10. The expansion of the economy also appears to have reduced unem- ployment to minor proportions. Sample surveys of the labor force indicate a decline in unemployment from nearly 8% in 1964 to less than 5% at present. Most of the present unemployment is reported in the non-farm population - probably mainly among new entrants into the labor market and recent arrivals into the cities. Seasonal labor shortages are reported in the rural areas, as is a flow of mainly younger workers from the farms to the cities. 11. Data are lacking on the distribution of the economic gains of the last decade among the population, but the distribution has probably been uneven because of differential rates of growth in the economy - especially between the farm and non-farm populations. This has not been compensated by larger price increases for farm as compared with non-farm products. Rathers until 1969, the prices received have lagged behind those paid by farmers throughoiut the period of accelerated development after 1963. Data on shares in the national income indicate that agriculture's share fell from 40% in 1963 to 26% in 1969, while compensation of employees rose from 31% to 39%, and income from property went from 10% to 13% in the same period. The decline in agriculture's income share was considerably more than the decline in agricultural employment as a share of total employment. To some extent, this disparity may have been offset by increasing contribu- tions to farm-household income from off-farm employment, either part-time or by some family members. Nearly 25% of farm household income was of this nature in 1969, and the proportion was higher among the smaller than the larger farms. It is reasonable to assume that the importance of.these supple- ments to farm income have increased over the last decade, thereby partly offsetting the disparities in the growth rates and prices of agriculture when compared with other parts of the economy. Origins of Rapid Development 12, In 1960 it hardly would have been expected that Korea would achieve one of the outstanding development records of the First Development Decade. It lacks the natural resouces for any considerable processing or exporting activity. And its potentials for rapid economic progress were not very evident during the 1950's and at the beginning of the 1960's. The reconstruction of the economy had been done effectively and the middle years of the fifties were a favorable period for agriculture. But the economic recovery of the fifties depended heavily on the stimulus of reconstruction and external aids and it was a period of severe inflation, export stagnation, and poor economic management. As reconstruction was completed and aid declined, economic growth slowed to little more than the rate of population increase. It was not until 1963 that a sustained revival and acceleration of the economy began. 13. Because of this unusually fast pace of progress in the last eight years, it may be of interest to review some of the elements that have con- tributed to Korea's outstanding economic achievements.l/ 14. Despite Korea's limited natural resources, it is well endowed with the human capabilities for economic success* It has an unusually.well edu- cated labor force which is vigorous and industrious. Laborts acceptance, until recent years, of a lag in wages behind productivity, its adaptability to exacting industrial discipline, and an absence of labor militancy have all been conducive to rapid industrialization. 15. There also appears to be considerable entrepreneurial talent. This is probably attributable to the extensive business management experience which it was possible to acquire during the 1950's for those in a position to take advantage of favorable business opportunities in which risks were minimized by concessional terms for both foreign and domestic financing and by the lag in other costs well behind prices. This may not have been the most solid basis for sustained economic progress, but it did neverthe- less create and provide experience for a group of entrepreneurs whose capa- bilities and resourcefulness under subsequently more demanding conditions of development have been amply demonstrated. These circumstances of the fifties V For a more extended explanation of the social, political and-economic origins of Korea's rapid economic growth, see David C. Cole and Princeton No Lyman, Korean Development# Harvard University Press, 1971. were also conducive to the creation of manufacturing capacity which proved excessive with the completion of reconstruction and declining aid, but which was later available to accelerate the growth of production as the economy revived after the early sixties. 16. The social environment of Korea has probably also been conducive to rapid economic change. For various historical and cultural reasons, the society of Post-War Korea was more fluid and less structured than in most other parts of Asia. Consequently, there was less inhibition of tradition and class to the pursuit of economic opportunity. And there was also little social limitation on the mobility and adaptability of labor. 17. This relative absence of social stratification appears also to have influenced relationships in the civil service and this, in combination with high educational standards and the absence of a long-established civil service hierarchy, are probably important factors in explaining not only the capabilities of the civil service but also its individual flexibility and acceptance of responsibility. The latter perhaps explains the extent of official adaptability and responsiveness to a rapidly changing economy. 18. A national dedication to unambiguous economic goals - almost an identification of economic development and national aspiration - appears to have strongly influenced the recent course of the Korean economy. The determination for economic achievement was undoubtedly strong upon Korea's release from colonialism. But it was a frustrated and diffused determina- tion because of the separation of South Korea from the North where much of the pre-World War II economic capacity was located. Consequently, there was the conviction that the first step toward economic achievement had to be reunification. With this preoccupation of the Rhee regime of the 1950's there was little integrated consideration of the development of South Korea as such, beyond the reconstruction of damage from the Korean War. Ample scope existed, therefore, for the pursuit of diverse individual economic motivations without sufficient central purpose or adequate achievement, and from this spread growing dissatisfaction at the slow pace of economic progress. This dissatisfaction was, however, fragmented by political factionalism even after the overthrow of the Rhee regime in 1960. 19. It was only after the military take over in 1961, that the order of national priorities was changed. It was then recognized that reunifica- tion, other than on the terms of the North, could never precede the deve- lopment of an economically strong South Korea. Hence, economic development of the South became an important and widely accepted national priority, ranking with and complementing defense. The society appears to accept to an unusual degree an identity between individual group and national economic advancement, and this adds the strength of patriotic sanction to the force of private gain as an underlying drive of the economy. This association of individual economic objectives with national aspirations has undoubtedly been conducive to the unusually close, cooperative and mutually dependent relationship between the Korean Government and private business in the conduct of economic affairs, And it helps explain the seeming paradox that the Korean economy depends on private enterprise operating under highly centralized guidance. In Korea this means more than that the Government sets the broad "rules of the game" and influences the economy indirectly through - 6 - market forces. The Government's role is more direct than this; in fact, the Government seems to be a participant and often the determining influence in nearly all important business decisions. This arrangement is generally acceptable to the private sector, probably because business success depends on both Government support and especially Government subsidies which per- vade the economy. It is probably also acceptable because the nature of the direct Government involvement in private affairs appears on the whole, qualified and competent. Finally, the arrangement is acceptable to the business community by the pragmatic test that it works. Whether this will continue to be true as the Korean economy, and especially the industrial sector, becomes more and more complex with continued rapid development, will be interesting to see. Policy Patternsl Industrialization 20, Choices of economic policy and development strategy must also be accorded an important place in the credit for Korea's rapid development. The nature of the strategy and the policies conducive thereto - development led by industrialization, and industrialization led by exports - have been explained at some length in previous Bank reports and elsewhere. 21. It is of particular interest that Korea, in its pursuit of industrialization, avoided the pattern common in the early sixties of depending almost entirely on import substitution behind high protection, and neglecting export production. The necessity to manufacture for export was put in the forefront of Korean development strategy. This was probably partly from foresight, with the nearby example of Japan as a successful guide and probably because there were few traditional.exports which would support even a minimum rate of politically acceptable growth. It was pro-, bably also because of necessity in circumstances of large foreign deficits. There was clear recognition that Korea had to develop a substantial import capability based on the export of manufactures, in the absence of domestic primary resources available for export. It was also clear in the late fifties and early sixties that exports were the only way out of the accumu- lation, at the time, of excess manufacturing capacity. 22. It was perhaps also the concern for an export capability that guided the emphasis of industrialization towards light consumer and other final products and away from the heavier and intermediate goods where costs and capital intensities were likely to be higher. It has undoubtedly been an important aspect of Korea's industrial success that it has concentrated on-industries where the capital requirements were low relative to output,. and that it was willing to rely to a large extent on imported equipment and intermediate goods rather than on higher cost domestic substitutes. These pdlicies have helped the competitiveness of Korean export products. 23. Even so, it is hardly surprising that Korean industry would have been at a serious disadvantage against international competition but for a hd;ghly protected domestic market and substantial subsidies for export,. This combination of protection and export incentives has been a conscious element of the industrialization strategy. And it appears to be under- stood as part of the close alliance between Government and business, that those who are willing to face the rigors and low margins of the export - 7 - market will be adequately compensated, either in the domestic market or with. special export incentives or both. 24. In simultaneously pursuing both import substitution and export promotion, Korea has eliminated most imports of consumer goods and other light manufactures and has increased manufactured exports from less than $10 million in 1960 to over $700 million in 1970, of which over two-thirds consisted of clothing, wigs, plywood and textiles. 25. Trade and industrialization policies have continually posed the issue of the relative reliance on exchange rate adjustments or direct pro- tection againstimports and direct incentives for exports. Korea has relied on both, but exchange rate adjustments have not been sufficient to preclude the need for direct incentive measures. The export incentive measures have been mainly financing at favorable interest rates for equipment and materials needed for export production, waiver of duties on imports for export produc- tion, and generous import allowances for goods to be processed into exports. Rough-estimates suggest that these direct incentives for exports currently add about 100 won to the cost of each dollar earned. 26. The cost of these concessions for the export sector (as well as for producers of import substitutes) must, of course, be borne somewhere in the economy. Partly, the costs are passed along in the form of higher prices for the goods produced. Hence, they fall on the domestic consumers of the goods. Partly, they fall on public resources in the form of revenues foregone from imports and of subsidized credits from the banking systema Consequently, these costs constitute an element in Korea's monetary imbalance and in the problem of inflation, both from the cost-push side through rela- tively expensive import substitution and from the demand side through their contribution to credit expansion by the banking system. 27. On balance, the record of industrialization in Korea, including both substitution of domestic for imported manufactures and the expansion of manufactured exports, has been impressive. Capital cost in relation to output in the expansion of Korean industry has been unusually low, suggest- ing a pattern well suited to Korean capabilities. Even so, it is of inte- rest for Korea and other developing countries, that even a fairly well chosen course of industrialization has required substantial protection and export subsidies. These have added to Korean resource and price problems. Hence, the process of industrial and export development has not been without diffi- cult side effects which are likely to persist, and as will be discussed sub- sequently, may be even more difficult in the future. Agricultural Development and Policy 28. There were substantial gains in agricultural production during the sixties although, .of course, far less than in other parts of the economy. Foodgrain production went up about h% a year on the average and there were still larger increases in many other crops. There were also gains in live- stock and especially in sericulture, fishing and forestry products. Some of the expansion was the result of bringing additional land under cultiva- tion, but there were also increases in yields per hectare of barley, rye, corn and some other grains (but not rice or wheat) and soybeans. There were - 8 - also additions and improvements to the irrigated area, especially in the latter sixties. Farm practices were improved, including a considerable increase in the use of fertilizer, lime and pesticides, and a start was made on the mechanization of agriculture. Impressive gains were achieved among the rural population in the promotion of family planning - more so than in the urban areas. 29. These achievements in agriculture owed much to the emphasis of the Government on rural development including substantial expenditure on irrigation and other improvements. Despite these efforts, however, the results have been uneven, This was partly because of severe droughts in 1967 and 1968. But, aside from this, agricultural performance has been un- impressive in other respects. Rice yields have not improved very much and better planting materials have been developing very slowly. This has also been the case with programs to rearrange paddy fields in order to create a better physical basis for improving farming practices. Credit and coopera- tive programs and related institutions do not appear to have contributed significantly to higher agricultural productivity. And the development of adequate rural road facilities has still a long way to go. 30a On the whole, despite considerable improvement during the sixties, agricultural development has probably been below Korea's agricultural poten- tial. The consequent slow growth in the real income of farm operators was further aggravated during 1964-68 by increases in prices paid for purchases by farmers at a more rapid rate than prices received for farm products* However, farm prices moved ahead again in 1969-70 to reestablish the 1965 parity relationship, And from the standpoint of income, rising off-farm employment of farm family memberb has probably considerably augmented the farm contribution to rural income as previously noted. Hences the lag in rural income has probaoly been less than might be inferred from the course of agricultural groduction. The fact remains, however, that agriculture and agricultural policy have not been major contributors to Korea's economic growth. Resource Policies and Management 31. A critical paxet of Korea s Gavelopment problem has been the limited domestic saving capability fLr financing the large capacity of the economy to make effective use of development resources in rapid expansion. Fpr various reasons, including low incues and large military expenditure, domestic saving was negative in the 1950s and averaged only about 5% of GNP in the first hali of the 1960'so Similarly, current external accounts were in heavy dfiit, Larg& inflows of official foreign aid of over $300 million a year in -he latter 190's and $200 million a year in the early 1960's covered the exchange deficits, and domestic deficits were met by the counterpart of aid together with bank credit expansion. 32. In spite of these sj&!ciies of domestic and foreign resources and associated inflation; polities were aimed at keeping prices of resource inputs low for preferred usas or users within a framework of comprehensive controlso For Goverrment aprovd parposes, capital was available at low interest rates and importo were available at low tariff and exchange rates. Tax measures lagged and uhile there was some rise in the ratio of revenues to GNP in the late 1950's, the ratio fell again in the early 1960's to about 7% in 1964. The result of all this was rapid inflation and mounting trade deficits which reached levels in the early 1960's (about $400 million in 1963) that became untenable when foreign aid dropped off sharply after 1962. 33. Changes in resource policies were clearly required in these circumstances and a series of such changes were made toward the mid-1960's, including devaluation and flexible exchange rates for the won, much greater tax efforts, and sharply higher interest rates, These policies, all aimed at greater domestic mobilization and better allocation of resources and improvement in the balance of payments, were integrated into a resource strategy which was incorporated in the Second Five-Year Economic Development Plan, for 1967-71, now in its final year. 34. In practice, 'the resource strategy proved effective from the standpoint of resource mobilization. The fiscal effort raised the ratio of taxes to GrNP from about 11% in 1966 to 16% in 1970 (and probably also in 1971) compared with the Plan target of 13%. The 12% target rate of domestic savings, which seemed high in 1966 against the backgrouna of Korea's savings record, was exceeded. The rate actually averaged about 15% during 1967-70, and was about 16% in 1970; there was a large response in institutional saving to the higher interest rates. Bank credit to the public sector was sharply curtailed and the expansion of private credit was considerably less in relation to production than in preceding years. The result was that price increasess while still considerable between 1966 and 1970, were less than half the increase of the preceding four years when prices doubled. Exports have risen about fourfold during the Plan period and this year probably will be double the original Plan target of $550 million. 35. Nevertheless, despite this marked improvement in resource manage- ment during the latter 1960's resource shortages continued to be severe and in absolute terms the current exchange deficit and reliance on net foreign financing went up sharply. During 1967-70 inflows of foreign investment and loans, less increases in foreign reserves, increased from $125 million to about $525 million. The gross inflow for the period 1967 to 1971 has been probably about a billion dollars larger than the Plan estimate of $1,669 million of foreign resource requirements. 36. The reason that foreign financing requirements proved greater than expected, despite improved resource policy and management, was clearly the result of much larger investment and more rapid economic growth than expected. Gross domestic investment during 1967-71 was projected in the Plan at about 980 billion won (at 1965 prices) or about 19% of GIIP, whereas the actual level (at 1965 prices) has been probably close to 1,800 billion won and averaged about 28% of GNP during 1967-70. The actual real growth of the economy was close to 12% a year, rather than the 7% growth target of the Plan. 37. Thus, because of the dynamism of the Korean economy, the marked improvement in domestic resource mobilization of recent years has not diminished Korea's absorption of external capital which has continued on an increasing scale. The nature of foreign capital inflows has completely changed, howeverp from the predominantly U.S. grant assistance of the 19507s - 10 - and early 1960ts to the recent external financing in the form of loans, credits, and investments. 38. With the shift from grant to loan financing,.Korea has accumulated a large foreign debt, which, at December 1970, stood at $2,736 million, the service of which has now reached 21% of.export receipts. These large service obligations will add considerably to Korea-s external financing requirements during the next Plan period when about 45% of the outstanding debt will mature* This external debt and debt services and Korea's forthcoming requirements for gross external capital, taking account of both resource deficits and debt service requirements, are subsequently discussed in further detail, - 11 - Chapter II KOREAN DEVELOPMENT PLANS Basic Development Strategy 39. The Government has recently completed its economic planning for the period 1972-76, which is described in the Third Five-Year Economic Development Plan. 1972-76. The Plan presents an assessment of the future growth potential of the economy, related economic objectives, and a consis- tent set of policies and means to reach the objective. It recognizes that the past rapid economic expansion has given rise to strains in the economy that have been reflected in a heavy dependence on foreign capital to finance a high rate of investment, a growing income and productivity disparity between the leading industrial/urban sector and the lagging agricultural/rural sector, and continued domestic inflation which, as already indicated, has led to distortions in price and interest rate relationships. 40. The basic development strategy proposed in the Plan to overcome these problems is the further transformation and expansion of the industrial structure of the economy within the context of a still high, but somewhat slower rate of economic growth, a further rapid expansion of exports and import substitution to reduce net foreign capital inflows, and an adherence to moderate limits on expansionary financing and flexible exchange policies in the interests of a reasonable degree of internal stability and of main- taining Korea's international competititve position. The consequent pattern of growth and structural change would result in a broad industrial expansion including the expansion of the capital and intermediate goods industries, a substantial increase in the range of industrial exports, and further import substitution; the increase of agricultural production and productivity to achieve a greater self-reliance for agricultural products (especially food- grains) and to reduce the income disparity between the urban and rural sectors; and the expansion of the share of exports in the national output which, in combination with higher saving rates, would reduce net capital inflow requirements, slow the rate of foreign debt accumulation, and strengthen the pace toward external financial viability. Thus, the Plan expresses the Government's intention to harmonize ambitions for growth and structural change with needed stabilization, 4l. In pursuit of the Plan objectives, reliance is placed.mainly on private enterprise working in close cooperation with the Government on mutually agreed prograrsand projects. The Government intends to maintain a favorable atmosphere for private development and to engender a firmer financial and organizational basis for private economic activity. The Plan's emphasis on capital market development, alignment of the industrial structure, and greater efficiency of the financial system are all directed towards improvement of economic organization in line with productive capacity of the economy. Moreover, the Plan reflects a strengthening of the planning process itself, for it is the combined product of all the concerned ministries of the Government and of private participation. It reflects a realistic shift in the focus of the planning work from excessive detail to perspective guidelines and policy issues. These changes have been in recognition of the increasing size, complexity and sophistication of the industrial structure and the need for more decentralized decision making. - 12 - Macro-Economic Framework *2. As noted in Table 2, the Plan calls for a slowdown in the growth of GNP (in 1970 constant prices) from the 12% of recent years to 8.6% a year during 1972-76. Xth ts population growing roughly at 1 a year, the per capita GNP would rise by 7% a year to reach US$390 by 1976, compared with about $250 now. The projected slowdown in the GNP growth is indicative of the Government's concern about over-extended economic activities and of its intention to seek a better balance between growth capabilities and a more manageable resource and balance of payments position. Along with the slower growth of output, aggregate demand will also rise more slowly at 9.5% a year, compared with the 15% a year increase that has prevailed in recent years.- This slowdown in demand expansion, including import demand, is to be achieved by curbing the growth of both consumption and investment. Gross investments which increased at more than 20% a year during 1967-70, will be slowed to a rate of 7.6% during 1972-76. The slower expansion of consumption and hence, greater savings would ensure a greater share of domestic resources for the investment needs of the economy. National savings are expected to respond to various policy measures and increase at close to 14% a year. The narrowing of the investment-saving gap is also reflected- in the planned reduction in the current account deficit in the ba3ance of payments from US$623 million in 1970 to US$360 million by 1976. This assumes achievement of merchandise exports of US$3.5 billion by 1976, compared with US$882 million in 1970. In addition to this ambitious program for expansion, the Plan calls for an austere import program which implies further progress in import-substitution and a reduction in the growth rate of import demand from 25.2% during 1967-71 to 12.6% during 1972-76. - 13 - Table 2 Macro-Economic Framework of the Third Plan. 1972-76 Annual Compostion Unit 1970 1976 Change 1970 , 76 (actual) (proj.) (% p.a.) TET$ of GNP7 Gross National Product bil. won; 2,562 4.,257 8.8 100.0 100.0 1970 prices Per Capita Income Population mil. persons 31.32 34.35 1.5 - Per capita GNP 000 won 81.8 124.0 7.3 - Per capita GNP in $ US$ 223 389 7.3 - - Industrial origin Agriculture, Forestry and Fishery bil. won 728 955 4.6 28.4 22.4 Manufacturing and Mining ' I 555 1,187 13.5 21.7 27.9 Social overhead Capital t n 341 686 12.4 13.3 16.1 Others f f 938 1,429 7.3 36.6 33.6 Expenditure and Saving Consumption bil. won 2,131 3,344 7.8 83.1 78.5 Investment it it 668 1,061 8.0 26.1 24.9 Exports " " 432 1,260 19.5 16.9 29.6 Imports a 668 1,08 13.2 26.1 33.0 National Saving " 4 h32 .914 13.3 16.9 21.5 (Government) (175) (319) (10.5) (6.8) (7.5) (Private) " (257) (594) (15.0) (10.0) (14.0) Foreign Saving " " 236 147 -7.6 9.2 3.4 External Trade Exports, goods US$ mil. 882 3,510 25.8 - - Imports, goods " " 1,804 3,654 12.5 - Services, net i " 119 -330 - - Transfers, net t " 180 115 -7.8 - Current Balance it -623 -359 -9.6 - Source: The Governent of Korea, The Third Five-Year Economic Development Plan (A Draft Translation), 1972-1976. -14- Social Development 43. The Third Plan places greater emphasis on the social aspects of development than the Second Flan. This does not mean that social achievements have been lacking in the past. Korea has an outstanding record among developing countries in education and family planning, and it is one of the few developing countries without difficult unemployment problems. Living standards in the urban and many of the rural areas have improved substantially. 44. There are, however, important social problems to be dealt with. Among these are the inequities in the distribution of income gains, as indicated, due mainly to the relatively slow progress in agriculture. Other social problems include inadequate development of infrastructure and many of the amenities of life in the rural areas; end urban shortages of low cost housing, water and other services, and environmental improvements. These shortcomings are now publicly recognized and the Third Plan provides for corrective measures in these respects, as well as continuing efforts in e:,:1cation and population control. 45. Primary school enrolment is now almost 100 and enrolment is more than 50 at middle level, both in urban and rural areas. This reflects widespread educational ambitions and Korea's high priority of long standing for education. Recently, the opportunity for middle school education has been made virtually universal by removing the entrance examination. Pre- vious shortages of educational facilities, which had necessitated two and three shifts in urban primary schools, have been nearly eliminated. During- the Third Plan period, the emphasis of education policy will be shifted to further development of middle and high schools. Primary school enrolment may decline, reflecting the declining birth rate, but enrcolment in the middle schools is expected to increase by more than 50 , and in high schools, by almost two times between now and 1976. Curricula will also put greater emphasis on technical and vocational education. Since the urban-rural gap in the quality of education seems to be growings the Plan also stresses qualitative improvement in rural areas. About 10 of total public capital outlay, or about the same proportion in the 1967-71 period, has been allocated for these objectives in the Plan. 46. In rural areas, despite rising off-fan employment and income of farm family members, the problem of low and lagging income of farm house- holds relative to urban income remains. Hence, the Plan emphasis on agri- cultural development and on support for foodgrain prices. Rural living standards are also less than satisfactory because of underdeveloped rural infrastructure and regional differences in development. For example, doctors and hospitals have been increasing much faster than the population, but they are overly concentrated in urban areas (one-third of' the doctors practice in Seoul). Few potable water works have been carried out in rural areas and much of the countryside has no electricity. Rural roads usable by trucks are yet little developed. Against this background, the agricultural program of the Third Plan includes substantial expansion of rural roads, rural electrification and rural health services, and subsidies for rural housing improvement. - 15 - About one-fifth of the proposed increase in expenditure on agriculture is for rural roads and other improvements of rural infrastructure. 47. Bacause of increasing rural migration, Korean cities have become increasingly overcrowded in relation to housing and urban services. For the country as a whole, housing units fall short of the number of existing households by over 20%j but in Seoul and Pusan, the two major industrial cities, the shortage is over 50%. Most new private housing is for the middle income group, and a large part of the low income group is inadequately housed in these city areas. Between now and 1976 800,000 new housing units are proposed to alleviate the shortage, but this is just sufficient to prevent the situation from becoming worse. With the growth of the economy remaining high, migration continuing, and capital likely to be scarce, significant improvement in urban housing seems hardly to be expected except over a long period of time. Planned public investment for housing will make an important contribution, but it still will account for less than one-sixth of the estimated require- ment of 800,000 units. The remainder depends on private resources which are not all likely to materialize. 48. Water supplies are also emphasized in the Third Plan. Some progress has been made in potable water works in major cities during the Second Plan period. In the Third Plan, further improvements will be carried out in large and medium-sized cities as an integral part of the major river basin development plans. With the proposed projects, the part of the urban popu- lation served with piped water would increase from 36% in 1970 to S0%, and per capita water consumption would be substantially increased. Urban trans- portation improvements are also planned, the largest being a subway now being built in Seoul to ease the severe traffic congestion. It is expensive, with an estimated cost of $230 million or one-sixth of the public capital outlay for transportation. Sectoral Development Policies and Investment Allocation 49. The sectoral development strategy and policy objectives adopted in the Plan appear well.formulated in relation to Korea's needs and growth capabilities. The structural transformation of the economy envisaged in the Plan, such as establishment of heavy industries, diversification and expansion of exports and pgricultural development, seems to be the logical next phase of Korea's economic development. 50. As indicated in Table 3, gross public and private investment (at 1970 constant prices) is projected at 4,525 billion won during 1972-76. The sectoral allocation of investment reflects the Government's emphasis on agricultural development; the latter's share in total planned investment will almost double compared with the previous Plan period. The burden of the overall investment restraint, therefore, is reflected in slower increases and relative declines in investment in overhead capital and service facilities generally. The share in total investment of industrial investment would also decline but only slightly. - 16 - Table 3 Investment Allocation by Sectors, 1972-76 (billion won; 1970 market prices) Composition in % 1967-71 1972-76 1267-71 1972-76 (est.) (proj.) Agriculture, Forestry and Fishery 189.0 536.1 6.3 11. Mining and Manufacturing 883.0 1,301.9 29.4 28.8 Mining (28.9) (66.6) (1.0) (1.5) Manufacturing (854.1) (1,235.3) (28.4) (27.3) Social Overhead and Other Services 1,927.6 2,686.5 64.3 59.4 Power ) 252.4 ) ( 5.6) 'Transport ) (l,064.7) ) (23.5) Education ) n.a. ( 202.6) ) n.a. ( 465) Houiing ) ( 382.7) ) ( 8.) Others ) ( 754.2) ) (17.4) T2al 29 6 4,524.5 100.0 100.0 Source: The Government of Korea, The Third Five-Year Economic Development Plan (A Draft Translation), 1972-76. 51. In the agricultural investment programs, the major emphasis will be placed on dissemination of improved seeds, farm mechanization, rearrange- ment of paddy fields and establishment of irrigation and drainage facilities, all prereqAisites to increased and stable grain production and progress toward foodgrain self-sufficiency. An important element in the work on water resources control is the comprehensive plan for the development of the four major river basins that is to be carried out in the coming ten years. In recent years, agricultural investment has been stagnant and implementation of a more ambitious investment program would require considerable efforts on the part of the Government in terms of investment planning and needed re- sources* The Plan calls for 80% of the needed capital outlay for agri- culture to be financed by the Government. 52. In the manufacturing sector, deepening of the industrial structure is emphasized. Over one-half of the manufacturing investment would be directed towards the establishment of the so-called "four key industries;" namely, integrated iron and steel mills (including production of foundry pig iron and special steel), machine tool industries, shipbuilding industries, and an array of inter-related petrochemical industries. - 17 - 5). As regards the social overhead capital, the Government has a rather abitious investment program for improvement and expansion of the transport system, parts of which have been lagging behind the fast pace of industrial- ization and urbanization. Following the completion of a highway system connecting the two major industrial areas of the country, an important part of the investment fund will be allocated for construction of additional trunk highways, modernization of the railway system and expansion of major ports. Because of previous heavy investment, the bottleneck of power supply has been eased and at present, some excess capacity has been created. Planned investment, therefore, while making some provision for growing demand, will emphasize transmission and distribution systems. In education, the emphasis will shift from primary to secondary and technical education, since the former need has been largely met and henceforth, will require less rapid expansion. Table 4 Government Capital Expenditure, 1972-76 (billion won; 1970 market prices) Coposition in % 1967-71 1972-76 1967-71 1972-76 (est.) (proj.) Agriculture, Forestry and Fishery 241.3 371.4 26.7 28.7 Mining and Manufacturing 123.5 137.0 13.7 10.6 Mining ( 19.2) ( 31.1) ( 2.2) ( 2.4) Manufacturing (104.3) (106.0) (11.5) ( 8.2) Social Overhead and Others 539.5 787.8 59.6 60.7 Power ( 31.3.) ( 23.1) ( 3.4) ( 1.8) Communications ( 82.8) (149.5) ( 9.2) (11.5) Transport (245.5) (344.7) (27.1) (26.6) Education ( 90.9) (142.1) (10.0) (10.9) Others ( 89.0) (128.5) (10.9) ( 9.9) Total 904.3 1,296.2 100.0 100.0 a/ Includes government investments, capital transfers, and other expenditures for development purposes. Source: The Government of Korea, The Third Five-Year Economic Development Plan. (A Draft Translation), 1972-76. - 18 - Domestic Resource Mbilization 5h. According to the Plan, national savings are to grow frm 16.8% of GNP in 1970 to 21.5% in 1976. This would imply a marginal savings rate which would average 30%, the same as the average for the period 1965-69 (after correcting for the short-term fluctuations due to stock changes). With this mcobilization of national resources some 80% of planned investment would be provided from national savings, compared with 47% during 1967-70. It should be noted, however, that the saving targets involve a more ambitious increase compared with recent years than the above figures would indicate. Resource mobilization in the Plan is considered in terms of national savings which represents the balance of domestic saving remaining after interest on debt and other net factor income payments abroad. In practice, the factor income account is likely to deteriorate. In 1971, for the first time in the past two decades, there will probably be a net outflow on the factor income account because of the expected decline in troop and civilian remittances from Vietnam and the rapid rise in interest payments. This will probably be a continuing trend, and the net outflow may amount to as much as 2% of GNP by 1976. The impli- cation is that domestic savings would have to rise from the 1970 level of 16.3% of gross domestic output (GDP) to 23% or 24 of GDP by 1976, in order to reach a 21% or 22% rate of national saving. 55. The savings targets also imply significant changes in composition; the share of public savings in GNP would remain at 7.5% during 1972-76, a rte that is only slightly higher than recent years. Private savings would, however, rise from 10% in 1970 to 14% in 1976. In recent years, the marginal propensity to save in the public sector has been in excess of 50% and the shift in emphasis to the private sector, while at the same time maintaining the overall marginal saving propensity in the economy, would require a substantial improvement in the willingness to save among private groups, the implications of which are subsequently discussed. 56. Moreover, with the increase in private savings and also in the relative importance of public investment, there would be significant changes in the intersectoral flow of investment funds. In the past, the public sector has usually shown a surplus, a large portion of which was channelled through the banking system at concessional rates for industrial financing. According to the Plan, however, the public sector would no longer be a net supplier of funds to the private sector, but would itself be running a deficit which would have to be met, in accordance with Plan financing, largely through foreign savings. The Contribution of Exports 57. The plans for merchandise exports of $3.5 billion in 1976 would, as indicated, depend mainly on manufactures which would be 90% of the total in 1976, compared with 84% in 1970. Planned changes in the composition of exports are indicated in Table 5. - 19 - Table 5 Plan Export Targets for Selected Commodities (million US $) Actual Projected 1970 1976 Agricultural Products 26 98 Marine Products 72 183 Mineral Products 47 56 Manufactures 737 3,218 Silk 38 97 Plastics 2 76 Plywood 92 158 Textiles 85 462 Clothing 21 692 Iron & Steel Plate, Metal Products 2 29 Electrical Machinery 44 554 Transport Equipment 9 124 Footwear 17 122 Wigs 101 327 Other 110 457 Total 882 3,55 Source: The 1970 data are from Bank of Korea, Economic Statistics Yearbook, 1971; data were provided by the Ministry of Commerce and Industry. 58. Receipts in the service.account are projected to increase from $497 million in 1970 to $548 million in 1976. While earnings from freight, tourism and other miscellaneous services are expected to expand rapidly, it is expected that these gains will be largely offset by a decline in receipts from Vietnam and UN forces in Korea from $292 million in 1970 to $63 million in 1976. On balance, total exports of goods and services are projected to rise from $1,379 million in 1970 to $4,058 million in 1976 and to increase in relation to GNP from 17% to 30% over the same period. - 20 - Imports 59. The Plan calls for increased use of domestic raw materials in export products, and the import content of exports is projected to decline from about 45% to 37%. The major thrust of the import substitution is expected to be in the textile and clothing industries with the completion of the petrochemicals industry, and in electrical appliances and components through accelerated development of electrical parts and equipment by means of domestic content regulations. 6P* Under the agricultural development program it is expected that Korea will be self-sufficient in rice by 1976 and that only wheat and corn will be imported at that time. Imports of other grains, which were about $100 million in 1970, are projected to rise to $150 million by 1976. Petro- leum imports are expected to rise from $133 million in 1970 to $416 million in 1976. This rapid growth reflects bhe expected increase in demand that will follow the completion of the petro-chemical complex, the higher costs of crude oil and the shift in fuel consumption expected with the growth of national income. Remaining imports for domestic raw material use and for fnal consumption are projected to grow from $628 million in 1970 to $1,056 million in 1976, at an dverage rate of 9% a year. ILth industrial output for the domestic market expected to grow at about 12% a year during 1972-76, this relatively slow increase in imports would seem to imply quite a sub- stantial degree of import substitution, together with only a small increase in consumption goods imports. Payments on the service account are projected tp rise from $378 million in 1970 to $878 million in 1976, largely because of a sharp increase in interest payments on foreign loans, dividend remittances and further increases in freight payments. Thus, imports of goods and services are projected to rise from $2,182 million in 1970 to $4,629 million in 1976 at an average rate of growth of 13.4% a year. This, as noted, would be far less than the rate of increase in imports in recent years. The value of imports*in relation to GNP would rise from 26% in 1970 to 33% in 1976. 61. With the ambitious export promotion and import substitution program, the planned trade deficit would fall from about $920 million in 1970 to $140 million in 1976, thereby reversing the trend that developed in the Second Five-Year Plan period. On the other hand, the service account is expected to show a deficit in 1971 in contrast to the long-standing surpluses, and by 1976 this deficit is projected to rise to about $330 million. Thus, the deficit on the goods and services account would decline from about $800 million in 1970 to $470 million in 1976 if these policies succeed to the extent called for in the Plan. The Role of Foreign Finance 62. If the export and import targets were to be realized, the cumulative deficit on the goods and services account would amount to about $3 billion during 1972-76. The Plan calls for an increase in foreign exchange reserves of $440 during 1972-76 to maintain them at about 2 months worth of the planned imports. Amortization of foreign loans is expected to require another - 21 - $1,780 million. Thus, as indicated in Table 6, the total foreign exchange requirements to be met by transfers, direct investment and loan capital is projected to be about $5.3 billion during 1972-76. Table 6 Plan ForeignExchange Budgett 1972-76 (million US$) Foreign Exchange Required 277 Goods and Services Deficit Increase in Reserves h3 Amortisation./ 1,779 Foreign Exchange Sburces 277 Transfers (net) Direct Investment 380 Short-term Loans (net) 308 Medium and Long-Term Loans- 3,921 a/ Including trade credits with maturities of one year or more. 63. The above estimate of net transfers takes account of a probable increase in private transfers from Koreans residing abroad and the expected decline of official transfers from the U.S. Government to a negligible amount by 1976. Transfers from the Japanese Government under the Normalization Treaty are expected to remain at $30 million a year until 1975. The Plan calls for a level of direct investment of about $75 million a year which is only slightly more than the rate of inflow that has prevailed in 1970 and 1971. 64. The net inflow of short-term credits (maturities of less than one year) is to be held at about $60 million a year during 1972-76. The remaining foreign exchange requirements of about $3.9 billion would be met by foreign borrowing of medium and long-term loan capital. At $780 million a year, the gross inflow of loan capital would be only a little higher than the average commitments of about $725 million (both official and private) during 1969 and 1970. Despite the planned increase in the gross inflow of loan capital, the net transfer of loan capital (disbursements less amortization and interest payments) would fall from $350 million a year in 1967-70 to an average of about $200 million ayear during 1972-76 because of Korea a rising debt service obligations. Uncertainties in Plan Execution 65. Despite the fact that Korea has set its sights on more moderate expansion of the economy than in recent years, some of the quantitative targets set out in the Plan appear very ambitious, both with respect to their output - 22 - and structural objectives and their resource requirements. In the Plan design, the three major objectives, namely, industrialization, redress of a lag in agricultural income and improvement in the domestic resource and balance of payments positions, are closely interrelated. The extent of progress toward any one of them will depend,in part,on progress toward the others. 66. For instance, the contemplated balance of payments improvement presupposes that the industrialization progran should supply a rapid expansion of competitive industrial exports and substitute domestic output for imports in meeting part of the growing demand for industrial intermediate and capital goods. More rapid agricultural development, especially increases in foodgrain production and greatly reduced import demand for cereal, is another necessary condition for the balance of payments objectives. 1-brthermore, the balance of payments improvement implies achievement of saving targets which are ambitious but nevertheless, essential to the financing, with adequate stability, of the industrialization, agricultural development,and other planned programs. Finally, there is no margin in the Plan to cover cost overruns or resource shortfalls which may materialize in meeting the financing requirements of planned expansion in capacities, output, and service facilities. 67. Given the degree of uncertainty about these and other variables in the Plan, it is hardly likely that progress of different elements of the Plan would proceed toward the major objectives just as postulated. If divergences and imbalances should arise in the execution of the Plan, adjustments will obviously be necessary to re-establish material balances and match resources and requirements. The Korean Government has not attempted in its Third Plan, to consider the more probable contingencies and to relate these to specific adjustment possibilities in the Plan. The nature of uncertainties in these areas and their possible implications are discussed in the next three chapters. - 23 - Chapter III INDUSTRIALIZATION: PROBLEMS AIND POLICIES Industrial Strategy 68. The Government's strategy, for industrial development is to move beyond expansion of light industry manufactures into intemediate and capital goods, especially metals, machinery, transport equipment and petro- chemicals. This appears essential in Korea's further industrial develop- ment, for the following reasons. Firstly, Korea imports few finished consumer goods, as shown in Appendix Table 3.5, and this suggests that the "easy" import-substitution phase in finished consuner goods is about over. Domestic demand for light industry goods is not likely to provide sufficient stimulus for further rapid industrialization. 69. Secondly, past patterns of export stimulation of light industry are changing rapidly. About half of value added in light industries origi- nates in the textile industry, and this could not have been achieved with- out growing export demand. The same can be said of plywood, footwear and wigs, which have also been important contributors to industrial expansion. It seems unlikely that export stimulation of these and other light indus- tries will be as intense in the long run as in the past, especially with severe and increasing competition from Taiwan, Hong Kong, Singapore and possibly Mainland China. 70. Thirdly, with a relatively shifting emphasis toward heavier industry the net foreign earnings from given exports of light manufactures can be ex- pected to rise as the import content of intermediate and capital goods is replaced by domestic production. At present, net foreign exchange earnings of Korea's exports as a whole amount to slightly over 50% of gross foreign exchange earnings, and if indirect import requirements are considered, the ratio of the net to gross foreign exchange earnings is further reduced to less than h0% fovpost of Korea's export goods such as textiles, plywood and electronics. 71. These prospects suggest that Korea's future industrial development could continue relying on further expansion of light industries for a time, but that to an increasing extent the maintenance of rapid industrialization will have to include a deepening of the industrial structure to produce inter- mediate and capital goods for both the domestic market and for export in spite of the uncertainties, risks and costs that this may involve in the early phases, and the uncertain impact this may have an export costs and capabili- ties in the initial years. Eventually, Korea will also probably have to aim at specializing in the development of particular lines of capital and inter- mediate goods for export and especially in those areas where technology can make a large contribution to value added. Some beginnings in this direction are proposed during the forthcoming Plan period, but for the time being, the 1/ Korean Trade Research Institute, "Measures for Increasing Foreign Exchange Earning Rntios", 1969. - 2. - impact of heavy industry development will be limited mainly to import subs- titution of intermediate and capital goods and reduced import content of light industry exports. A basis for future export diversification will be laid with the prospect that some heavy industry products,such as iron and steel plates and other metal products, ships and machine tools could be exported around the middle of the decade. 72. This emphasis of Government industrial policy is clearly seen in the following comparison of the composition of actual manufacturing invest- ments in 1966-68 with the planned investments for 1972-76. Table 7 Average Composition of Past and Planned Investment in Manufacturing (in percent) 1966-68 1972-76 Metal and metal products 8.7 14.3 Machinery and transport equipment 13.5 16.8 Chemicals and petroleum 12.0 17.4 Textile and clothing 24.6 16.5 Others 35.0 Total 100.0 100.0 Source: Data provided by the Economic Planning Board and originally based on Report on Mining and Manufacturing Census, 1966, 1967, 1968. 73. For the Third PLan, unlike the Second Plan, the manufacturing in- vestment program is primarily a framework of Government's industrial policies, a core of a few key industrial Drolects. and an indicative program for the remaining industrial objectives. The Government's industrial investment accounts for only 10% of the total planned investment in manufacturing. It consists of an investment in the POSCO integrated iron and steel mill, a subsidy fund for promotion of the machinery industry, a small amount for the petro-chemical industry, and a loan fund for small and medium-scale indus- tries. The remainder would have to be provided by the private sector. The greater part of this private investment is not related in the Plan to specific projects. Less than 30% of total industrial investment has already been identified with particular private purposes and sponsors. Therefore, much of the private investment program is indicative in nature as noted, and its size and content will depend a great deal on the Government's industrial policy, especially its incentives policy; on the demand outlook, particularly A the electronics and textile fields; and on the outcome of detailed indus- trial project studies which are still to be undertaken-including studies of some already identified projects. - 25 - Problems and Prospects of Industrial Development 7h. For various reasons production in heavy industry, for a time at least, may be costlier in Korea than in more developed industrial countries, while technological and operational experience is acquired. Industrial pro- gress will depend on a pattern of inter-industrial linkages, many of the elements of which still have to be established, and which, at this time, re- main rather vague. This is to be expected, but it increases the degree of uncertainty associated with industrial prospects. Internal demand for iron and steel, and related metallurgical industries will depend on expansion of shipbuilding, automotive and other engineering industries. Similarly, demand for petro-chemical products is to come mainly from the synthetic textile industry. Therefore, whether metallurgical and petr:o-chemical industries would be able to secure market outlets and adequate capacity utilization would be critically influenced by the success of user industries in expand- ing their production. 75. Another uncertain aspect of industrial costs relates to wage increases. Wages are low and still compare favorably with those in Taiwan, Hong Kong, Singapore and the Philippines. Recently, however, the wage rate in Korea's manufacturing industries h s been rising in dollar terms at a rate faster than in these countries. The nominal wage increased at 21% a year on the average since 1965. This is much faster than in the early 1960's when productivity gains exceeded consistently the average wage gains. In fact, there was probably some decline in real wages between 1960 and 1965, whereas productivity went up by about 10% a year. Since then, real wage gains have equalled productivity gains, both rising at an average annual rate of about 12%. (See Appendix Table 9.2). Despite this, the continuation of rapid industrialization after 1965 suggests that investment incentives have remained very favorable even with this changing wage-productivity relation- ship. Perhaps this is explained by relative stability in imported raw material prices amid general price increases, and that this supported profits even though real wages were rising relative productivity. This may be less true in the future if, because of a more flexible exchange rate policy, imported raw material costs move more closely in relation to internal prices. Unit costs may also be adversely affected where capital-labor ratios are in- creasing and there is relatively greater dependence on domestic sources of finance which convey higher interest costs. It seems unlikely that the up- ward pressure on wages will abate in future, especially if, as in the past, the demand for skilled industrial labor increases at a fast pace, as heavier and technologically and organizationally more sophisticated industries assume greater importance. 1/ This is partly because the exchange rate adjustment had been slower than the internal price movement. However, even if the devaluation of won in June, .1971 is taken into account, Korea's wage increases in the last few years seems to have been the highest among those countries mentioned above. - 26 - 76. Consequently, in the initial phase of heavy industry development, a certain degree of costliness in production and possibilities of cost- overruns in investments may be inevitable. Furthermore, delays in domestic production may mean more imports than planned. Hence, full implementation of the industrial development program and achievement of the target for industrial exports might require more resources in the form of investment funds and export and other incentives than provided for in the Plan framework. The Role of Government and Government Incentives 77. Because of cost considerations and the need to ensure that private investment will be forthcoming according to industrial objectives, the per- suasive involvement of the Government in the industrialization process will probably continue, along with the continuing and perhaps increased importance of special incentives to sustain the planned pace of industrial production and industrial export. The Government has taken the lead in the development of heavy industries, has identified those heavy industry projects which are regarded as essential, and has proposed them to the private sector for their investments. Therefore, although private sponsors are responsible for costs, efficiency and profitability of their own investments, the Government is equally committed and probably stands ready to remove as much cf the uncer- tainty as possible in order to enasre these investments by private sponsors. Thus, the Government is expected to continue its highly selective and purpose- ful incentive and protective policies for the "privileged" sector, in return for their undertaking investments considered essential for national industrial development. 78. In view of the wide range of uncertainties involved, attainment of the Plan targets will require continuing encouragement of exports. It would seem that the burden of export promotion will continue to fall on some combination of devaluation and direct export incentives. The Government has indicated that it will maintain the exchange rate at a realis- tic level to prevent the scope of subsidies from growing, although there may be strong pressures to maintain the existing set of export incentives, which, with the export program, could impose a substantial financial burden on the remainder of the economy. 79. Increased reliance on exchange rate adjustments in preference to other kinds of incentives will tend to reduce some of the distortions that have arisen under the present scheme, but without modifying the existing set of direct incentives much of the distortion will persist. It has been argued elsewhere that costs in export industries may tend to rise more rapidly than the general level of prices in the economy because of the cost raising effects of import substitution that will be concentrated in some of the important export serving industries and, hence, adjustment of the exchange rate in line with the movement of the general level of prices in the economy may not be sufficient to maintain the competitiveness of exports. In the absence of more rapid adjustments, there may be a tendency to rely more heavily on direct incentives as in the past. In fact, the Plan indicates that n..to encourage the use of domestically produced raw materials special favor will be given to those fins that use and produce raw materials for exports and preferential credits with loan interest All be extended for production facilities and its operation." - 27 - 80. However, if the present system of preferential finances were to be continued, domestic credit supply through preferential finances would become very large indeed as the relative size of the "privileged" sectors increases. If the Government were to achieve its stated objective of price stabilization, and at the sane time, maintain the existing arrangements for preferential financing, the non-privileged sector would face an increasingly tight liqui- dity position. Thus, although some preferential finances will undoubtedly continue to serve useful purposes, there is a need to review the scope of the present system in the light of the Government's intentions with respect to exchange rate adjustments. 81. Exchange rate adjustments and tariff reform are expected to enhance the profitability of import-competing industries, which, in recent years may have been declining since domestic prices of these goods have increased much less than wages. Commodities produced for the domestic market to a large extent, must rely more heavily on locally produced materials and the prices of these materials have risen pari passu with the increase in the general price level. In these circumstances, the maintenance of a realistic exchange rate would give inducement to import substitution, especially in raw materials and intermediate products which have been penalized by the past low exchange rate. 82. In the past, quantitative and financial restrictions rather than exchange rate and tariff policies have been the major instruments of import policy. However, according to the Plan, administrative controls over imports are to be relaxed and the tariff system reformed. The existing multiplicity of policy instruments used in import control makes it difficult to judge the extent of protection afforded to individual industries. Although the legal tariff rates have been set relatively high, the process of import substitution has been hampered by the extensive practice of granting tariff reductions and exemptions for particular industries and for export promotion. Continuation of the practice of rebating import duties for export and the system of linked imports is likely to further distort domestic price relationships and allow for substantial increases in import demands. To the extent.that entrepre- neurs can use duty-free imported materials for the manufacture of goods for sale in the domestic market, very high profits can be realized. In principle, this is not supposed to be possible but it is in fact, important in practice. There are, consequently, strong incentives to import as much raw materials and intermediate goods as possible with duty exemptions at the expense of foreign exchange and loss of public revenues. 83. There is a recognition that the existing system of import controls will not provide a set of incentives consistent with the industrial develop- ment objectives spelled out in the Plan. The Government is reviewing the existing tariff and control system, but it is a matter of conjecture as to how far the Government will go in moving towards a rational and integrated tariff system. There will undoubtedly be strong pressures to lean more heavily on the system of exemptions and rebates for export promotion rather than on exchange rate adjustments and unless resisted this will be to the detriment of import substitution industries. Korea will also have the usual difficult problem of finding a balance between competitive exposure in the interests of efficiency and sufficient incentives including enough protection to sustain the momentum of the industrial sector. - 28 - Conclusion 84. By and large, the industrial development strategy adopted by the Government for the Third Plan period seems appropriate, although specific policies and investment proposals remain to be prepared in detail. However, many difficult problems will have to be solved at the implementation stage, the most important of which is the problem of costs and efficiency. Although investments in heavy intermediate and capital goods industries, and exports ofkthese products, will reduce the degree of dependence of Korea's manufac- turing sector on imported materials and machinery, and thus improve the balance of payments in the long run, this will not necessarily be the case over the next several years. Hence, the importance of concern,.in the implementation of industrial policy, with costs and efficiency of investments and operations.and with economies in the use of imported and other materials. Of.*course, certain cost disadvantages in the initial phase of heavy industry development are probably inevitable. It is important, however, to limit their adyerse effects on other parts of industry and the economy generally and on the,balance of payments to a point where they could be offset by practicable incentive and protective measures, which would not became excessively burden- sopne. Such burdens, and their impact on public finances, on costs to domestic users-and consumers, on exchange rate policy and protective requirements are obviously important considerations in the appraisal of new industrial proposals. -29- Chapter IV AGRICULTURAL DEVELOPMENT: PROB1LEMS AND PGLICIES Growth Potential and Constraints 85. Because of lagging agricultural development in the sLxties, the Government attaches high priority to expansion in agricultural output and higher rural living standards in the Third Plan period. These objectives are expected to contribute to balance of payments improvement and to some reduction of income disparity between the urban and rural population. 86. The emphasis on agricultural development in the Plan is also based on the recognition that Korea's agriculture in the past has not taken full advantage of development potentials available in the form of natural re- source endoment, technology and human resources. To begin with, Korea's agriculture is mainly concentrated in river valley areas and this concen- tration in limited land space, in combination with the rural population pressures led to a small size of fan units, typically less than three hectares. At the moment, much of the piedmont and the high uplands remain little used, but these have good development potential. The opening up of new land, and the more productive use of forest land, can lead to more and larger farm units and can be expected to stimulate the rate of technical change. 87. Secondly, Korea has substantial water resources awaiting develop- ment. Its four major river basins generate more than 100 billion cubic meters of water a year, of which less than 10 billion cubic meters are harnessed. Drought and flood damage are significant, and only about three- fourths of rice fields in these major river basins are irrigated. 88. Thirdly, more improved technology can be usefully applied to Korean agriculture in many forms. Korean farmers have not yet been able to draw upon improved seeds and planting materials which could increase the present low yields of most important crops and which would make crop diversification possible and profitable. Management experience shows that a basis already exists for more rapid livestock development. Moreover, with the number of rural households and agricultural employees declining, there are opportuni- ties to introduce mechanization on a larger scale. 89. All these potentialities are backed by educated, disciplined and hard-working farmers. The major reason for the past unimpressive perform- ance, despite these resource potentials, was delays in reorganization and modernization of the agricultural activities in line with possibilities for improvement in technologies, more effective institutions in support of agriculture, and other available economic opportunities* Absence of a well-conceived agricultural development strategy was partly responsible. Although the Government has placed heavy emphasis on rural development in recent years and has made substantial resources available to the sector through credit, subsidies, price supports, and direct expenditure, the M30- results have been leas than satisfactory, with the exception of the poultry industry which has developed rapidLy and special crops such as mushrooms and sericulture which have been effectively promoted. The long-term invest- ment program for management of water resources in the major river basins is about to enter the project implementation stage# but an attempt to explore the potential of the uplands has begun only very recently. Rearrangement of paddy fields, to consolidate, grade and otherwise improve individual plots for more efficient use of labor, water and machinery, has moved slowly. 90. As indicated elsewhere, higher yielding planting materials have been developed more slowly than might have been expected. This has been true with rice and even more true of other crops which have been given low priority compared to rice. In the case of rice, a high yielding variety (IR 667) has been developed. So far it has not been widely disseminated but experience to date indicates that it tends to shatter and break and does not agree with Korean taste. Uldespread use is planned to begin in 1972, but meanwhile research and experiment is concentrating on further development of promising new varieties that do not have the disadvantages of IR 667. Nevertheless, because of the considerable variation in Korean farming conditions many varieties of rice (more than 80) are cultivated. Until the breeding program can provide a wider range of improved varieties for these diverse conditions# a large number of farmers will have to con- tinue to depend on existing local varieties, many of which are low yielding. An excessive number of barley varieties are also in use. Mhile hybrid corn has yet to be developed, an unsatisfactory synthetic variety is being dis- tributed. Little has been done on sorghum, even though its potential is high. In all these cases, and especially in rice, better water control is crucial in realizing the potential of the higher yielding varieties. The scope for improvement here is large but there is still a long way to go. 91. Supporting services for agriculture, including those which might foster improved water and water control facilities, have not been developed sufficiently to meet growing demand. Although expanded manifold in the past several years, public credit reaches only a minority of farmers and it is largely short-term; the management of rural credit is less than satisfactory. As regards promotion and distribution of modern agricultural inputs, the cooperative system has been subjected to excessive central control, while private enterprises have not been developed for the task. The growing comercialisation of agriculture has been placing heavy pressure on cereal storage facilities, yet many of the existing facilities are of unsatisfactory quality and, as a result, considerable on-farm and warehouse storage losses are incurred. Lastly, the rural road network, important not only to agri- cultural marketing but also for facilitating off-farm labor movements, is still under-developed. Agricultural Development Policy 92. The Third Plan places a major emphasis on agricultural development, and production targets have been established for major crops. Self-sufficiency -31- in rice will be sought through an increase in production from 3.9 million tons in 1970 to 4.8 million tons by 1976, gradually reducing import needs, which were 800,000 tons in 1970 and probably close to one million tons this year. Other crops are also expected to increase as indicated in Table 8. Together, value added in agriculture forestry and fishery is expected to grow at 4.5 percent a year during 1912-76. Out of the increased production, agricultural exports would also be increased from $26 million in 1970 to $98 million by 1976, and marine exports to $183 million by 1976 compared with $72 million in 1970. Table 8 Agricultural Production Targets 1970 - 1976 (000 metric tons) Annual Rate 1970 1976 of Increase Rice, polished 3,939 4,800 3.4 Barley 1,974 2,406 3.3 Wheat 357 488 5.3 corn 68 149 14.0 Cocoons 21 47 14.1 Beef, carcass 37 64 9.h1 Pork, carcass 79 144 10.5 Milk 40 114 19.0 Eggs 148 234 7.9 Fish 935 x,457 7.7 Source: Data provided by the Ministry of Agriculture and Forestry. 93. In order to attain these production targets and also to increase income of farm households, the Government has adopted an agricultural develop- ment strategy consisting of improvement and wider use of modern agricultural inputs, better water resource managements price incentives for farmers, and better agricultural infrastructure. The Government plans to promote use of power tillers through subsidized sales so that about one-third of the area planted with rice will have access to machinery services by 1976. To facilitate use of machinery and stimulate better cultural practices, small- sized paddy fields, which are scattered and of irregular shapes, will be cor- solidated and rearranged. The proportion of rearranged land with irrigation and drainage facilities would be increased to one-third of the total rice area cultivated. A major effort is to be made to disseminate widely the new high-yielding IR 667 rice, starting in the 1972 season, and use of other modern inputs such as fertilizers, lime and pesticides will be further promoted. These policies are essentially continuation, on a larger scale, of the past efforts of the Goverment. 94. A new element of the Government's policy in the Third Plan is an attempt to establish a long-range water management plan, a major part of which forms the 10-year integrated development plan of the four river basins. -32- This long-range plan comprises projects for erosion control, the construction of multi-purpose dams, the modification of river facilities, and industrial waterworks, as well as extensive irrigation and drainage facilities. It is hoped that with the completion of the Plan the effects of droughts and floods will be mitigated, and stable all-weather farming and better use of water resources will be made possible. The implementation of the master plan is now estimated to cost about $1 billion, and eight multi-purpose dams out of the planned total of 12 are scheduled for construction during'the Third Plan period. Some projects are already underway. Together with the dissemination of high-yielding rice varieties, the implementation of this Plan is expected to contribute towards rice self-sufficiency. 95. The third major element of the agricultural program is continuation of the policy of increasing foodgrain prices to producers relative to in- creases in prices of agricultural inputs and most other farm staples. Food- grain prices to producers are controlled mainly by the Government guaranteed purchase price at which it is prepared to buy. The policy has the threefold purpose of giving price incentives for rice production, of assuring that the terms-of-trade for the farming sector improve amid general price increases, and of providing the Government with stocks of rice that can be used to dampen seasonal retail price fluctuations. The guaranteed price of rice-was thus increased by 23.6% in 1969 and by 35.9% in 1970. As a result, the price for the 1970 season was close to $280 per ton, polished, or more than double the c.i.f. price of imported supplies. This may have reflected, in part, Korea's lagging exchange rate, but even at the present rate the price would be quite high by international comparisons. Issues in Agricultural Development Policy 96. The intensified efforts to increase rice output raises an impbrtant question of whether the current and planned Korean policy plAces excessive emphasis on rice at some expense of other worthwhile objectiVes. The present ,approach appears to be a progressively higher rice price, both absolutely and relative to other prices, and it may already be higher than necessary to induce a substantial supply response from most of the rice acreage. Since there seems to be few, if any, other crops which can produce a comparable net return to farm- ers, rice is already grown on perhaps as much as 100,000 hectares of lao that is better suited for other crops in terms of soil and temparature. More- over, high producer prices have to be met (assuming no change in middleman margins) either by higher consuier prices or from Government funds. If the incidence of higher rice prices falls mainly on urban consumers, the result is likely to be either a shift in the income distribution problem from farm families to lower income families in urban areas, or higher urban wages and 'higher prices for domestically-produced manufacturers including agricultural inputs. 1/ In addition, there are probably about 200,000 hectares of rice land which may grow rice economically only if adequate irrigation ahd drainage faci- lities are provided. -33- 97. Another economic cost of the emphasis on rice is the resulting lack of interest in diverting marginal rice land to mixed crop-livestock farming, including vegetables and minor fruits. Many farms would probably be able to obtain a greater net return if some of their lowyielding paddy land were used to grow pulses, oilseeds, and forage and feed crops. This adjustment would help to level out the seasonal peaks in labor requirements, improve soil fertility, meet the increasing demand for protein and improve the nutritional level of farm families as well as raise average rice yields. Moreover, in same areas, triple cropping would become possible - a practice now severely limited by the rice crop and in particular, by the rice-wheat rotation. The policy of excessively high prices of foodgrains would not only require substantial resource transfers, either from urban consumers or from the Government, but it would also hamper a better allocation of agri- cultural resources. Moreover, this method may result in a more inequitable distribution of income in that the larger the farm, the more favorable the price impact on income would be. A high grain price policy may be inevitable for the time being in the interest of farm incomes, since the reorganization of agriculture is necessarily a slow process and requires greater Govern- ment's efforts in many respects. However, the cost of such a policy to either consumers or the Government should be taken into account in broader consideration of real income improvement, labor costs, and the availability and allocation of resources. 98. Thus, it would seem that a more balanced agricultural resource use policy would require a diversion of marginal rice land into other production activities and a concentration of efforts to improve yields on the remaining acreage suitable for rice. This does not mean, however, that the Third Plan target for rice need be sacrificed. There are still many opportunities to raise rice yields. By improving the quality and availability of modern inputs, expansion and better management of irrigation and drainage facilities, and the stepping up of less costly paddy re-arrangement and use of power equipment, the planned rate of increase in rice output is probably attainable over the next several years, although it seems doubtful that it could be achieved according to the Plan schedule. A complimentary step which needs to be taken is to reduce the uneconomically high losses in handling and storage. The measures underway to improve handling and storage deserves a priority higher than is now contemplated. 99. Agricultural reorganization, such as suggested above, is necessari- ly a slow process subject to continuing redesign as experience accumulates. For the Third Plan period, it requires some major shifts in the policies about agricultural credit and other inputs, and reorientation of institutional support. A rapid improvement of the quality and availability of planting materials de- serves a top priority by the Government. And distribution mechanisms for fertilizer, lime, pesticides, and farm equipment and machinery need to be strengthened and expanded. The existing organization of the National Agricul- tur.U Cooperative Federation (NACF) alone might not be able to fulfill this task, and it seems worthwhile to explore possibilities of increasing sources of supplies open to farmers by bringing private fins into these activities - including seed development and distribution. Furthe4 activities of private enterprises must probably be supported by credit arrangements which would enable NACF to finance purchases by farmers through private channels. By sco doing, the work of NACF and the cooperative system (which operate currently under quasi-monopoly conditions) could be supplemented. -34- 100. The proportion of farmers reached by some form of institutional credit needs to be at least doubled, and the amount of funds available for farm credits, particularly on medium and long-terms, considerably increased. With the public credit systen presently available to farmers, the suggested reorganization and diversification of Korean agriculture cannot be achieved with reasonable speed. Increases in NACF's credit activities will, however, necessitate some changes in the present policy. A broad outline of such changes would probably include a higher interest rate instead of the present low rate combined with administrative rationing; a strengthening of measures for repayment enforcement, with adequate provision for leniency at times of bad crops; greater specialization on agricultural improvement; the further strengthening of NACF's financial structure by a Government grant and equity investment; and, improvement of NACF's technical staff and capability in loan appraisals. 101. In addition, other supporting services of the Government will have to be improved. The present rebearch efforts provide uneven technical guidance to agriculture, livestock and forestry, both regionally and among commodities. Upland farmers benefit less fran research than those in river valley areas; too little is being done to improve many of important crops such as forage plants; economic dimensions need to be added to technological efforts. All this re- flects a probably excessive official preoccupation with rice at the expense of other agricultural activities. 102. The Third Plan emphasizes better land and water management. One area which deserves much closer attention than given in the Flan is develop- ment potential of little used uplands and small sub-watershed development. A considerable acreage of uplands, say about half a million hectares, could be converted to farmland through bench-terracing. The preliminary cost estimate of such work drawn from a UNDP/FAO study currently underway indicates that the capital outlay would not exceed $250 per hectare, including a first heavy application of lime and fertilizer. By comparison, the value of cultivated uplands is, at present, around $1,300 to $2,000 per hectare. 103. Upland development would involve bench-terracing; small dams and water storages for irrigation, fish ponds and flood control; channel improve- ment on the tributary rivers; pasture and range development in the higher areas with fruit-growing along this piedmont. This list of works suggests advantages of upland development to be considered in comparison with large- scale-water works in river valley areas. The upland projects are generally small-sized and may often reach more people per unit of outlay; the gestation period is much shorter; and the management problem is easier to handle. 104. A UNDP/FAO study underway on both upland development and watershed management is expected to lead to useful policy and investment recomendations. If the study confirms the potential and economics of upland development, the Government may wish to consider administrative means to ensure a coordinated approach and an integrated program for dealing with this problem. At present, many agencies share responsibility for this type of work and no,single one has the overall authority or capability to prepare plans and execute then on a large scale. -35- 105. Cn balance, it wuld seen preferable in the interests of Korean development to aim at farm incme improvement through greater agricultural productivity. This will probably require a shifting emphasis fran the past toward improved technology and practices in rice cultivation and at the same time toward upland development, water management, institutional improve- ment and other measures to encourage greater agricultural diversification. Plans for the near future can be expected to foster more rapid development, but whether improvements will be as fast as assumed in the Plan is one of the important uncertainties of Korea's economic outlook. - 36 - Chapter V RESOURCE MANAGEMENT IN THE PLAN PERIOD Uncertainties in Resource Management 106. From a demand management viewpoint, the rather modest growth in investment expenditures seems appropriate. However, there-are some reasons for thinking that investment expenditures may be higher than presently projected if the physical programs are to be carried out as planned. Should this be so, it will be necessary to decide whether investment demand should be curbed even further in the interests of internal and external stability, or whether to proceed with the investment program as planned and count on larger foreign savings or heavier than planned expansionary domestic financing or both. 107. The possibility of investment "overruns" compared with Plan estimates appears. greatest in manufacturing and in a number of miscellaneous services. In view of the capital intensity and long gestation periods of some of the major projects in the industrial sector, especially in the capital goods chemical and petrochemical industries, the Plan correctly notes the likeli- hood of a rise in the capital intensity of production. Taken together, these industries will account for almost half of planned investment in manufacturing -and about 38% of the increase in output. But aggregate investment figures for manufacturing and mining imply a relationship between new investment and additional output during 1972-76 which is not significantly different from that during 1967-70. (An incremental capital-output ratio of 2.4 for 1972-76 compared with 2.2 for 1967-70.) For the rest of industry, therefore, the capital intensity would have to decline. One reason for this :apparent anomaly is the projected role of the textile industry which is expected to account for 17% of investment in manufacturing during 1972-76, but to provide 30% of the increase in output. Were such a favorable textile situation to materialize, the overall capital-output expectations might be possible. However,- a large -share of the textiles are planned for export markets which are surrounded with uncertainty. 108. Investment expenditures may also be understated in that group of sectors referred to as "other services" in the Plan../ Here, 'investment is projected to grow by only 4.6% a year and output at 6.9% a year. This would be a reversal of the past when there was a steady rise in investment relative to output, largely as a result of the increasing importance in this sector of private dwellings in which the high ratio of investment to ,output is well known. Although the Plan projects an increase in the incremental capital- output ratio from about 2.0 in 1970 to 2.6 in 1976, gross capital formation is projected to remain below the 1970 level from 1971 to 1975 because of the slow growth in projected output. This would reflect a levelling off or even 1/ It includes wholesale and retail trade, banking, insurance and real estate ownership of dwellings, public administration and other services. - 37 - a decline in private investment in this sector which, in the past, has mainly been in wholesale and retail trade, ownership of dwellings, and other services. Should this happen, it probably would be a reflection of slower growth and reduced savings in the sector in response to a lack of suitably attractive investment opportunities rather than a transfer of savings from the sector to more attractive investment opportunities elsewhere. It is difficult to envisage such a pattern in an economy in which trade and service activities are closely related to industrial activity. 109. Another factor which may tend to increase investment expenditures is the possibility of substantial cost-overruns, particularly for equipment purchases in the capital gooas and chemical industries. Because much of the investment in these sectors is related to large projects, the details for some of which are not fully developed, an accurate estimate of their cost is not yet established. In the field of transportation development, cost overruns may also prove to be an important factor that may tend to raise investment needs. In the case of investments requiring large amounts of construction, for example, rising real wages may result in substantially higher investment outlays than presently planned. 110. Taking account of these various possible underestimates of invest- ment in relation to Plan objectives, the investment costs of the Plan may be understated by something in the order of 10%. This is not, of course, a substantial difference from the planned investment figures. If, however, it were a difference which had to be met through a corresponding increase in the dependence on external financing, the increase in estimates of foreign borrowing requirements would be very large indeed (by about a third). Resource Mobilization 111. Expansion of domestic savings at an average of about 16% a year during 1972-76 with main reliance on increased private saving, will require a substantial improvement in both corporate and non-corporate savings performance. Improvement is to be expected, but whether by as much as postulated iin the Plan remains an uncertainty in Korea's economic outlook. In the preceding discussion of manufacturing prospects, reasons were indicated for expecting some increase in costs relative to output which would tend to have an adverse effect on marginal savings capabilities in industry. 112. Some stimulus to savings is expected from reductions in the marginal tax rates on corporations. The extent to which higher corporate profits take the form of retained earnings as opposed to dividend income may be influenced by Government policies aimed at promoting greater savings. However, the marginal savings propensity out of dividend income may not necessarily be any less than cut of corporate income. Some further favorable influence on corpo- rate saving may result from proposed revisions of the tax structure which now makes it more profitable for owners of closed corporations to make personal loans to the corporation and receive their income in the form of interest which roceives preferential tax treatment. Furthermore, this tax treatment of interest income also encourages companies, in preference to self-financing, to deposit funds with banks and then incur bank loans. While a tax on interest income may change these practices in favor of more self-financing - 38 - relative to borrowing, this change in the form in which income is received (and perhaps also in the distribution between the public and corporate sector) will not necessarily increase the overall real savings perfomance of corporations. 113. In the case of non-corporate private savings, past performance has been disappointing indeed. Consumption has been fairly high and it remains to be seen whether attempts by the Government to suppress private consumption and encourage savings will be successful. In the past, private financial savings have been predominantly in the form of deposits (particu- larly time and savings deposits), with very little in securities or direct lending to business. The high proportion of deposits and loans in the financial structure of Korea highlights the dominant position of the banks in mobilizing non-corporate savings. It is indicative of the public's reluctance to diversify their financial assets in the poorly developed capital market. In these circumstances, the extent to which private non-corporate savings can be raised will depend on the ability of the Government to induce private income receivers to restrain consumption and increase savings by means of appropriate fiscal, interest rate and other policies. 114. How this would be accomplished is not very clear in the Plan. Emphasis on raising indirect taxes may discourage consumption and increase public and overall saving, but not private saving. This is not, however, the saving tactics of the Plan since the share of direct taxes in total tax receipts will remain relatively constant at about 39% in the Plan period. The tax burden on lower income groups will be reduced, but presumably within this group the marginal propensity to save would remain at a low rate. With an overall increase in the tax burden, and reductions in direct taxes on lower income groups and in marginal rates on corporations,the burden of increased tax revenues presumably will fall on higher personal income groups, both through higher direct taxes and also through a higher incidence of indirect taxes. Yet it would presumably be these higher income groups who would have to be the source of higher saving rates in the private non- corporate sector. In the event that the propensity to save in the private sector is not changed significantly and changes in the tax structure serve only to change relative prices and the composition of consumption expendi- tures, then the Government may have to modify its fiscal policies to transfer more income to the public sector to meet investment needs. 115. It remains to be seen whether the banking system can provide sufficient incentives to attract private savings in the amounts sufficient to ensure an adequate supply of both long-term and short-term funds for the needs of the economy. It may be possible to secure substantial increases in long-term savings with high interest rates. However, the scope for higher interest rates on long-term deposits may be rather limited in view of the conflicting pressures to reduce further the interest cost of loan capital. 116* Attainment of the projected increase in public savings will depend on whether the Government can raise current revenues as planned while, at the same time, holding down current expenditures. The projected current - 39 - revenue increase of 11% a year during 1972-76 appears rather modest, but with a continuation of the present export subsidy program (most of which is in the form of customs rebates and tax concessions) the amount of revenue foregone could be substantial indeed. It would appear that customs rebates were of the order of 40 won per dollar of exports in 1970, or about 33 billion won in total (compared with actual customs collections of about 60 million won). Internal tax exemptions, on the other hand, were about 30 won per dollar of exports, which implies some 25 billion won in taxes foregone, com- pared with internal tax collections of 400 billion won. Thus, in 1970 current revenues foregone were about 11% of actual receipts (which were 518 billion won). If the present rate of exemptions were to apply in 1976 and the export target of $3.5 billion were attained, then revenues foregone in that year would be of the order of 250 billion won (at 1970 prices), or about 26% of potential receipts (planned revenues plus exemptions). 117. The ability of the Government to contain the growth of current expenditures to the planned 12% a year will depend largely on trends in defense costs, and wage and employment increases in the public sector. The recent level of defense spending has been about 4% of GNP, but with the present plans to modernize Korea's military forces, and the shift in the defense burden from the US to Korea, the ratio of defense spending to GNP is projected to rise to 5%. To some extent, the increased burden is being met by the US-sponsored Military Assistance Program in the form of military grants and transfers of equipment. Foreign Trade Promotion and Policies 118. The extent to which Korea can successfully expand her exports as planned will depend not only on the ability to expand production for export but also on expansion of overseas markets through trade promotional activities and means to keep exports competitive. As noted, substantial export subsidies are already required and industrial exports in the future may involve rising costs, relative to the international context. Moreover, the Plan recognizes the possibility that with rising real wages Korea's past advantage of an abundant supply of cheap labor may be eroded somewhat. Korea may also be faced with growing competition from other countries endeavoring to take advan- tage of their cheap labor to expand exports of light manufacture. 119. Despite the increasing variety of industrial production, however, the bulk of Korea's foreign exchange will still be provided for some time by a small number of commodities. Taken together, electronic products, wigs and false eyelashes, textile and clothing, tuna, footwear, and plywood, will account for some 60% of total exports by 1976. This continued concentration will expose Korea to the potentially disruptive effects of sudden shifts in foreign demand. Because of dependence on the US market and the tendency there towards increased protection, the outlook for clothing, textiles and footwear is clouded with uncertainties. Sales of wigs (mainly to the US mrket) are particularly vulnerable to sudden, if temporary, changes in fashion (already a problem) while plywood sales will, in all likelihood, continue to be vulnerable to business cycles in the US. The Plan also envis- ages some exports of new heavy industry products, including large ships and simple machine tools and parts, such as lathes. However, it should be noted that the marketing of heavy industrial goods, especially equipment and - 40 - machinery, is of a different nature from that for light industry goods. Apart from the price competitiveness and technical quality, export promotion of these goods would require a marketing system that could offectively provide readily available after-sale services and credit facilities, all of which have yet to develop and in competition with technologically more advanced countries. 120. There are also important export constraints on the supply side that must be dealt with if Korea is to expand exports to the extent indicated in the Plan. With a few notable exceptions, such as logs for plywood and fish catches, Korea does not face any serious uncertainties or constraints in securing adequate supplies of the raw materials for her export industries. The present liberal policy-of providing foreign exchange for raw material purchases by exporters will undoubtedly continue. For most industries in which a large increase in export sales is called for in the Plan, the main uncertainty on the supply side would appear to be the willingness of entre- preneurs to undertake the kinds of investments that will be needed to.attain the targets. 121. The benefits that accrue to those who engage in the export trade must be judged in somewhat broader terms than the usual cost-price calculus, for the risks involved are modified by the nature of the export incentives provided by the Government and the extent to which the domestic market can be used to offset losses in the export field. As indicated in an earlier discussion, existing export incentives in the form of concessional credit for trade financing, tax concessions and rebates on customs are substantial. Additional export inducements include considerable gains from linked imports, authorizations for new or enlarged enterprises and related introduction of foreign capital. The profitability of exporting activities also depends, in part, on the share of output that can be sold on the domestic market where, in many cases, prices are higher than international prices.i/ Moreover, given the degree of market concentration in Korea and the absence of appro- priate legislation, there are opportunities for agreement among firms on prices in the domestic market sufficiently high to compensate for low returns in the export market. 122. In the event that exports do not expand as rapidly as anticipated, and hence, the balance of payments position does not improve, the Government will be faced with difficult choices in deciding how far to depend on exchange rate adjustments as opposed to granting additional incentives to export industries. The latter may at times seem more expedient but involves increased difficulty in adhering to financial policies which preserve a reasonable degree of domestic price stability. In any case, there is a need for greater uniformity 1/ A recent study of domestic and international price suggests that for most product groups, the general tendency is that domestic producers' prices are higher than export prices. Seung Yun Lee, A Study on Price Comparison Between Domestic Producers' Unit Prices and nternational Prices. Sogang University, May 1971. - 41 - in the application of direct incentives to export industries so that the most profitable industries receive the greatest incentive to expand and take advantage of the opportunities. The present system has led to the develop- ment of an ad hoc industry-by-industry array of incentives to ensure entre- preneurs some measure of benefit from exporting an ever increasing range of commodities. Little is known of their joing effect on resource allocation and profits. They may tend to distort the pattern of resource allocation in favor of export activities (and away from agriculture, for example) and to lead to the development of a subsidized export capability in areas in which there must be some doubt about Korea's long-term comparative advantage. 123. The degree of success in slowing the growth of imports will depend largely on results of the saving effort as well as on the Government's ability to curb investment demand (and hence, capital goods imports), the rate at which import substitution can be promoted in capital and intermediate goods industries with exchange rate adjustments, tariff policy and extension of domestic content regulations, and the success of the policy to obtain self- sufficiency in foodgrains by 1976. In addition, however, the Government is likely to be confronted with various other pressures in its efforts to hold down the growth of imports and some strains may develop. The foreign exchange content of the investment program for the manufacturing sector, for example., is estimated at 50% of projected capital goods imports. It is not clear whether the remainder is sufficient to meet the foreign exchange costs of investments in the rest of the economy. Moreover, we have already suggested that investment demand may be somewhat higher than presently projected. The extent to which these pressures would translate into an increased demand for capital goods imports would depend on the extent to which the demand for machinery and equipment was understated and the ability of the domestic capital goods industry to cope with the higher demand if it were to eventuate. oreover, because of inevitable delays in expanding output in the import- competing raw materials and intermediate goods industries, the program for import substitution in these areas may not be fully realized. If the domestic industry is unable to meet the targets that have been set, either imports will rise and the projected improvement in the balance of payments will not occur, or there will be increased pressures on domestic prices and perhaps a lower rate of growth of investment. There are also reasons to question the extent to which grain imports can be reduced, as explained in the preceding chapter. 124. Other uncertainties relate to Korea's service account. The volume of Korea's overseas trade is estimated to increase from 22 million metric tons in 1970 to 48 million metric tons in 1976. To secure a larger share of freight revenues, the Plan calls for a rapid expansion in the tonnage of Korea's ocean-going fleet from 797,000 gross tons in 1970 to 2,154,o00 gross tons in 1976. Part of the increase would be produced in Korean shipyards. Domestic shipbuilding may not expand, however, as rapidly as projected, in which case there would have to be either some shortfalls in freight receipts (projected to rise from $40 million.in 1970 to $130 million in 1976) or purchases of foreign ships. Either would diminish net foreign exchange receipts. - 42 - The Need for Adjustment 125. The foregoing discussion suggests possible contingencies which might weUll result in resource needs larger than presently anticipated. The major areas of uncertainty appear to be a possible understatement of invest- ment requirements, perhaps an overly optimistic estimate of saving possibili- ties, and the question of whether exports can reach the target. We have already indicated that investment expenditures in the Plan period may be understated by as much as 10%, or by some $1.3 to $1.4 billion in won equiva- lents. Similarly, shortfalls in domestic saving could perhaps add another $700 or $800 million to the Plan estimates of foreign financing requirements. Looking at this same financing problem from the balance of payments side, the difficulties of reaching the export target, which have been indicated already, could limit export possibilities considerably - say to about $3 billion in 1976, instead of the planned $3.5 billion. With the reduced export rate, total export receipts during 1972-76 might be reduced by about $1.8 billion. There would be, however, an associated reduction in imports for export of say $700 million, and a reduction in freight and insurance payments of perhaps another $200 million. Thus, the net reduction in foreign exchange receipts on the current account during 1972-76 would be $900 to $1,000 million. Larger investment outlays and smaller savings would presumably increase import demand by perhaps as much again. Hence, looked at from either the possible gap between investment requirements and domestic saving or possibly smaller export gains and larger import demand, there would appear to be sufficient uncertainty about the resource prospects as set forth in the Plan, which, in the absence of appropriate adjustments, could increase the resource shortfall :by as much as $2 billion during 1972-76. 126. Such a shortfall in resources could be met by a reduction in planned investment or through increased domestic savings, as well as by larger foreign savings. If the shortfall were met entirely by larger inflows of foreign loans, then the additional loan capital requirements, including the larger amortization and interest payments involved, would amount to perhaps another $2.5 billion during 1972-76, pushing total loan capital requirements up to $6 or $7 billion, or an average of about $1.3 billion a year. This would appear to be a rather precarious financing prospect from the standpoint both of the magnitude and of the continuity of the required capital inflow. With capital requirements this high and with debt service equal to about one- third of exports, any sustained interruption in capital inflows at these levels would mean, if debt service were to be maintained, that the impact on the balance of payments and on the economy would be severe indeed. It is difficult to assess the prospect for reaching capital inflows of this size and reliability. If it is a realistic prospect, it would be unfortunate for Korea to curb unnecessarily its demonstrated potential for rapid development. On the other hand, this development could be severely disrupted along with Korea's credit standing, if she were to push her dependence on the size and reliability of foreign capital beyond practical possibilities. - 43 - Elements of Flexibility in the Plan 127. The alternate to this precarious reliance on foreign capital is some combination of a reduced investment program and a higher level of domestic savings in the event of contingencies adversely affecting the resource outlook. Fortunately, Korea would appear to have scope for adjust- ment to the development plan that could be made without seriously curbing the economic growth targets or creating difficult unemployment problems. 128. The proposed investment in social overhead (that is, in utilities, transportation, storage and communication) appears to offer some possibility for adjustment according to resource availabilities. In this respect, some of the highway construction program which accounts for 20% of the transport investment program (and almost 50% of the public sector investment in this sector) may provide such opportunities. Moreover, the private investment in ships, which account for a further 12% of investment in the transport sector, also appears to provide an element of flexibility, both in local and foreign currency resource use. 129, For the agricultural sector, gross investment is projected to grow at an average rate of 15% a year, compared with an almost negligible rate of increase in the past few years. The proposed rapid increase is largely the result of a greatly expanded public investment in agriculture. Aside fron the question of availability of public funds for investment, there is likely to be real difficulty in accelerating agricultural investment as rapidly as planned. The Plan forecasts that private capital formation in agriculture will be about 33% of the total. Whether this will materialize will depeond on incentives for investment in agriculture and on the cost and availability of credit. Private demand for capital in agriculture is probably far in excess of supply at the subsidized interest rates charged to farmers. Private incentives will also depend, in part, on the rate of progress in the public ag icultural program. Hence, shortfalls in public agricultural pro.- grams may"not be entirely offset by private agricultural investment demand that is greater than planned. This may be especially true if interest rates in agriculture were adjusted upward. As a result of these and other uncer- tainties in the agricultural program, as discussed in the preceding chapter, circumstances may preclude an agricultural investment program as large as planned and this may be a partial offset to the possibility of overruns in other parts of the investment program. 130. The kinds of adjustments that can be made in the face of excessive investment demand, to some extent, will depend on the form in which it is manifested. The effects of excess demand for investment in the form of construction may have largely internal inflationary effects, whereas excess demand for machinery and equipment is apt to have much more important balance of payments consequences. In the former case, adjustments to control domestic construction activity may be appropriate by delaying some construc- tion starts or other controls, while in the latter case imports may be curbed by resorting to tax measures and other controls. 131. It is clear from the Plan that the Government intends to make every effort through fiscal means, charges for services, interest rate policies and other measures, to sustain the rise in the savings rate. However, in the - 44 - event that the private savings performance does not improve to the extont expected, the Government will face difficult choices in deciding on the extent to which it should rely more heavily on public and on foreign savings as opposed to modifying its investment program. It would seem that the main element of flexibility in domestic resource mobilization would be the extent to which shortfalls in private savings can be made up by increased public savings. The latter can, of course, be obtained by some combination of higher revenues and reduced expenditures on the current account. It would seem to us, however, that there is only limited scope for reductions in expenditures if the Plan objectives are to be met and if anything, there may be considerable pressures at work that would lead to higher than planned expenditures. There is undoubtedly scope for further increases in revenues beyond that envisioned in the Plan through heavier taxation and a reduction in tax and duty exemptions to reduce revenues foregone. But the extent to which aggregate domestic savings can be raised by greater transfers of income to the public sector will depend on the difference between the two sectors with respect to their propensity to save out of the.incremental income involved, which, in turn, is likely to depend on which groups in the private are taxed more heavily. We have already indicated that it will be the higher income groups who will be expected to provide much of the savings increase from the private non-corporate sector and at the same time, carry much of the increased tax burden. Additional income transfers to the public sector may be largely self-defeating from the viewpoint of raising the aggregate level of savings in the economy. Thus, in view of the wide range of uncertainties involved and what appears to be a limited scope for adjust- ment, the difficulty of attaining the planned savings increase is likely to remain. 132. The preceding discussion indicates some of the areas of uncer- tainty in Korea's economic outlook where divergence from the magnitudes of the Plan could, if there were not compensating adjustments in programs and policies, add considerably to the Plan estimate of Korea's foreign financing requirements. Possibilities of divergence with substantial balance of pay- ments implications seem most likely in overruns on the investment estimates and in shortfalls on foodgrain production, exports, and domestic saving. In so far as can be judged, these divergencies need not be large individually. In total, however, they could be serious, as noted, if there were to be an inflexible pursuit of Plan objectives despite adverse eventualities. However, as also noted, there would appear to be considerable scope for adjustment in the proposed investment program which, without significantly curbing growth prospects, could minimize the increase in foreign capital requirements above the Plan estimates. Possibilities for avoiding possible shortfalls in saving and in exports seem less promising. On balance, feasible adjustments in the investment program, amounting to a little less than 10% of total-investment expenditures, could probably offset perhaps $1,00 million of the $2,000 million of possible additional foreign financing that might arise out of the Plan uncertainties referred to in the previous discussion. This would suggest a level of foreign financing required for the economic growth objec- tives of the Plan after making reasonable allowance for adverse contingencies and adjustments thereto, of $500 or $600 million more than the Plan estimate. 133. The Government has indicated its intention to maintain-a position of flexibility in its development effort and to adapt as far as possible to the exigencies of the resource situation. Korea has effective machinery-for this adjustment process in the Overall Resource Budget which, each year, sets the course of the year's economic objectives, priorities, policies and spending in accordance with current economic circumstances. Chapter VI FOREIGN FINANCING AND ETERNAL DEBT Five-Year Elternal Financing 134. The preceding discussion has suggested that resource shortfalls, if they were to eventuate, could result in additional foreign requirements of about $500 to $600 million more than the Plan estimate. On this basis, the foreign requirements by source might be assessed as in Table 9. As the Table suggests, the additional foreign capital would probably have to be in the form of medium and long term loans. Should adverse unforeseen contingencies push the requirements even higher, then still larger adjustments than indicated above would. probably be necessary, and those of an order which would make it difficult for Korea to pursue its development objectives. Table 9 Foreign Exchange Sources, 1972-76 (million US $) Transfers (net) 670 Direct Investments 380 Short-Term Loans 300 Medium and Long Term Loans 0 Total External Requirements, 1972 and 1973 135. Borrowing for 1972 and 1973 might be put at about $800 million a year, with somewhat higher levels later. As against this, there are loans already committed but undisbursed and probable further commitments before the beginning of 1972 which can be expected to meet perhaps $700 million of the financing required during 1972 and 1973. These disbursements will, however, have to be replaced vfith new loan commitments if the loan "pipeline" is to be maintained for disbursement beyond 1973. Furthermore, additional comiit- ments will be needed partly for disbursements during 1972 and 1973 and partly later. In practice, the loan commitment level will have to stay fairly close to the prospective near term disbursement pattern if disbursements are to proceed fairly smoothly. Consequently, the level of loan commitments, as well as disbursements, required for Korean development during 1972 and 1973 may also be taken at about $800 million a year. 136. These requirements are only moderately higher than the recent loan commitment level during 1968-1970 which was just over $700 million a year on average. Of this, about $80 million was of one to three-year maturities for which detailed information by source is lacking. Most of the remainder was from private sources, and to a much smaller extent from official bilateral and multilateral sources. Details of recent borrowing are shown in Tables 10 and 11. - 46 - Table 10 External Debt Transactions 1968-70 (million US $) Debt Qutstanding Transactions During Period at End of Period Die- New Loans burse- Amorti- Contracted ments zation Interest Committed Disbursed Loans with Maturities of 1-3 Years 1968 148.4 206.6 15.9 0.7 274.6 265.5 1969 60.3 57.1 19.7 3.6 315.2 302.9 1970 50.0 56.0 112.1 5.8 253.1 246.8 Loans with Maturities of 3 Years or More 1968 543.8 338.6 43.4 16.1 1,325.7 796.2 1969 851.2 547.8 71.4 3Q.4 2,105.5 1,272.6 1970 484.4 493.9 106.1 53.6 2,483.8 1,660.4 Total 1968 692.2 545.2 59.3 16.7 1,600.3 1,061.7 1969 911.5 604.9 91.1 34.0 2,420.7 1,575.6 1970 534.4 549.9 218.3 59.4 2,736.9 1,907.2 Source: Data supplied by Ministry of Finance and Economic Planning Board. - 47 - Table 1 Sources of Foreign Loans Committed with Maturities Greater than Three Years (million US $) Total Prior to 1968 1968 1969 1970 Total Bilateral 92 126 82 647 USA 284 28 112 59 483 Japan 71 19 11 9 112 West Gezmany 33 - - 13 46 Other 2 - 3 1 6 Multilateral 16 104 76 220 IBRD - 5 65 41 111 IDA 24 4 15 15 58 ADB - 7 24 20 51 Private =481 621 326 1.887 USAA/ 69 154 215 148 586 Japana/ 171 110 72 56 409 Prance ) ) 129 5 210 West Germany ) 219 ) 217 48 4 197 United Kingdom ) ) 56 100 218 Other ) ) 101 13 267 Total 87k 85 44 2.5 a/ Includes Ex-Im Bank loans. Note: A comparable breakdown for loans with maturities of 1 to 3 years is not available. Source: Economic Planning Board. - 48 - Borrowing Prospects 137* It seems reasonable to expect during the next two years that borrowing of one to three-year maturities will continue to run between $50 and $100 million, as in recent years, and,that private lending to Korea in maturities of over three years would run at around the average 1968-70 levels of about $450 million. This would leave the annual require- ments of official borrowing from bilateral and multilateral sources during 1972 and 1973 at $300 to $350 million. 138. Judging from the record, an external financing pattern in the above magnitudes should be feasible in amount and from the standpoint of management of debt and debt service which is subsequently discussed. There may be same difficulty in transferring official debt in the magnitude indicated on the basis of projects acceptable to bilateral and multilateral lenders; this emphasizes the,importance for Korea of project selection and preparation to an extent and standard which would expedite consideration for foreign financing. 139. While these large external financing requirements appear reasonable and manageable considering Korea's economic capabilities, there is one aspect of the recent borrowing pattern that is a matter of some concern. This is the mounting dependence of recent years on net expansion of short-term debt (under one year). If the recent pattern were to continue, the annual turn- over of gross short-tem debt could within a few years become very large indeed, and the problems of turnover and liquidity very difficult. Such difficulties would not be likely to arise if short-term financing were limited to the magnitude indicated in the Plan of about $300 million net during 1972-1976. This would be more or less in correspondence with rising trade prospects and the comercial financing associated therewith. However, recent trends have been in larger magnitudes. This is possible despite the external borrowing ceilings agreed with the Iff.since these agreements, while limiting net expansion of short-term obligations of the banking system, do not so limit other financial institutions or other official and private borrowers. - 49 - Debt and Debt Service Prospects 140. In accordance with the external financing prospects described above, and barring further rapid short-term expansion, the size of Korea's external debt and debt service, while large, is not likely to present serious pro- blems. The size of the outstanding debt would rise from about $2 billion at the end of 1970 (on a disbursement basis) to around $5 billion by 1976. The annual level of debt service would increase from $350 million, at present, to about $800 million by 1976. The assumption here is that this new debt will be contracted on average terms which are more or less in correspondence with debt contracted in recent yearsi for private debt. an interest rate of 8% and re- payment period of 10 years and for public debt an interest rate of 7% and repay- ment,over 15 years. The increase in service payments wouldl of course, be reduced to the extent that the terms of borrowing could be improved and it is the intention of the Korean Government to try and do so. Efforts will be made to increase and diversify official borrowings among international and bilateral lenders in the hope of increasing the average length of maturities and grace periods and reducing interest rates. Some success in these directions is already evident in the limited information available on borrowing during this year which indicates that 57% of the total new borrowing commitments during January-June (presumably those over three year maturity) had original maturi- ties of over 15 years. There is not, as yet, information on this year's pattern of short-term financing. 141. According to the Plan estimates, debt service during the 1972-1976 period would decline from the present 21% in relation to exports of goods and services to about 18% by 1976. This would be in accordance with the projections of the different Plan variables which may, as indicated above, be somewhat optimistic. Allowing for the possibility that foreign borrowing requirements may perhaps be about 15% higher than planned and that exports may fall, say $500 million, short of the 1976 target, the ratio of debt service is likely to remain close to the present 21% level. Better terms will not have much impact in the 1972-76 period, but a relatively larger amount of loans with longer maturities will help to hold down debt servicing in the latter part of the decade and the early years of the next decade. - 142. The service of debt in this magnitudes depends, of course, partly on Korea's further economic expansion and partly on the capital inflow which Korea can reasonably expect over the next several years. From both stand- points the prospects appear favorable. The magnitudes of external require- ments do not appear excessive in relation to past patterns of foreign financ- ing nor to reasonable prospects for the future. Hence, the servicing of old inflows appears likely to be quite manageable in relation to the outlook for new inflows, presuming, of course, that the turnover requirements of short- term financing are not allowed to became excessive. And underlying this favorable view of Korea's creditworthiness is the demonstrated capability of the economy to expand, and at the same time, to develop a stronger structure of production and export as the basis for further expansion. As explained, the continud.tion of this impressive development process will not be without difficulties which may, at times, be considerable. There appears, nevertheless, to be realistic recognition in Korea of the problems and uncertainties of further development, and the intention is to modify and.adjust policies and objectives as necessary to stay on a fairly even and manageable economic course, both internally and externally. Annex Page 1 DEVELOPMENT AND PROBLEMS OF MAJOR MANUFACTURING INDUSTRIES A. Textile and Clothing and Wig Industries 1. Korea's textile and clothing industries developed at a fast pace, especially,since the middle of the 1960's, stimulated by several favorable factors. First, Korean exports benefited from a dynamic expansion of the world textile trade since the early sixties, and particularly in the last two or three years. Second, the internal textile market of Korea expanded rapidly (about 5 percent a year) mainly because of initial underconsumption and of a subsequent sharp rise in consumption after the Korea War and especially with the increase in income since the early 1960's. Third, Korea's low labor cost has more than compensated for low labor productivity and thus provided a competitive advantage in the world market. Although increasing in recent years at more than 10 percent a year, the real wage level in textile industries appears to be still comparable with Taiwan, Hong Kong and Singapore. Fourth, raw materials, especially synthetic fibers, have been inexpensive because of the undervalued exchange rate of the won. This further added flexibility and cost advantage to Korea's textile industries. 2. In the process of Korean textile expansion in the past several years there has been a shift at home and overseas in the preference of consumers from cotton and wool fabrics to synthetics. Hence, synthetic capacity has been rapidly expanded to over 180 metric tons per day, especially the capacity for nylon, polyester and acrylic. As a result, the domestic production of synthetics, which accounted for only 2-3% in the early sixties has increased to over 40% of total demand (internal plus export demand). 3. At the same time, exports have shifted toward clothing which increased remarkably from 22 million pieces in 1965 to about 540 million pieces in 1969.1/ Of this, 20-25% was exported with gross export earnings of over $200 million in 1970. Wig production, especially synthetic wigs, is another example of Korea's response to market opportunities and changing markets. Wigs were first produced in Korea in 1964. By 1970, production reached more than 20 million wigs worth,in foreign exchange earnings, about $100 million. 4. However, development of textile and clothing industries depended on imported raw materials and fabrics, especially synthetics, and these imports have risen rapidly to about $250 million, or 12% of total import in 1970. A future textile development is, therefore, expected to include domestic production of synthetics for textiles and raw materials for synthetics. This has already started. However, operations so far established are still too small to be internationally competitive. If Latest available data. Annex Page 2 5. The Third Plan envisages a continued rapid expansion of the textile industry and development of synthetics. Imports of nylon yarn, acrylic filaments and polyester staple fiber and filaments are therefore expected to decrease. This may have some adverse effects on international cost competitiveness which will require compensatory incentive measures. Further petro-chemical development is also planned, including a naphtha cracker and related plants producing caprolactum, polyethylene, A,M. monomer, polypropylene, etc. Indications are that this further backward linkage would, at least initially, add to prices of synthetic raw materials and may also,for a time,present some problems of raw material quality. 6. The rising cost of labor in Korea may particularly affect the. clothing, cotton yarn and wool textile industries which depend especially on low labor costs. This is partly because productivity gains have been slow and to this extent there is large scope for cost saving and improve- ments in productivity. This is especially true for cotton yarn and wool textiles, but probably less so for the clothing industry. 7. Finally, there is serious uncertainty about the external demand for Korea's textiles and clothing. The recent protectionist tendency of the United Statess and a possibly transitory nature of wig fashions raise some questions about the target of almost $1.5 billion in exports of fabrics, clothing and wigs (over 40% of targeted 1976 exports) compared with about $400 million in 1970. The achievement of the target would imply an increas- ing Korean share in textile and clothing trade in world markets on which Korean producers rely heavily for demand (more than doubling the present 3% in textile imports of the United States, and more than tripling in the case of clothing). These would not seem too difficult in relation'to the size of the market, but these are the uncertainties associated with costs in Korea and protective leanings in the United States. B. Basic Metal Industry 8. Basic metal production more than tripled between 1965 and 1970. However, it still accounts for only about 3% of total manufacturing value added and is still small-scale. There are only two integrated iron and steel works in Korea. The rest are scrap-based or re-rolling mills. 9. At present, Korea's capacity for final iron and steel products is not matched by raw materials and semi-finished capacity. Further, the industry is fragmented by a large number of small firms with a high propor- tion of obsolete plants and equipment. Iron and steel production is high- cost and there is heavy reliance on imports not only of finished products to the extent of one-fourth of total domestic demand but also on imports of basic inputs for steel work such as scrap, billet and hot coil, procure- ment of which (especially scrap) from overseas is subject to sharp price fluctuations. 10. During the Third Plan period, demand for steel is expected to increase at around 18% a year - a little slower than 25% in recent years. On this basis, demand for iron and steel products would increase from roughly 1½ million tons in 1970 to over 4 million tons by 1976. 11* With a view to import-substitution and a more stable supply to users of semi-finished steel products, the Government is building a million- ton integrated steel mill - the Pohang Iron and Steel Company (POSCO). In Annex Page 3 addition, the Third Plan envisages a foundry pig iron mill and a special steel mill. The Government attaches high priority to these three projects, whose estimated capital costs amount to about 180 billion won ($580 million) or about one-sixth of total capital outlay for manufacturing in the 1972-76 period. 12. The integrated steel mill project includes, in addition to the plant for 1 million tons of crude steel a years a second stage to expand the future capacity to 2.4 million tons. This is not to be started until toward the end of the Third Plan period and would be mostly built after 1976. The project is considered technically well-conceived. The finance for the first stage of the project has already been secured; and the technical cooperation arranged, both mainly from.Japan. Construction for the site and infrastructure has started and is to be completed next year. 13. The project to establish a foundry pig iron plant is one of four projects for development of the Korean mechanical engineering industry. This is expected to provide over 200,000 tons of pig iron by 1976 for the manufacture of iron castings. The project is sponsored by a private company and is estimated to cost $18 million. Construction is scheduled to start shortly and to be completed by 1973. 14. Special steel is another of high priority project. It is also a private venture to produce structural carbon alloy and special purpose steels for springs, bearings and stainless products, totalling over 60,000 tons a year 'in the initial stage of developments and later to be expanded possibly to 150,000 ton capacity. Special steel production is linked to proposed increases in domestic value added in manufacture of transport equipment (springs for cars and engines) and it is hence important that high quality special steel be available at reasonable prices. This project is still in its planning stage. 15. Generally speaking, these investment programs in iron and steel industry during the Third Plan appear technically well-conceived. However, since the economic justification of these projects depends to a large extent on the expectation of an early expansion beyond the original capacities, especially in the case of the POSCO project, development of competing capa- cities (e.g., installation of new electric arc furnaces elsewhere) will have to be discouraged by the Government. Similarly, development of steel using industries is also part of the linked industrialization program. C. Engineering Industries 16. Development of mechanical engineering industries in recent years is characterized, first, by electronics-based consumer durables, such as assembly of radios and televisions that have developed rapidly, and,second, by considerable progress in automotives, railway cars, engines and parts thereof. The former benefited from increased foreign investments and the demand for components from expanding foreign markets, while the latter deve- lopment has been mainly based on import-substitution with protection from foreign competition because of costs above international levels, Annex Page 4~ 17. However, development of engineering industries, especially non- electrical machinery has been lagging. Hence,there have been increasing imports of plants and equipment, which supplied over 80% of domestic need in 1970 and which increased from less than $50 million in 1965 to over $400 million (excluding transport equipment: see Statistical Appendix, Table 3.5). Faced with a need to develop a viable machine industry in Korea, the Goverment enacted in 1967 the Machine Industry Promotion Act, under which it has been providing both investment and working capital to the industry. The disbursements of such funds, however, have so far been less than budgeteds mainly because the potential beneficiaries are small firms with problems of creditworthiness and collateral. 18. The Third Plan places a high priority on development of engineering industries with a view to.reducing import components of already domestically- produced automotive equipment, engines and other parts, and to expanding exports of electronics products-and of ships. The approximate magnitude of required investment in the engineering industry to realize these objectives has been estimated to amount to about 210 billion won in 1970 prices ($660 million) or about 17% of total planned capital outlay for manufacturing. 19. Many constraints will have to be overcome to achieve these targets in a relatively short time. Firstly, a considerable amount of private investment has to be mobilized both domestically and- from abroad. There is also a need to import foreign technology. Unlike automobile and electronics industries which could offer either a labor-cost advantage or protected domestic markets, however, it is likely to be more,difficult to attract foreign investors in heavy machine fields where Korea has little experience without greater incentives,and/or protection. Secondly, greater efforts will have to be made to promote modernization of, and specialization among, the existing firms, particularly to improve the quality of the products. With the exception of electronics products and possibly textile machines and boxcars for railways, the generally poor quality of Korean machinery products reflects chiefly excessive product differentiation within a generally small- sized firm, obsolete plant and equipment and inefficient technology. Korea has a potential advantage in this sophisticated, yet labor-intensive,field, and the industry should bepromoted even with some disadvantages in the initial stages and even if it might take-longer time and higher costs to achieve the Plan targets. 20. To supplement expansion and modernization of the existing industry, the Government has formulated the-two high priority projects, the heavy machine tool complex and the ship-building projects. They are still at their initial stage, and their economics are yet uncertain. The first project envisages a vertically integrated complex of machine making plants, all of which would share basic facilities for a variety of products. The pooling of' common facilities is expected to-produce substantial economies.of scale,. and this approach may be appropriate for Korea where domestic.demand is limited. However, it is an approach which has been only partially tried in other 'countries and many problems remain to be solved, the major one:being that of deciding whether it is in.fact possible to find a product mix which would satisfy a wide range of domestic. demands and still have characteristics of sufficient technical similarity to achieve requisite economies of scale. 21. A new shipyard project aims at a production capacity of 630,000 gross tons, and sales of small ships for domestic markets and possibly 100,000 to Annex Page 5 200,000 ton ships for exports. The feasibility of large sized tanker product- ion is also under examination. Economic studies indicate ship building as a field in which Korea has a comparative advantage and prospects of world demand are favorable. D. Petrochemical Industries 22. Chemical.and petroleum industries developed mainly along the line of import substitution. Since the first large-scale oil refinery was established in 1964 with the capacity of 35,000 Bbl/day, the refinery capacity and production increased at almost 50% a year and the domestic refineries can now meet most of the domestic demand for finished petroleum products. Similarly, fertilizer production accelerated and fertilizer import decreased from about 20 percent of domestic demand to almost nil by 1970. 23. However, development of petrochemical industries as such has been hampered by the small size of the domestic markets, and growing demand for petro-chemical products was met largely by imports. The Third Plan thus envisages replacement of considerable parts of imports by completion of a petrochemical complex already underway. The program consists of a naphtha cracker center with 150,000 metric ton capacity and the number of "downstream" plants. The products and respective capacities are planned as follows: Product Capacity Investment ('000 m. tons) (in US$million) 1. Naphtha Ethylene 150.0 60.0 2. Methanol 45.0 9.2 3. Polyethylene and 50.0) 16.2 V.C.MS 60.0) 4. A.N. Monomer 26.4 20.3 5. Alkybenzen 13.0 3.6 6. Polypropylene 30.0 15.8 7. Ethanol and 20.0) 16.1 Acataldeayde 24.0) 8a S*B.R. 25.0 18.9 9. Capropactam 33.0 36.4 10. Utilities - 16.2 Total 232.6 24. Ethylene can be produced economically only if co-products are fully utilizedl whether it is possible or not, however, depends on availa- bility of market outlets for these co-products. The projection of demand for these co-products indicatesthat up to 100,000 metric tons of ethylene could be used by the downstream plants, and the downstream plants are therefore designed on this basis. However, as far as the naphtha cracker plant is concerned, a 100,000 ton capacity is regarded as uneconomical. The plant is therefore designed to have a 150,000 ton capacity, although initially this would involve underutilization of the available capacity. 25. The plants in the-complex are small compared with minimum economic sizes in industrialized countries, where a naphtha cracker with less than a Annex Page 6 300,000 metric ton capacity is regarded as uneconomical. Therefore, the complex is likely to operate with considerable cost disadvantages. Yet an increase in the size beyond the planned magnitude involves high risks at the moment, mainly because of lack of sufficient markets. The likely high price of products would make it unrealistic to rely on export markets. Since international comptitiveness of user industries, in particular textile industries# will probably be affected by higher prices of their intermediate inputs, the high cost structure of the petrochemical industry is likely to require additional Government export subsidies, or protection for the textile industry, or subsidized intermediate chenicals, or subsidized inputs for the petrochemical industry, or some combination of these. TABLE OF CONTENTS STATISTICAL APPENDIX Table No. A. POPULATION 1.1 Population Trends B. NATIONAL ACCOUNTS 2.1 Expenditure on GNP 2.2 Industrial Origin of GNP 2.3 Gross Domestic Fixed Capital Formation by Sectors C. EXTERNAL TRADE & PAYMENTS 3.1 Commodity Composition of Exports 3.2 Analysis of Growth and Commodity Composition of Exports 3.3 Destination of Exports 3.4 Commodity Composition of Imports 3.5 Composition of Imports in 1965 and 1970 3.6 Imports by Sources of Funds and by Countries 3.7 Receipts and Payments on Goods and Services 3.8 Balance of Payments, 1964-1970 D. EXTERNAL 'DEBT 4.1 External Public Debt Outstanding 4.2 Estimated Future Service Payments on External Public Debt E. PUBLIC FINANCE 5.1 Public Revenues and Expenditures 5.2 Functional Classification of Central Government Expenditure 5.3 Tax Revenue F. MONEY & CREDIT 6.1 Outstanding Loans & Discounts of Banking Institutions by Industry 6.2 Money Supply and Principal Factors Affecting It 6.3 Deposits and Credits of Banking Institutions 6.4 Interest Rates G. AGRICULTURE 7.1 Production of Agricultural Crops 7.2 Yield Per Hectare by Major Crops 7.3 Utilization of Cultivated Land 7.4 Paddy Area Classified by Irrigation Facilities 7.5 Number of Livestock and Output of livestock Products Table No. G. AGRICULTURE 7.6 Number and Tonnage of Fishing Vessels 7.7 Loans Extended from National Agriculture Cooperative Federation 7.8 Financial Status of NkCF and Its Networks H. OTHER SECTORS 8.1 Structure of Mining and Manufacturing 8.2 Index of Industrial Production 8.3 Gross Output in Manufacturing 8.4 Value Added in Manufacturing 8*5 Growth of Domestic Traffic 8.6 Korean National Railroads - Equipment and Revenues 8.7 Road Transport 8.8 Transportation by Major Commodity I* WAGES & PRICES 9.1 Indices of Prices and Wages 9.2 Wage and Productivity Trends in Manufacturing 9.3 Productivity Grovth and Capital Labor Ratios in Manufacturing 1966-69 Table 1.1: POPULATION TRENDS UN Mid-Year Estimate of: Population Annual Korean Census Crude Crude (Million Growth Population Birth Death Persons) in % (Million Persons) Rate Rate 1955 21.50 (Sept. 1) 1960 24.70 2.88 24.99 (Dec. 1) 1961 25.k0 2.86 1962 26.13 2.85 4.00 1.05 1963 26.87 2.84 3.93 1.02 1964 27.63 2.84 3.85 .99 1965 28.38 2.70 3.74 .96 1966 29.09 2.50 29.19 (Oct. 1) 3.49 .93 1967 29.78 2.4o 3.36 .89 1968 30.47 2.32 3.16 .87 1969 31.14 2.20 2.93 .83 1970 31.78 2.0 31.46 (Oct. 1) 2.80 .80 Sources: UN Mid-Y:ear Estimates: United Nations, Monthly Bulletin of Statistics. Korean Population Census: Economic Planning Board. Crude Birth Rate: Ministry of Health and Social Affairs, and Mission estimates of the effectiveness of the family planning program. Crude Death Rate: Ministry of Health and Social Affairs. Table 2.1: EXPENDITURE ON GNP (In billion won) 1964 1965 1966 1967 1968 1969 1970P At Current Market Prices Private Consumption Expenditure 585.96 669.08 805.90 973.55 1,191.75 1,471.92 1,858.40 General Government Consumption 61.95 76.Q2 104.82 132.17 175.28 222.69 279-68 Gross Domestic Fixed Capital Formation 80.54 117.64 205.99 264.00 402.35 547.30 625.60 Increase in Stocks 20.70 0.84 17.12 8.10 18.96 67.33 42.02 Exports of Goods and Services 42.06 68.61 106.81 144.61 209.30 287.81 377.53 Less Imports of Goods and Services 96.53 128.93 207.82 279.42 416.81 541.86 631.23 Statistical Discrepancy -3.14 -5.06 -14.16 -22.71 -28.36 -33.11 -7.69 Expenditure on GDP 691.5k 798.20 1,018.66 1,220.40 1,552.47 2,022.08 2,544.31 Net Factor Income from the Rest of the World 5.25 7.65 13.38 21.95 23.18 25.03 17.64 Expenditure on GNP 696.79 805.85 1,032.0k 1,242.35 1,575.65 2,047.11 2,561.95 Less Indirect Taxes 33.92 47.13 72.31 98.66 147.71 196.90 - Plus Subsidies 1.06 0.07 0.02 0.01 0.7 0.06 - Less Provision for Consumption of Fixed Capital 36.93 45.73 57.89 73.80 99.71 126.18 - National Income 627.00 713.06 901.86 1,069.90 1,328.70 l,724.09 - At Constant 1965 Prices Private Consumption Expenditure 620.44 669.08 716.99 783.92 873.58 969.91 1,079.51 General Government Consumption 71.18 76.02 84.76 93.42 105.64 118.53 125.65 Gross Domestic Fixed Capital Formation 93.33 117.6 190.63 232.09 325.63 407.76 oo.37 Increase in Stocks 21.08 0.8k 16.75 9.63 18.49 43.71 33.57 Exports of Goods and Services 48.75 68.61 104.49 141.83 200.83 264.95 322.59 Less Imports of Goods and Services 114.o 128.93 203.30 274.05 399.93 498.82 539.37 Statistical Discrepancy 3.0k -5.06 -9.58 -13.21 -19.16 -22.89 -3.92 Expenditure on GDP 743.78 798.20 900.7k 973.63 1,105.08 1,283.15 1,k18.40 Net Factor Income from Rest of the World 6.53 7.65 13.08 21.53 22.2k 23.0k 15.07 Expenditure on GNP 750.31 805.85 913.82 995.16 1,127.32 1,306.19 1,433.47 P = Preliminary. Source Bank of Korea. Table 2.2: INDUSTRIAL ORIGIN OF GNP (In billion won) 1964 1965 1966 1967 1968 1969 1970P At Current Market Prices Agriculture, Forestry and Fishery 320.27 311.63 372.31 395.48 454.46 588.76 727.80 Fishery ( 9.54) (13.62) (16.66) (24.03) (29.87) (34.68) (51.43) Mining 12.34 14.73 16.59 20.68 20.40 23.h4 29.82 Manufacturing 108.77 142.81 185.80 227.83 312.33 416.05 525.50 Construction 20.21 27.64 37.94 50.09 77.87 117.86 142.28 Electricity, Gas and Water 6.60 10.26 14.13 17.82 23.49 32.46 45.41 Electricity and Gas (5.73) (9.18) (12.81) (15.94) (20.53) (28.13) (39.99) Transportation, Storage and Communication 23.91 32.1-4 50.73 71.92 100.27 124.24 153.06 Transportation and Storage (19.99) (27.00) (40.32) (59.53) (82.89) (102.62) (125.77) Wholesale and Retail Trade 84.93 119.27 158.16 197.82 252.88 336.22 434.20 Banking, Insurance and Real Estate 9.93 12.75 16.81 21.47 30.54 41.19 55.19 Ownership of Dwellings 25.31 27.99 33.42 43.72 49.55 55.17 60.97 Public Administration and Defense 33.64 39.94 53.84 67.15 85.64 107.28 138.87 Other Services 46.17 59.04 78.93. 106.42 145.0o 179.40 231.21 Education (14.49) (15.81) (23.69) (31.81) (45.55) (56.10) (77.93) Rest of the World 5.25 7.65 13.38 21.95 23.18 25.03 17.64 GNP 696.79 805.85 1032.04 1245.35 1575.65 2047.11 2561.95 At Constant 1965 Prices Agriculture, Forestry and Fishery 314.31 311.63 345.91 326.90 330.84 370.36 377.67 Fishery (12.91) (13.62) (15.07) (17.56) (20.08) (20.80) (25.51) Mining 13.36 14.73 15.67 16.87 16.63 16.88 19.24 Manufacturing 116.78 142.81 265.76 205.33 263.01 321.56 378.-1 Construction 21.83 27.64 34.84 38.47 53.87 7h.4 75.61 Electricity, Gas and Water 8.47 10.26 12.24 15.77 19.32 25.11 30.47 Electricity and Gas (7.5h) (9.18) (11.09) (14.27) (17.143) (22.79) (27.68) Transportation, Storage and Communication 27.15 32.14 37.67 45.56 56.80 67.37 77.04 Transportation and Storage (22.98) (27.00) (31.87) (38.68) (48.15) (57.19) (65.59) Wholesale and Retail Trade 109.97 119.27 139.43 163.91 190.67 221.92 260.02 Banking, Insurance and Real Estate 22.02 12.75 13.79 14.59 17.71 19.31 22.03 Ownership of Dwellings 27.32 27.99 28.93 30.09 31.50 33.08 34.85 Public Administration and Defense 38.88 39.94 42.71 45.78 48.23 50.25 52.58 Other Services 53.69 59.o4 63.79 70.36 76.50 82.87 90.75 Education (14.76) (15.81) (17.16) (18.00) (19.20) (20.40) (21.87) Rest of the World 6.53 7.67 13.08 21.53 22.24 23.04 15.07 GNP 750.31 805.85 913.82 995.16 1127.32 1306.19 1433.147 P = Preliminary. Source: Bank of Korea. Table 2.3: GROSS DOMESTIC FIXED CAPITAL FORMATION BY SECTORS (In billion Won) A. At Current Market Prices Sector 1965 1966 1967 1968 1969 1970 Agriculture, forestry and fishery 13.67 24.83 23.26 30.73 34.96 43.22 Mining and quarrying 1.49 2.11 2.53 4.18 3.80 3.46 Manufacturing 30.46 64.94 68.61 95.49 112.10 117.86 Construction 1.44 2.10 2.22 11.43 12.13 10.05 Electricity, water and sanitary services 7.10 10.48 22.12 43.55 64.63 77.97 Transport, storage and communication 24.06 50.80 76.23 104.95 164.03 168.L4 Wholesale and retail trade 7.84 7.81 11.12 16.83 30.20 39.60 Banking, insurance and real estate 0.50 0.98 0.87 3.53 5.07 6.59 Ownership of dwellings 13.92 21.18 25.86 46.20 54.44 76.98 Public administration 1.96 2.48 5.31 10.48 10.68 12.80 Services 15.20 18.28 25.87 34.98 55.26 68.63 Total 117.64 205.99 264.00 402.35 547.30 625.60 B. At Constant 1965 Prices Sector 1965 1966 1967 1968 1969 1970 Agriculture, forestry and fishery 13.67 23.16 19.24 23.82 24.26 25.c6 Mining and quarrying 1.49 2.01 2.24 3.20 3.39 2.81 Manufacturing 30.46 61.72 64.22 79.71 90.74 86.16 Construction 1.44 2.00 2.11 10.82 10.90 8.26 Electricity, water and sanitary services 7.10 9.55 19.13 34.53 48.10 47.84 Transport, storage and communication 24.06 46.97 67.68 89.50 122.55 109.13 Wholesale and retail trade 7.84 6.99 9.25 12.38 20.43 22.89 Banking, insurance and real estate 0.50 0.87 0.75 2.77 3.78 4.30 Ownership of dwellings 13.92 18.42 21.01 33.66 36.11 43.00 Public administration 1.96 2.28 4.55 7.87 7.90 7.92 Services 15.20 16.66 21.91 27.37 39.60 43.00 Total 117.64 190.63 232.09 325.63 407.76 400.37 Source: Bank of Korea. Table 3.1: COMMODITY COMPOSITION OF EXPORTS (f.o.b. in million U.S. dollars) SITC Code Commodities 1965 1967 1968 1969 1970 0 Food and Live Animals 28.2 37.9 44.5 50.3 65.5 03 Fish and fish preparations 17B 26.9 -2.5 29.0 T0.7 0 Cereals and Cereal preparations 3.6 0.8 0.8 1.5 1.3 042 Rice 3.2 - - - 05 Fruits and vegetables 5.5 9.0 15.6 16.4 19.5 054 Dried laver 3.3 6.5 13.7 12.6 13.0 1 Beverage and Tobacco 0.9 7.0 8.6 14.9 14.2 12 Tobacco 0.9 _.7 7. 13-.6 1. 2 Crude Materials Inedible (excluding fuels) 37.0 58.0 61.5 73.0 100.0 26 Txtile fibers (not manufactured) -7.7 17. 70. -T. . 261 Raw silk 6.5 14.9 18.0 23.8 35.8 27 Crude fertilizer and crude materials 4.4 5.8 6.3 7.4 9.4 28 Metalliferrous ores and metal scrap 17.7 21.6 25.8 26.4 31.8 281 Iron ore 6.7 6.1 7.3 6.1 4.5 283 Tungsten ore 6.3 11.0 11.1 12.4 17.2 29 Crude animal and vegetable material 6.9 10.9 9.3 11.7 15.6 292.4 Ginseng 1.9 2.9 4.4 5.9 9.2 292.9 Agar-agar 2.3 4.7 1.8 1.6 1.2 3 Mineral Fuels 1.9 1.8 2.3 4.8 8.8 4 Animal and Vegetable Oils and Fats 0.1 0.1 0.1 0.1 0.1 5 Chemicals 0.4 2.4 3.1 9.8 11.4 6 Manufactured Goods by Material 66. 101.4 143.6 173.8 220.9 62 Rubber manufactures 1.0 2.0 _2.3 2.7 3.7 63 Wood and cork 18.2 36.6 65.9 80.5 93.5 631 Veneer sheets and plywoods 18.0 36.4 65.6 79.2 91.8 65 Textiles 26.3 49.0 61.2 65.7 85.0 652 Cotton fabrics, woven 10.5 12.6 13.3 18.6 26.1 66 Non-metallic mineral manufactures 2.8 1.0 0.9 5.2 6.5 67 Iron and steel 12.7 1.9 1.2 4.9 13.4 68 Non-ferrous metals 2.9 1.8 1.5 4.8 5.8 69 Manufactures of metal 2.2 7.0 9.7 9.8 12.2 7 Machinery and Transport Equipment 5.5 14.2 24.5 53.2 61.5 71 Machinery, excluding electrical 7. T.7 . 79 .7 72 Electrical machinery and appliances 1.9 7.4 18.9 36.7 43.9 73 Transport equipment 1.1 2.8 1.4 7.6 9.2 8 Miscellaneous Manufactured Articles 31.5 97.2 167.0 212.3 352.5 84 Clothing 20.7 79.2 112.2 160.9 -2-. 85 Footwear 4.1 8.1 11.0 10.5 17.3 89 Miscellaneous manufactures 8.9 27.6 40.9 66.9 111.1 899 Human hair and wigs 6.8 23.3 35.5 60.2 100.9 9 Classified 0.2 0.2 0.2 0.3 0.1 Total Eports 175.1 320.2 155.4 622.5 835.2 Exports to military forces in Vietnam 14.5 30.8 29.0 n.a. Grand Total 334.5 486.2 651.5 b/ Figures are not available, but included in the item "Government" in the balance of payments statement. Source: Bank of Korea. Table 3.2: ANALYSIS OF GROWTH AND COMMODITY COMPOSITION OF iXPORTS Annual Average SITC Composition (%) Rate of Growth (%) 1970 over Code Commodity 1964 1969 1964 - 1969 1969 (%) 0 Food and Live Animals 22.2 8.1 13.8 30.2 03 Fish and fish preparations 12. M.7 13.9 0.7 Oh Cereals and cereal preparations 2.0 0.2 -5.5 -13.3 05 Fruit and vegetables 5.7 2.6 23.9 18.9 1 Beverage and Tobacco 0.2 2.4 48.9 -4.7 2 Crude materials inedible 26.4 11.7 18.4 37.0 26 Textile fibers (not manufactured) 5.0 7. 30.1 57.2 27 Crude fertilizer and crude material 3.7 1.2 10.8 27.0 28 Metalliferrous ores and metal scrap 11.1 4.2 15.6 20.5 29 Crude animal and vegetable material 5.4 1.0 12.5 33.3 3 Mineral fuels, lubricants and related materials 2.1 0.8 16.4 83.3 5 Chemicals 0.5 1.6 77.7 16.3 6 Manufactured goods by materials 35.5 27.9 33.5 27.1 63 Wood and cork manufactures 9.7 12.9 0. 1.1 65 Textiles 16.5 10.6 28.7 29.4 67 Iron and steel 3.8 0.8 28.0 173.5 68 Non-ferrous metals 2.4 0.8 24.0 20.8 69 Manufactures of metals, n.e.s. 0.8 1.6 69.3 24.5 7 Machinery and Transport equipment 1.8 8.5 90.4 15.6 71 Machinery, excluding electrical M.1 . 7T. -. 72 Electrical machinery and appliances 0.8 5.9 99.0 19.6 73 Transport equipment 0.6 1.2 89.6 21.1 8 Miscellaneous manufactured articles 11.1 38.9 72.5 45.5 84 Clothing 57 9057go.6 27 85 Footwear 0.8 1.7 70.9 64.8 89 Miscellaneous manufactures 4.2 10.7 46.2 70.6 4, 9 Others 0.2 0.1 25.0 Total Exports 100.0 100.0 38.6 34.2 Source: Calculated by the Mission. Table 3.3: DESTINATION OF EXPORTS (in thousand US dollars) Country 1965 1966 1967 1968 1969 1970 USA 61,695 95,782 137,31 237,021 315,673 395,182 Japan 43,974 66,293 84,726 99,744 133,326 234,329 Canada 2,542 5,765 7,991 14,165 15,115 19,553 China (Taiwan) 1,92 2,075 3,104 5,750 13,275 7,210 France 526 954 2,116 2,s590 1,752 1,568 Federal Republic of Germany 3,191 6,975 5,286 9,636 16,415 27,330 Italy 1,180 1,243 1,087 1,600 3,566 7,182 U. K. 3,592 5,066 7,883 7,026 10,560 13,021 All Others 56,ho 66,181 70,682 77,869 112,834 129,810 Total 175,082 250,334 320,229 455,4ol 6222516 8353185 Source: Bank of Korea. Table 3.4: COMMODITY COMPOSITION OF IMPORTS (c.i.f. in million U.S. dollars) SITC Code Commodities 1964 1965 1966 1967 1968 1969 1970 0 Food 68.2 63.5 72.4 94.1 167.5 301.7 319.4 04 Cereals and cereal preparations 60.T -5.7 _1.3 -7*. 129.3 _250.1 2.7 01 Wheat 36.8 35.9 ho.5 46.3 62.8 90.3 79.5 06 Sugar and sugar preparations 3.8 4.o 6.2 9.7 12.3 21.4 28.9 1 Beverages and Tobacco .1 .2 .3 .8 1.4 1.7 1.6 2 Crude Material, Inedible (excluding fuels) 97.1 110.0 153.9 208.5 267.1 332.4 404.5 23 Crude rubber (excluding synthetic) T7 -.E V-.1 10o.2 -11.6 -17.3 -17 24 Wood, lumber and cork 18.5 20.8 43.1 58.5 91.5 108.5 125.4 25 Pulp and paper 9.4 9.4 12.9 16.6 22.5 25.2 33.5 26 Textile fibers (not manufactured) 52.8 59.7 66.6 80.3 90.3 96.7 119.8 2631 Raw cotton 37.3 40.8 42.8 49.3 49.1 52.0 62.7 27 Crude fertilizer and crude minerals 4.3 4.7 5.1 12.6 16.0 22.5 23.3 28 Metallic ores and metal scrap 3.9 5.1 13.3 20.6 27.7 48.2 70.3 3 Mineral Fuels, Lubricants and Related Materials 28.5 31.3 42.4 61.6 75.5 110.9 136.0 33 Petroleum and petroleum products TS7 =79 T - 56 9 1 _ 07T7 3.0 4 Animal and Vegetable Oils and Fats 3.9 3.8 5.5 6.9 8.3 12.3 15.2 5 Chemical 84.3 103.4 134.5 113.0 128.5 136.7 163.8 51 Chemical elements and compounds 7 1 20. 3 9 1 r67 53 Dyeing, tanning and coloring materials 3.7 4.8 4.6 7.1 7.8 10.3 11.7 54 Medicinal and pharmaceutical products 3.8 4.9 6.1 7.5 11.8 13.1 15.2 56 Fertilizers, manufactured 55.9 65.8 88.9 43.9 30.6 11.9 4.1 58 Plastic materials 3.3 6.5 7.9 10.9 16.2 25.2 37.0 6 Manufactured Goods 46.1 71.2 125.2 183.7 242.2 278.7 306.0 65 Textile yarn fabrics .6 26.9 45.2 7-7 -1.7 109.6 127.1 66 Non-metallic mineral manufactures 2.1 1.5 6.1 12.5 9.2 9.8 9.0 67 Iron and steel 14.8 24.7 39.5 56.1 69.3 84.5 89.6 68 Non-ferrous metals 4.2 9.0 11.2 12.4 16.1 18.5 20.3 684 Aluminum 1.7 4.0 6.1 7.0 9.1 10.0. 5.2 69 Manufacture of metal 3.0 7.1 18.8 26.7 34.3 45.5 44.0 7 Machinery, Transgrt Equipmnt 69.5 73.1 171.7 310.2 533.0 593.2 589.5 71 Machinery (except electrical) _3T. 3=. 6 U 2 7 9 -TO-T.d? 6 TO_ 72 Electrical machinery 19.7 12.6 26.1 47.6 95.9 113.7 132.9 73 Transport equipment 11.6 25.2 50.0 121.4 154.3 172.5 150.8 8 Miscellaneous Manufactured Articles 5.3 6.8 10.5 17.2 38.9 55.2 47.2 86 Professional, scientific instrument -77 -T. -573 -9.7 -Z 1.7 -"9. - 21. 9 Not Classified 1.3 0.2 - 0.1 0.4 0.9 0.7 TOTAL IMPORTS 404.4 463.4 716.4 996.2 1462.9 1823.6 1984.0 Source: Bank of Korea, Economic Statistic Yearbook; Monthly Statistical Review NOTE: (-) denotes small magnitude. Table 3.5: COPOSITION OF IMPORTS 1965 AND 1970 Amount Camposition (in million U.S.$) (in percent) 1965 1970 1965 1970 Consumer Goods 71.7 329.4 15.5 16.6 Cereals 5S.4 24h.8 11.7 12.3 Mac. Manufacturing 2.9 47.3 0.6 2.4 Others 14.4 37.3 3.1 1.9 Intermediate Goods 310.0 1,008.4 66.9 50.8 Wood and lmber 20.9 125.4 4.5 6.3 Textiles fabrics 59.7 119.8 12.9 6.0 Metal 5.1 70.3 1.1 3.5 Petroleum 28.9 132.9 6.2 6.7 Chemical elements, etc. 16.0 77.8 3.5 3.9 Fertilizer 65.8 4.1 14.2 0.2 Plastic 6.5 37.0 1.4 1.9 Textile materials 26.9 127.8 5.8 6.4 Iron and Steel 24.4 89.6 5.3 4.5 Others 55.8 223.7 12.0 11.3 Ca ital Goods 82.8 645.5 17.9 32.5 Non-electric machinery 36.9 300.2 8.0 15.1 Electrical machinery 11.5 126.6 2.5 6.4 Transport machinery 25.2 150.8 5.4 7.6 Others 9.2 67.9 2.0 3.4 TOTAL 663.4 1984.0 100.0 100.0 Note: The categories of functional classifications are defined as follows. The numbers are SITC codes. Consumer Goods - 0(except 06 and 08), 1, 43, 54,, 55, 7173, 7242, 7250, 8 (except 86). Intermediate - 06, 08, 2, 3, 4 (except 43), S (except 54, 55), Goods 6 (except 62 and 69). Investment Goods - 62, 69, 7 (except 7173, 7242, 7250) 86. Source: The Bank of Korea, "Economic Statistics Year Book," 1969, 1971. Table 3.6: IMPORTS BY SOURCES OF FUNDS AND BT COUNTRIES (c.i.f. in million U.S. dollars) Korean Official External Relief and Total Foreign Exchange Aid Loan Other Imports Imports Imports I Imports U.S .A. 1965 182.29 28.81 120.94 32.53 1966 253.69 57.42 136.25 14.58 45.45 1967 305.16 139.76 109.60 40.88 14.93 1968 452.45 193.48 145.09 73.66 40.22 1969 530.18 195.29 118.82 111.30 104.76 1970 584.79 259.23 159.23 159.84 64.8 Japan 1965 166.63 144.69 3.11 18.82 1966 293.79 226.28 3.90 50.54 13.08 1967 443.03 330.99 4.42 90.24 17.38 1968 624.12 480.61 0.44 129.28. 13.79 1969 753.82 500.93 0.19 228.53 24.16 1970 809.28 562.43 0.50 155.45 90.89 Canada 1965 1.64 0.82 0.62 0.20 1966 2.69 1.79 0.22 - 0.69 1967 8.39 4.13 2.15 1.79 0.32 1968 12.67 8.87 1.08 0.48 2.24 1969 22.67 19.14 0.83 0.31 2.05 1970 23.16 21.89 0.70 0.24 0.32 China (Taiwan) 1965 10.47 7.23 2.96 0.28 1966 10.83 8.29 2.48 0.04 0.02 1967 27.22 26.09 0.94 0.18 0.02 1968 15.95 15.54 - 0.23 0.18 1969 23.20 22.81 - 0.30 0.09 1970 34.0 33.82 - 0.06 0.11 France 1965 2.50 0.23 - 2.28 1966 10.91 0.35 - 10.41 0.15 1967 16.72 112 - 15.26 0.04 1968 13.74 1.30 - 12.37 0.07 1969 36.42 1.47 - 34.89 0.06 1970 52.24 3.70 - 48.41 0.12 (Continued) Table 3.6: IMPORTS BY SOURCES OF FUNDS AND BY COUNTRIES (Continned) Fed. Rep. of Germany- 1965 16.05 8.69 0.01 7.36 1966 20.25 9.76 - 9.68 0.81 1967 30.95 17.67 - 12.81 0.48 1968 73.63 30.37 0.64 41.35 1.26 1969 78.97 36.08 - 41.71 1.19 1970 67.20 23.46 0.08 42.00 1.73 I .sak.. 1965 1.85 1.6o - 0.25 1966 16.08 2.17 - 13.86 0.06 1967 6.36 3.28 0.01 3.03 0.04 1968 21.57 5.54 - 15.80 0.24 1969 17.76 6.31 - 11.24 0.21 1970 19.58 7.46 - 11.94 0.18 U.K. 1965 1.19 0.85 0.06 0.28 1966 2.21 1.26 0.16 0.50 0.29 1967 5.26 4.38 0.03 0.62 0.23 1968 15.56 11.04 - 3.9k 0.58 1969 32.04 20.61 - 10.24 1.19 1970 33.0 18.22 - 13.83 0.75 Total 1965 382.62 192.92 127.70 62.00 1966 610.49 307.32 1h3.01 99.61 60.55 1967 843.12 527.72 117.15 164.81 33.k4 1968 1,229.69 746.75 147.25 277.11 58.58 1969 1,494.71 802.64 119.84 438.52 133.71 1970 1,623.75 930.21 161.12 372.85 158.90 1/ Excludes imports from all other countries. Source: Bank of Korea. Table 3.7: RECEIPTS AND PAYMENTS ON GOODS AND SERVICES (in million U.S. dollars) A. Receipts 1964 1965 1966 1967 1968 1969 1970 1. Exports, f.oebe 1191 17q_1 250.3 33.7 486.2 658.3 882.2 2. Non-monetary gold 0.9 0.5 0.1 - 0.:1 - - 3. Freight and-insurance on merchandise 2.5 4.5 9.9 10.7 17.3 31.3 34.5 4. Other transportation 2.9 3.4 3.9 6.4 10.3 13.1 20.7 5. Travel 2.8 7.7 16.2 16.3 16.9 16.2 18.7 6. Investment Income 3.8 3.7 5.6 10.1 12.4 37.9 38.0 7. Government,n.i.e., 75.7 88.1 136.5 208.9 257.4 299.1 279.9 of which (7.1 Military service) (63.7) (74.0) (100.9) (162.6) (216.6) (249.4) 8. Other services 3.3 6.8 32.2 55.8 79.7 94.8 98.2 Total 211.0 289.8 454.7 642.9 880.3 1150.7 1372.2 B. Payments 1. Imports, f.o.b. 364.9 415.9 679.9 908.9 1322.0 1650.0 1761.3 2. Non-monetary gold - - - - - - - 3. Freight and insurance on merchandise 30.1 32.4 46.8 63.0 90.7 116.5 132.8 4. Other transportation 8.3 10.7 10.6 8.6 13.9 16.8 22.1 5. Travel 2.4 1.7 3.2 8.4 10.5 11.0 12.4 6. Investment income 1.7 2.3 5.0 11.9 17.8 42.5 81.8 7. Government, n.i.e. 13.6 12.8 13.7 19.2 24.5 24.8 30.5 8. Other services 11.0 8.2 18.5 40.0 67.3 83.5 110.3 Total 432.0 484.0 777.7 1060.0 1546.7 1945.1 2151.2 C. Balance -221.0 -194.2 -323.0 -417.1 -666.4 -794.4 -779.0 Balance, excluding investment income and payments -223.1 -195.6 -323.6 -415.3 -661.0 -789.8 -735.2 .Sourc: IM Balanne rf Pa-tmenYa rbook. Table 3-8: BALANCE OF PAIWTS 1964-1910 M& 1965 1966 1267 168 1 1970 A. Goods and Services -221.0 -1914.2 -323.0 417.1 -I64 +;II-4 )Q2_2 1. Trade Balance - . -240.3 -9429.5 -574.2 -835.7 -991.7 -9 1. Export, f.o.b. 119.1 175.1 250.3 334.7 486.2 658.3 882.2 2. Imports, f.o.b. -364.9 -415.9 -679.9 -908.9 -1322.0 -165o.0 -1761.3 3. Non-monetary gold 0.9 0.5 0.1 - - - II. Net Services 246.1 106.5 157.1 169.3 1 100.1 4. Freight, transportation, and merchandise insurance -33.0 -35.2 -143.6 -514.5 -77.0 -88.9 -99.7 5. Travel 0.14 6.o 13.0 7.9 6.4 5.2 6.3 6. Investment income 2.1 1.4 0.6 -1.8 -5.4 -4.6 -43.8 7. Government, n.i.e., of which: 62.1 75.3 122.8 189.7 232.9 274.3 249.4 7.1 Military (63.7) (714.0 (100.9) (162.6) (216.6) (2149.14) (232.2) 8. Other services -7.7 -1.4 13.7 15.8 12.4 11.3 -12.1 B. Transfer Payments 194.9 2n3.3 2i9.6 225.2 226.1 244.2 1.6 9. Private 53.9 68.7 97.6 90.7 105.5 140.3 95.2 10. Central Government, of which: 141.0 134.6 122.0 134.5 120.6 103.9 82.4 10.1 (uS Government grants) (139.7) (134.8) (94.2) (95.8) (87.9) n.a. (53.7) 10.2 (Japanese Government grants) ( ) ( - ) (29.3) (37.4) (30.0) n.a. (28.2) Balance on Current Account (A+B) -26.1 9.1 -103.4 -191.9 -440.3 -550.2 ..60 C. Caital Movements-2.2 221.4 291.9 440.6 649.8 11. Direct investment -0.8 0.3 13.14 11.3 19.9 15.9 65.2 12. Other private long-term, net, of which: 12.5 39.4 163.8 224.6 381.9 374.7 254.1 12.1 (From US Goverment) (3.8) (1.2) (35.8) (60.0) (32.0) 12.2 (From German Government) (0.8) (1.3) (2.1) (3.0) (n.a.) (n.a.) (n.a.) 12.3 (From Japanese Government) ( . ) ( - ) ( - ) (18.4) (n.a.) (n.a.) (n.a.) 12.4 (From UK Government) ( - ) ( - ) ( - ) (0.9) (n.a.) (n.a.) (na.) 12.5 (From private lenders) (7.9) (36.9) (125.9) (142.3) (209.5) (n.a.) (n.a.) 13. Other private short-term, neta7 -4.4 -23.1 6.4 42.7 13.2 56.5 122.4 11. Central and local Government loans, not 16.6 -18.8 40.8 16.3 31.4 205.71 of which: 1b.1 (From US Government) 1.8 - 17.6 17.4 14.8 n.a. 14.2 (IDA) 3.9 - - - 7.3 n.a. 14.3 (From Japanese Government) - - 14.1 7.0 3.9 178.9 14.4 (European 0.E.C.D. Governments) 3.4 2.0 2.3 1.0 -0.2 n.a. 14.5 US Goverment holding of Korean currency -0.9 -11.3 3.2 -7.1 0.3 -0.1 14.6 Trade credits on imports of US surplus agricultural commodities 2.1 -1.9 h.5 -2.9 5.9 26.9 14.7 Others 6.3 -7.6 -.9 0.9 -0.6 - 15. Capital subscriptions -0.3 - -3.0 -3.0 -5.8 -3.0 3.0 D. Monetary Sectors (- - increase) 3.6 -4.9 -117.6 -1ll.1 -4.4 -9h.9 2 16. Commercial banks assets, net 1.3 -1.1 -0.5 -53.9 128.6 26.7 84.1 17. Central institutions assets, net 2.3 -3.8 -117.1 -57.2 -133.0 -121.6 -54.9 E. Errors and Omissions -2.0 -0.4 11.1 4.1 -4.7 9.2 P = Provisional. a/ Trade credits of maturity of more than 12 months but less than 3 years are included here instead of in Item 12 as separate information is not available. Source: IMF, Balance of Payments Yearbook. Vols. 19, 20, 21. REVISED TAE 4.11. KORtACSOUTH) 8/25/71 E1TRANAL PUBLIC DEBT OUTSTANDING AS OV DECEMIER 31A1970 DEST REPAYABLE IN FOREIGN CURRENCY IN THOUSANDS Of U6s6 DOLLARS Page 1 DEST OUTSTANDING DECEMBE9 3ol?01 CREDITOR COUNTRY UNDIS* TYPE OF CREDITOR DISBURSED SURgED TOTAL MULTIPLE LENDERS 28752 24s942 53*694 AUSTRIA 4.246 28#914 33*160 BELGIUM 40554 10*248 14*802 FRANCE 43A713 13*9506 57*663 GERMANY (FEDoREPeOF) 1100079 9s990 120*069 HONGKONG 40558 S 4A558 ISRAEL 921 56 977 ITALY 49*829 14#984 641813 JAPAN 296#590 540222 3501812 LIBERIA 12#808 12,808 MEXICO 313 * 313 NETHERLANDS 2P060 5039 7A009 NORWAY 1*921 10921 SWEDEN 2s964 20964 S ITZERLAND 8*190 * 80190 UNITED KINGDOM 33*721 96*11.; 129P840 .USA 2790203 68#897 348100 SUPPLIERS 8640422 327O361 121157 MULTIPLE LENDERS 38#221 55#543 93pN4 FRANCE 40500 * 4P500 GERMANY CFED#REP&OF) 772 92 864 LUXEMBOURG 9*000 9s000 UNITED KINGDOM 10#375 200729 31P104 USA 39P949 4,0467 44>416 PRIVATE BANKS 10261? 809838 183648 JAPAN 474 474 NETHERLANDS * 4>255 49235 PAAiAMA 32P950 4.330 37.480 UNITED KINGDOM * 606386 60#636 USA 21P815 * 21#815 OTHER PRIVATE FINANCIAL INSTI 55s33q 69#471 124#710 ASIAN DEVoBANK 90707 41#593 51#300 IBRD 9#649 100.309 109#958 !OA 26725 310560 58#293 LOANS FROM INTL* ORGANIZATIONS 460081 1t3#470 219*551 CANADA 985 * 985 DENMARK O 2*667 20667 GERMANY (FED*REPsOF) 32#798 14#544 470342 See note at end of table. REVISED TABE 4.1 * NORACSOUTM) 8/25/71 ExttRNAL PUILI 0tt OUtSIANDING AS Of DEMBER 31A1O DEBT REPAYABLE IN FOREIGN CURRENCY IN THOUSANDS Of U.S. DOLLARS Page 2 0887 OUTSTANDING DECEMBER 3101970 CREITOR COUNTRY UNOISN TYPE Or CREDITOR DISBURSED BURIED TOTAL I4DA * 5294 5#294 JAPAN 14001; 34#938 174#953 NETHERLANDS 10994 10994 UNITED KINGOM 1#027 * 1027 USA 445#941 176#714 622655 LOANS PROM GOVERNMENTS 4220?60 2340157 8560917 GERMANY (FED. REP. OF) 1#P16; ,01 JAPAN 22s083 10045 23#128 USA 380975 1s20 400180-- UNCLASSIFIED TOTAL EXTERNAL PUBLIC DgST 1es294 886495 2d36#769 Note: Debt with a maturity of over one year but excluding unguaranteed debt. 00NOMIC AND -SOCIAL DATA DIVISION ECONOMIC PROGRAM DEPARTMENT REVISED TABLE t�.2 ' KOREAI SOUTN ) 09/07/71 EXTERNAL PUBLIC ОЕ8Т AS OF DECEM9ER Э1�1970 DEBT REPAYABLE 1И FOREIBN CURRENCY Iл TYv�ivA�:OS �� _11.Q. _1�А1 1 �дС У• У��/� УУУУ��\� Т У rage i тотА� DEBT OUTSTANOINб TRANSACTIONS DUR1Nб PERI00 BEбINNINб OF PERI00 CANCEI• LATIONSr OI58URSE0 INCLUO2Nб COMMIT• OISBURSE` SERVICE PAYMENTS AOJUST• YEAR ONLY UNOISBURSED MENTS MENTS PRINCIPAL IkTEREST TOTAI MENTS с1� с2' сэ' ер� сsэ сб� ст' са� 19bб 129,21Э 371,014 329в421 18$,972 1Э,l19 3s560 lбвбТ9 •2s053 1967 Э06.Об5 685,263 596,.184 331,715 26,Э58 9,Т28 36,08б "3,б86 1968 610д171 1в251,4АЭ 5Q5в465 410,000 50,692 15д4Э9 66в131 4,Э24 1969 9б8в398 1,750,500 '703,029 667,520 109,118 31�479 140в597 '18в070 1970 1,532,359 2,Э26,341 56®с458 �д20,022 20f,13б 60,Э26 261в462 '48,874 1971 1в7�50,294 2,б36в789 ' 475,090 277,975 79,572 357д547 'S4,g�� 1972 1,907,89i 2,ЭОЭв941 • 156,248 229,683 85,291 Э14,974 • 1973 1д8Э4,45б 2,074,258 ' 84,008 207,494 80,218 281д7l2 - 1974 1,710в970 1,866,764 • 68,068 202,604 71,280 27Э,684 - 1975 1,576,4ЭЭ 1,бб4►160 ' Э8,9Э1 18Т,258 61,751 249в009 • 1976 1,428,107 1,476в902 • 20,184 158д495 55,724 214,219 • 1977 1,289,795 1,Э18,407 ' 22,023 135в4б5 48вб56 184,121 • 1978 l,17б,Э52 1,182,942 ' S,714 122,195 42,571 164в76б • 1979 1,059,871 1,060,747 • 529 10Т,488 37�,138 144,б2б - 1980 952,912 95Э,259 • 239 100л1Э8 37,073 137,2f0 - 1981 853,014 85Э,122 • 72 80,164 27,774 107,938 - 1982 772в922 772,958 • ЭЬ 59в924 24,Э65 84в289 � 1983 71Э,0Э4 713,034 ' " 51,299 21,99б 7Э,295 • 1984 661,7Э5 661,735 • • 5Эд158 19д713 72,8fi2 ° 1985 б08,576 608►576 • • 45,054 17,596 62,650 - See note at end of tаЫе. " REVISED ТАВZГ 1д.2 • KOREA ( SOUTH ) 09/О7/71 EXIERNAL PUBLIC ОЕ8Т AS ОР' DECEMBER 3l,19ТО ОЕ8Т RE�AYAB�E IN FORE20N CURRENCY IN THOUSANDS OF U�S• OOLLARS Page 2 LOANB �'ROM tiOVERNMENT3 ОЕ8Т OUTSTANOING TRANSACtZONS,OURINб PERIOD BEбlNNINa 01� PERIOD CANCEL� LATiONS, OtS8UR3ED INCLUOtNб COMMIT• OESBURSE• 3ЕйV2СЕ РАУМЕИТS ADJUST• YEAR ONLY UNptSBURбEO NENTS МЕИТ� PRINC2PAL 2NTEREST TOTAL NENTS (!) (2) (Э) (4) (5) (б) (Т) (8) 1966 51,Об3 180в3Э7 156вЭ49 71,424 995 1в075 2вОТ0 •1s027 1967 121,491 334r664 80в097 112,252 Э,538 2в024 5,562 •1в79Э 1968 228,949 409�4Э0 150,ЭТ5 б2в895 3в704 4►2Э1 7в935 •1,851 19б9 288,140 554в250 153,580 2Э7,7Т0 30в451 7в582 Э8,03Э 119 19i0 498,15Э 67Т,498 212в483 145r749 21в019 9вб79 ЭО,б98 •12в045 1971 622,760 85б�917 • 97,49�7 28,0Э7 1Э,579 41,61b •б,9Э5 1972 б93,1ц1 821,946 • 41,11Э 23в757 14,83Э Э8в589 _- 197Э 710�498 798,189 • 34в243 14в212 1Ч,984 29i196 • 19Т4 ТЭ0,529 783,97Т • 29,248 14в64Э 15,702 30rЭ45 • 1975 745,134 Тб9,3Э4 • 9в520 20в127' 16,440 3Ь,567 • 19Тб 7Э4,527 Т49,207 • 9в224 21,970 1Т,881 39,851 • 19Т7 721s781 Т2Т,237 • 4в841 22,457 18в005 40в462 °' 19i8 704,165 704в7Т9 • 240 26в715 17,434 44►149 � 19Т9 677r691 678,Об5 • 195 Э0,915 16в9Тб 4Т,891 • 1980 64бв970 b47вf50 • Т2 35в064 17в125 52в189 • 1981 б11в978 612,086 • 72 35,459 1b,299 51,758 ' 1982 5)'6,591 576вб2Т • 36 35в522 15в1б2 50r685 • 198Э 541,105 541,105" • ` 3Э,552 14,025 47,577 • 1984 50ув55Э 507,553. • • ЗЭвЭSЭ 12,994 4б,Э08 • 1985 474в200 474i200 ' • 3Эв252 11в887 45,139 • See note at end of tаЫе. REVISED TABLE 4.2 - KOREACSOUTH) 09/07/?l EXTERNAL PUBLIC DEBT AS OF DECEMBER 31P1910 DEBT REPAYABLE IN FOREIGN CURRENCY IN THOUSANDS OF U&S* DOLLARS Page 3 LOANS FROM INTL# ORGANIZATtONS DEBT OUTSTANDING TRANSACTIONS DURING PERIOD BEGINNING OF PERIOD CANCELO LATIONSP DISBURSED INCLUDING COMMITO DISBURSEO SERVICE PAYMENTS ADJUSTO YEAR ONLY UNDISBURSED MENTS MENTS PRINCIPAL INTEREST TOTAL MENTS cl) C2) (3) c4) CS) W c?) ca) 1966 13P992 14POOO 104 104 1967 13P992 13P992 11#000 52 52 1968 13,9993 24P993 15,#300 8P312 141 141 1969 22#305 4OP293 104#300 100-570 175 175 1970 32#875 144P593 75-0000 13P248 4; IP292 IP334 1971 46PO81 219#551 52#140 1.002 2#347 3#649 1972 96P919 218#249 30#195 3#893 3P907 7p801 1973 123P221 210355 22P321 5P588 5,o686 lIP274 1974 139#954 20OP767 21i570 7,9245 6P858 14#103 1975 154#279 201PS22 14#857 7*52? 7P276 10802 1976 161P609 193P995 1OP475 8P681 IP473 16#155 1977 163P403 185*314 16j-772 9,0100 IP519 16P619 1978 171PO75 176*214 5PI39 9#560 7P956 ITP516 1979 166P654 166#654 11P179 7#784 18#963 1980 155P475 155P475 1OP238 7.*195 17#433 1981 145P237 145P237 8#642 6PS57 15,P200 1982 136p595 136#595 6#563 6*011 12P573 1983 130#032 130P032 6P304 5#606 11#911 1984 123P?28 123P?28 6PI65 5.o219 lIP384 1985 117#563 117P563 6,9062 4P853 10.0915 See note at end of table. REVISED тАвт� 4.2 • KOR�A�SOUTH) 09/07/71 EXTERNAL PUBLIC ОЕВТ А5 OF OECENBER �1sl970 ОЕ8Т REPAYABLE 1Ч FORE2бN CURRENCY IN THOUSANOS OF' U�S• OOLLARS Page 1t SUPPI�IERS � DEBT OUT5TANDINб TRANSACTIONS DURINб PERi00 BEбINNINб OF' PERI00 CANCEL• LATiONSi DISBURSEO INCLUDING COMMIi• D258URSE' 3ERVYCE PAYMENTS ADJUST• YEAR ONLY ' UNDI58URSE0 NENTS MENTS PRINCIPAL INTEREST TOTAL W�NTS с11 cz1 с31 с41 с91 сб1 с71 ceS 1966 62вb20 1У5в1Э9 1б8,912 117r898 12в124 2в277 l4в401 •1,018 1967 168,Э94 330в909 462,417 186,701 22в512 7в422 29,934 •1,894 19б8 332rS87 768�ь920 31Эв1Э2 319r030 4Э,975 9в882 53в857 �1,Э38 1969 бОбв561 1,ОЭбв739 270,915 323,589 72,422 19в008 91в4Э0 •9,926 1970 8б1,Э4Э 1,225,306 154,537 185r602 161,694 Э9,Э45 201,0Э9 •6,Эбб 1471 984,422 1,211в)8Э • 2Э9,954 223s428 54в252 ?.77,б80 •6�,046 1'q7'2 900,8q1 982вЭ09 • 60,802 164,7б5 53,341 21д,106 ` 19ТЭ 796,878 817в544 • 1Эв58-1- 161,9-8б 47,453 209►4Э9 • 19Тц 648,473 655в558 " 4в778 145,8б2 Э%,3б9 18Э,2Э; '• 1975 507,389 509,69б '� 2,082 177в811� 29в285 157в096 • 1976 Э91,бб0 381,885 • 150 109,58Э 22,Э0Э 131,886 + 1977 272r227 2Т2�Э02 • 75 85,691 16,037 101в728 • 1978 186,612 186�612 • • б7,Т05 11,055 78,7б0 • 1979 118,907 118,907 ` • 47,178 7,221 54,398 - 1980 71в729 71,729 • • 22,912 Эв976 26,888 • 1981 48,817 48r817 • • 22,199 2,354 24i553 • 19В2 26,618 26,618 • • 10,232 1,359 11r591 " 1983 16,38б i6,386 • • 6,161 1,03Э 7в19Э • 1984 10,225 10�225 • • 8,58Э 497 9,080 • 19f35 1вб42 1,642 • ' б8Э 91 774 • See note at end of tаЫе. REVISED TABLE 4.2 - KOREA (SOUTH) 09/07/71 EXTERNAL PUBLIC DEBT AS OF DECWBER 31. 1970 DEBT REPAYABLE -IN FOREIGN CURRENCY IN THOUSANDS OF U, S, DOLLARS Page 5 nrruvo DEBT OUTSTANDING BEGINING OF PERIOD TRANSACTIONS DURING PERIOD CANCEL- LATIONS2 DISBURSED INCLUDING COMMIT- DISBURSE- SERVICE PAn1ENTS ADJUST- YEAR ONLY UNDISBURSED, MENTS MENTS PRINCIPAL INTEREST TOTAL MENTS W (2) (3) (4) (5) (6) (7) (8) 1966 1.,538 1,538 h,160 650 - 104 104 1967 2 1 1. 9" - .,188 698 -3670 32,,762 308 230 538 1968 34,642 48,060 66.9658 19,763- 3,013 1,,185 4,198 +7.,513 1969 51092 119,218 1742234 95,591 6,245 4,714 10,959 -8$263 1970 139,0/88 278,944 118,08 75,423 18081 10"Olo 28091 -30,463 1971 197.,031 348,538 - 85.,499 25,207 9094 A602 -41,893 1972 216,990 281,437 - 24.,136 37.,268 13.,210 50,478 - 197" 203,859 244,170 - 13.,863 25,708 12.,094 37,802 - 1974 1922013 218,461 - 12,01 34,854 11.9351 46.,205 - 1975 169,,631 183,6o8 - 122h7l 31,794 8,751 40.,544 - 1976 150,310 151.,815 - 33h 18,261 8.,o66 26027 - 1977 132,38h 1332554 - 334 183217 7,095 25,313 - 1978 11h.,501 115,337 - 334 18,215 6,126 24,342 - 1979 96,620 97,121 - 33h 18,215 5.9157 23073 - 1980 78.,738 78,905 - 167 31,923 89778 40.,701 - 1981 46,982 46,982 - - 13,864 2,564 16,428 - 1982 33,118 33,118 - - 7,607 1,832 9,439 - 1983 25,511 25,51-1 - - 5,282 1,332 6,614 - 198h 20,229 20,229 - - 5,057 l,o43 6,100 - 1985 15,171 15,171 - - 5,057 765 5,822 - See note at end of table. REVISED TABLE.4.2 - KOREA (SOUTH) EXTERNAL PJBLIC DEBT AS OF DECEMBER 31, 1970 DEBT REPAYABLE IN FOREIGN CURRENCY IN THOUSANDS OF U.S. DOLARS Page 6 Note: Includes service on all debts listed in Table 1 prepared September 7, 19/1, with the exception of the following, for which repayment terms are not available: (In thousands of U.S. dollars) Disbursed Including only undisbursed Suppliers 1,029 8,243 Loans from governments 116 8,424 Other debt 40.,357 42,012 Total 41,502 58,679 ECONOMIC AND SOCIAL DATA DIVISION ECONOMIC PROGRAM DEPARTMENT SEPTEMBER 7, 1971 Table Ll: PUBLIC REVENUES AND EXENDITURES (In billion Won) b/ 1969 1970 1971 Govern- Consoli- Uovern- Consoli- Govern- Consoli- Central ment Local dated Central ment Local dated Central mat local dated Govern- Enter- Govern- Public Gover- Enter- Govern- Public Govern- Enter- Govern- Public ment prises ment Sector ment primes ment Sector ment prises mnt Sector I. Current Revenue 312.9 14.1 42.6 369.6 439.2 29.9 51.8 520.9 522.7 63.9 606.0 Tax Revenue 285.1 - 26.8 311.9 372.1 - 33.1 405.2 458.4 - . 698.4 (Direct and indirect (259.8) - (26.8) (286.6) (342.0) - (33.1) (375.1) (420.4) ( (o.0) (460.4) (opoly oit) a/ (253) - - (253) (30.) - - (30.1) (38.0) (-) (- ) (38.0) Other Income 27.8 - 15.8 43.6 67.1 - 19.7 86.8 614.3 - 23.9 88.2 II. Current Expenditure 162.2 - 85.3 247.5 201.9 - 107.6 309.5 255.8 - 131.6 387.4 Public Consumption 131.9 - 78.3 21.2 163.0 - 100.5 263.5 202.8 - 123.7 326.5 (Wages and Salaries (89.8) - (53.8) (143.6) (115.6) - (71.6) (187.2) (135.9) (-) (84.2) (220.1) (Goods and Services) (42.1) - (24.5) (66.6) (47.4) - (28.9) (76.3) (66.9) (-) (39.5) (106.4) Interest Payments 3.1 - 0.5 3.6 (5.8) - 0.5 6.3 5.8 - 0.7 6.5 Extra-System Transfers 27.2 - 6.5 33.7 33.1 - 6.6 39.7 47.2 - 7.1 54.3 III. Intra-System Transfers -82.0 - 82.0 0 -108.5 - 108.5 0 -134.9 - 134.9 0 IV. Savings on Current Account 68.7 16.1 39.3 122.1 128.8 29.9 52.7 211.4 132.0 19.4 67.3 218.7 V. Counterpart Funds 17.4 - - 17.4 28.0 - - 28.0 22.1 - - 22.1 VI. Utilization of loans h.5 15.0 8.0 27.5 1.9 -2.6 1.1 0. 24.2 24.h 1.8 50.), Domestic 3.5 12.1 7.6 23.2 0.9 -0.1 1.1 1.9 23.3 2.9 0.8 27.0 Foreign 1.0 2.9 0.1 4.3 1.0 -2.5 - 1.5 0.9 21.5 1.0 23.4 VII. Other Capital Resources 50.9 5.7 7.6 64.2 10.9 5.5 8.8 25.2 30.6 17.2 1.8 49.6 Loan Payment Received 33.7 - 0.5 34.2 23.1 0.1 - 23.2 25.7 - - 25.7 Depreciation Reserves - 5.5 - 5.5 - 7.9 - 7.9 - 8.9 - 8.9 Use of Cash Balances 1.8 -7.9 -5.0 -11.1 18.5 -5.0 -12.9 6.0 -14.2 -3.3 -23.0 -0.5 Other Capital Transfers 15.4 8.1 12.1 35.6 6.3 2.5 21.7 30.5 19.1 11.6 24.8 55.5 VIII. Intra-System Capital Transfers -25.h - 25.4 0 -32.0 - 32.0 0 -35.3 - 35.3 b IX. Extra-System Capital Transfers 6.5 - 4.3 10.8 8.5 - 6.1 11.6 8.7 - 7.1 15.8 1. Investments 109.6 34.8 76.0 220.4 103.5 32.8 88.5 224.8 110.8 60.9 100.9 272.6 Gross Capital 60.6 34.8 73.5 168.3 50.3 32.8 85.2 168.3 48.9 60.9 98.6 208.4 (Fixed Capital Formation) (60.6) (30.8) (73.5) (164.3) (50.3) (32.8) (85.2) (168.3) (48.9) (60.9) (98.6) (208.4) (Inventories) - (4.0) - (4.0) - - - - . - - - Subscriptions 14.7 - 0.2 14.9 21.0 - 0.1 21.1 29.5 - 0.1 29.6 Loans 33.7 - 2.3 36.0 31.8 - 3.2 35.0 32. - 2.2 34.6 Subscription & Loans Abroad 1.2 - - 1.2 0. - - 0.4 - - - a/ Monopoly profits include only portions of surplus in monopoly which have been transferred to the general account; the remaining portion is included in enterprise revenues. b/ Primary Budget. Source: Reclassified from economic classification of Government transactions published by Bank of Korea, Economic Statistical Yearbook various issues. Table 5.2s FUNCTIONAL CLASSIFICATION OF CENTRAL GOVERNMNr EFENDITUO (In blion .6n) 1968 1969 1970b/ Current CRIital Total Current Total Current Total General Services 93.82 4.76 98.58 121.63 11.76 133.39 115.17 10.69 155.86 General administration 12.99 2.11 15.13 18.10 6.49 24.59 20.76 4.66 25.42 Defense 64.76 0.62 65.38 83.24 1.62 8L.86 99.42 1.87 101.29 Justice & police 16.06 2.01 18.07 20.29 3.65 23.94 24.99 4.16 29.15 Social Services 52.65 21.15 73.80 68.38 29.20 97.58 87.44 30.59 118.03 Education 34.77 10.06 44.83 hh.86 14.41 59.27 57.51 20.o4 78.55 Administration 1.66 0.15 1.31 1.55 0.24 1.79 1.62 0.14 1.76 Primary schools 26.13 8.32 34.45 33.78 11.83 h5.61 42.71 17.20 59.91 Secondary schools 4.79 0.23 5.02 5.96 0.25 6.21 8.24 0.59 8.83 Colleges & universities 2.55 1.28 3.83 3.40 1.75 5.15 4.72 3.10 7.82 Other 0.14 0.08 0.22 0.17 0.34 0.51 0.24 0.01 0.25 Health 1.76 0.58 2.34 2.40 1.30 3.70 2.84 2.05 4.89 Social security and special welfare services 13.83 3.61 17.4 18.17 3.86 22.03 23.58 1.62 25.20 Other social services 2.29 6.90 9.19 2.95 9.63 12.58 3.50 5.88 9.38 Housing 0.15 1.00 1.15 0.37 1.12 1.49 0.27 1.60 1.87 Other c/ 2.14 5.90 8.06 2.58 8.51 11.09 3.23 4.28 7.51 Economic Services 10.51 94.79 105.30 16.76 1,5.12 161.88 22.16 142.35 164.51 Agriculture and Nonmineral resources 6.42 27.27 33.68 9.61 45.35 54.96 8.60 38.80 47.40 Administration 0.92 0.18 1.10 1.22 0.78 2.00 1.72 0.15 1.87 Research 0.1 0.18 0.59 0.41 0.20 0.61 0.80 0.10 0.90 Agriculture 3.57 17.66 21.23 6.54 37.39 43.93 4.51 31.20 35.71 Forestry 0.66 3.1h 3.80 0.51 3.01 3.52 0.57 3.08 3.65 Hunting and fishing 0.86 6.10 6.96 0.93 3.97 4.90 1.01 4.26 5.27 Fuel and payer 0.12 9.57 9.69 0.15 10.32 10.47 1.09 114.59 15.68 Mininr, manufacturing a construction 11.74 12.53 11.37 1.22 5.72 6.94 3.89 10.70 1h.59 Manufacturing 0.13 11.16 11.59 0.20 1.60 4.80 2.52 10.01 12.53 Others 1.31 1.37 2.68 1.02 1.12 2.14 1.37 0.69 2.06 Transport, storage and communication 0.45 42.70 13.15 1.98 72.73 74.71 5.35 67.10 72.45 Administration and research 0.12 - 0.12 0.30 0.04 0.34 0.16 - 0.16 Roads and waterways 0.27 14.65 14.92 1.72 42.40 44.12 2.91 27.94 30.85 Railways - 11.81 11.81 - 7.58 7.58 2.08 13.17 15.25 Water transport 0.0h 14.06 1.10 0.04 7.30 7.34 0.28 8.98 9.26 Communications - 10.76 10.76 - 114.58 14.58 - 15.75 15.75 Air transport 0.02 1.41 1.43 -0.08 0.83 0.75 -0.08 1.26 1.18 Other economic services 1.79 2.72 4.51 3.80 11.00 14.80 3.22 11.17 14.39 Unallocable Expenditure 27.77 - 27.77 ho.38 - 40.38 56.43 1.27 57.70 Interest on general debts C.09 - 0.09 0.09 - 0.09 0.06 1.25 1.31 Unallocable transfers to local Government 25.46 - 25.16 36.94 - 36.94 52.33 0.02 52.35 Other unallocable 0.65 - 0.65 1.04 - 1.04 4.04 - 4.04 Other 1.57 - 1.57 2.30 - 2.30 3.41 - 3.41 Total 184.75 120.70 . 305.70 247.15 186.08 433.23 311.21 184.89 496.10 a/ Including Government enterprises. b/ Budget estimates, including First Supplementary Budget. c/ Including fire protection, water supply, sanitation and other community services. Source: The Bank of Korea. Table 5.3: TAX REVENUE (In billion won) 1965 1966 1967 1968 1969 1970a/ 1971Y. Total Tax Revenue 65.8 103.6 143.3 213.8 284.0 373.8 463.6 Direct Taxes 25.1 40.0 56.5 83.5 116.2 133.8 176.9 Indirect Taxes W0.7 63.6 86.8 130.3 167.8 240.o 286-.7 Central Government Sh.6 87.6 129.2 194.3, 262.8 344.1 424.0 Direct Taxes 19.1 33.8 51.1 77.7 110.4 126.3 165.2 Personal Income Taxes, 177 20.3 31. 7 I77.5 - 771.6 -9715 Corporate Income Tax 5.7 10.9 15.9 24.6 33.1 44.3 56.2 Other Direct Taxes 1.7 2.6 4.2 5.5 7.7 10.4 15.5 Indirect Taxes 35.5 53.8 78.1 116.6 152.4 217.9 258.8 Customs Duties 12.5 1257. - . 37.9 49.4 -6.- 7-17 Commodity Tax 7.0 10.4 15.4 22.2 30.7 52.2 67.5 Business Activity Tax 4.4 7.3 11.6 17.5 23.0 28.2 35-0 Petroleum Tax 3.2 3.7 4.6 11.4 14.8 21.4 24-.7 Liquor Tax 3.8 6.3 8.1, 11.2 16.1 22.4 31-. Transportation Tax 1.2 2.8 4.9 6.7 9.8 11.0 14.3 Electricity At Gas Tax 1.6 2.2 2.9 4.1 5.3 8.3 9.2 Other 1.8 3.5 5.2 5.6 6.3 14.0 14.9 Local Government 11.2 16.0 14.1 19.5 21.2 25.0S/ 39.,6S/ Direct Taxes 6.0 6.2 5.4 5.8 5.8 7.5 11-.7 Indirect Taxes 5.2 9.8 8.7 13.7 15.4 22.1 27.9 Total Tax Revenue as % of Money GNP 8.2 10.0 11.5 13.6 13.8 15.1a/ 15.61/ a/ First Supplementary 'Budget 6/ Budget Proposal submitted to the National Assembly c/ Revenue estimates by Economic Planning Board d/ Based on GNP estimate given in ORB for 1971 Source: Economic Planning Board. a/ Table 6.1: OUTSTANDING LOANS AND DISCOUNTS OF BANKING INSTITUTION9 BY INDUSTRY (In billion won at the end of period) 1965 1966 1967 1968 1969 1970 Total Equipment Total _Equipment Total Equipment Total Equipment Total Equinment Total Eqiment Agriculture, Forestry & Fisheries 21.9 6.9 26.0 8.0 32.8 10.1 47.8 14.3 69.1 24.2 85.2 31.0 (Korea Development Bank) (-e) (-) (0.5) (0.2) (0.6) (0.2) (0.7) (-) (-) (-) (0.1) (0.1) Mining & Quarrying 2.9 1.11 3.7 1.4 7.3 2.0 12.8 3.0 16.3 4.2 19.7 4.5 (Korea Ivelopment Bank) (1.8) (1.4) (1.9) (1.4) (3.0) (1.9) (4.5) (2.8) (5.7) (3.7) (7.8) (4.3) Manufacturing 47.h 164.0 68.1 18.5 105.4 23.1 170.4 33.4 280.9 48.3 385.0 61.2 (Korea Development Bank) (18.6) (12.1) (23.7) (16.2) 425.) (18.0) (32.5) (22.8) (42.1) (27.5) (61.3) (36.5) Construction 3.9. 2.5 5.9 4.0 4.8 0.3 14.4 2.1 47.5 25.5 63.1 31.1 (Korea Development Bank) (2.4) (2.4) (3.7) (3.7) (-.*) (0.0) (0.4) (0.4) (9.7) (9.7) (10.7) (10.7) Electricity, Waterworks & Sanitation 11.1 11.0 13.8 13.2 18.0 16.7 20.6 17.1 31.7 26.8 43.2 37.0 (Korea Development Bank) (11.1) (11.0) (13.2) (13.2) (16.8) (16.7) (18.6) (17.o (27.6) (26.3) (37.7) (36.4) Commerce, Banking & Real Estate 12.1 0.1 16.9 0.5 29.14 0.7 49.7 1.1 97.1 1.0 120.1 1.3 (Korea Development Bank) (-C) (-) (-*) (-) (-) -) (-) () -) () () (-) Transportation & Storage 1.8 1.3 3.1 2.9 6.2 5.7 13.5 6.5 21.4 8.1 26.5 8.1 (Korea Development Bank) (1.3) (1.2) (3.0) (2.8) (5.8) (5.6) (6.4) (6.3) (6.7) -(6.5) (6.4) (6.3) Services 3.2 1.8 3.9 1.0 7.2 1.4 17.0 6.6 23.2 7.5 27.5 8.3 (Korea Development Bank) (1.5) (1.5) -(0.5) (0.4) (0.7) (0.7) (3.3) (3.3) (4.3) (4.3) (4.9) (4.8) Other 2.2 (4) 2.1 0.1 3.8 0.1 15.9 7.7 15.8 0.2 24.9 0.1 (Korea Development Bank) (-*) (-) (-) (-) (-) (-) (-) (-) (-) (-) () (-) TOTALa/ - 106.5 39.0 143.5 49.6 214.9 60.1 362.1 91.8 625.6 145.7 795.3 182.8 (Commercial Banks) (37.2) (1.3) (57.8) (1.4) (104.5) (1.3) (185.7) (5.4) (325.8) (11.2) (441.8) (11.7) (Korea Development Bank) (36.8) (29.6) (44.6) (37.9) (52.4) (43.2) (66.4) (52.7) (96.1) (77.6) (128.9 (99.1) a/ Totals include Commercial Banks, N.A.C.F. and member cooperatives, the Medium Industry Bank, Citizens National Bank, Korea Exchange Bank, the Korea Housing Bank and the Korea Development Bank; that is, all banking institutions except the Bank of Korea. b/ The construction business of KDB was transferred to the Korea Housing Bank at the time of its founding (July 1967). -* Less than the unit. Source: Bank of Korea. Table 6.2: MONEY SUPPLY AND PRINCIPAL FACTORS AFFECTING IT (In billion won at end of period) 1964 1965- 1966 1967 1968 1969 1970 Currency in circulation 24.9 31.6 42.9 57.6 81.9 111.2 133.8 Monetary deposits 23.7 33.1 41.3 62.4 68.0 106.7 173.2 Money supply 48.6 64.7 84.2 120.0 149.9 217.9 307.0 Public sector borrowing from the banking system 7.5 15.7 12.2 11.5 7.3 3.4 -13.3 Government overdrafts minus Government deposits 9.4 7.4 1.5 -1.5 -7.7 -0.7 -1.1 Government bonds held by all banking institutions 13.7 13.4 13.2 17.3 16.9 28.6 28.2 Loan to Government agencies by BOK 2.1 12.3 18.5 20.1 27.9 32.0 30.0 Minus Government lending to all banking institutions 19.0 18.7 22.7 27.6 37.9 65.1 80.0 Claims on local Government of banking institutions 1.3 1.3 1.8 3.3 8.0 8.6 7.4 Private sector borrowing from the banking system _ 41.3 43.3 33.2 43.1 51.2 75.1 129.2 Loans with banking funds 39.7 T77. U5.7 B4.Z 270.7 43 .6 640.4 Loans with fiscal funds 15.1 15.7 17.8 24.7 34.5 52.5 60.6 Stocks and debentures 1.6 1.4 1.4 2.7 9.7 12.0 13.5 Minus time and savings deposits 14.8 31.7 71.8 130.8 260.0 453.4 577.2 Minus Housing Finance Debentures - - - - 3.7 5.8 8.1 Foreign Sector -1.9 6.4 41.5 78.1 105.9 147.1 154.4 Others 1.7 -0.7 -2.7 -12.7 -14.7 -7.7 36.7 Note: Figures may not add up due to rounding. Source: Bank of Korea. a/ b/ a/ Table 6.3: DEPOSITS AND CREDITS OF BANKING INSTITUTIONS (Outstanding amount in billion won at the end of period) 1965 1966 1967 1968 1969 1970 Demand Deposits 39.9 36.0 76.2 117.7 167.6 210.7 Commercial Banks 29.0 23.2 49.3 77.1 102.2 123.6 Other Banking Institutions 10.9 12.8 26.9 40.6 65.4 87.1 Tim and Savings Deposits 38.7 85.0 128.5 255.6 450.5 573.3 Commercial Banks 26.3 59.3 87.6 172.5 307.9 381.9 Other Banking Institutions 12.4 25.7 4o.9 83.1 143.6 191.4 (Tim Deposits) (17.5) (37.0) (72.4) (147.6) (249.8) (315.8) Credits 88.0 105.9 .174.1 311.2 529.5 706.8 Commercial Banksc/ 37.5 57.9 o.6 185.7 325.8 441.8 Other Banking Institutions 38.0 48.0 70.5 125.5 203.7 265.0 a/ Excludes treasury and foreign currency deposits, deposits of banking institutions at BOK and inter-bank deposits, but includes local Government and savings deposits with BOK. b/ Excludes Government overdrafts, loans in foreign currency and BOK loans to banking institutions. Until 1966, including BOK loans to private entities not shown separately in the table. c/ Including accounts of domestic branches of foreign banks and local banks from July and October 1967, respectively. Source: Bank of Korea, Monthly Economic Statistics. Table 6.: INTERWT RATES A. Deposit Interest Rates of Banking Institutions (percent per annum) Effective Date 1965 1968 1969 1971 Prior to Sept. 30 Sept. 30 April 1. Oct. 1 June 1 June 1 Deposits Time Deposits Over 18 months .0 30.0 27.6 c/ - - Over 12 months ;.0 26.4 26.4 257.2 22.8 22.8 Over 6 months .0 24.0 .20.4 19.2 16.8 16.8 O7er 3 months P.0 18.0 15.6 14.4 12.0 12.0 Short-Term Savings Notice 3.65 5.00 5.00 5.00 5.oo 5.o SavingsbV 3.60 7.20 - - - - New Household Deposits - - 12.0 12.0 9.6 9.6 Installment Savings Deposits 10.0 30.0 28.0 25.0 23.0 23.0 Deposits of National Savings Association 16.8 30.0 28.0 25.2 22.8 22.8 Demand Deposits Passbook 1.80 1.80 1.80 1.80 1.80 1.8 Tenporary 1.00 1.00 1.00 1.00 1.00 1.0 a1 Time deposit rates are actual rates agreed upon by the Korea Banking Association. The other rates are maximum rates decided by the Monetary Board. b/b Abolished in November 1967. c/ New Household Deposits - maximum balance per account 5 million won; depositers must be individuals or non-profit organizations, and a 30 days' notice is required for withdrawal. Source: Bark of Korea, Monthly Economic Statistics. Table 6.4 B. Selected Interest Rates on Loans and Discounts of the Bank of Korea (percent per annum) Effective Date 19 1969 1970 Prior,to Nov. 16 Nov. 16-Dec.-1 Mar. 1 Oct. 1 June 1 Avril 1 Export and UN Supply Loans 3.5 3.5 3.5 3.5 3.5 3.5 3.5 Rice Lien Loans 4.0 4.0, 4.0 4.0 4.0 4.0 4.0 Commercial Bills Rediscount 11.5 21.0 28.0 21.0 23.0 22.0 21.0 Loans 13.5 23.0 28.0 28.0 28.0 26.0 24.0 Other Bills 13.5 23.0 28.0 28.0 28.0 26.0 26.0 Purchase of Aid Goods 9.5 23.0 26.0 26.0 25.2 24.0 24.0 C. Selected Interest-Rates on Loans gnd Discounts of Commercial Banks Ja (Percent per annum) Effective Date 1965 1966 1967 1968 1969 1970 Prior to Sept. 30 Sept. 30 Feb. 1 June 29 Oct. 1 June 1 A ril 1 p o7 Bl 6 Export Bills 6.5 6.5 6.5 6.0 6.0 6.0 6.0 Import Bills -- 6.0 6.0 6.0 6.0 6.o Commercial Bills 14.0 24.0 24.0 24.0 26.0 24.6 24.0 (28.0)(30.0) (27.6) (27.0) Other Bills 16.0 26.0 26.0 26.0 25.2 24.0 24.0 (30.0)(29.0) (27.0) (27.0) Overdraft 18.0 26.0 28.0 28.0 28.0 26.0 26.0 (32.0)(32.0) (29.0) (29.0) Overdue Loans 20.0 36.5 36.5 36.5 36.5 36.5 36.5 Loans for Machinery Industry Promotion - - - - 12.0 12.0 1-2.0 a/ Figures in parentheses are the interest rates on local banks. b/ Commercial bank loans for raw material imports for export production carry an interest rate of 6 percent; interest rate on loans for imports of raw materials for other purposes is 24 percent. Source: Bank of Korea, Monthly Economic Statistics. Table 6.4 D. Interest Rates on Loans and Discounts of the Korean Development Bank (Percent per annum) Effective Date 1965 1967 1968 1969 Sept. Sept. July Dec. June Oct. Jan. March Industrial Funds 25 0 10 1 26 17 4 1 Governme nt Funds Housing Funds 24- 4 - - - - - - Special Funds 2/ 6 7.5 7.5 7.5 7.5 7.5 7.5 7.5 Operating Funds bv 18 18 18 18 18 18 18 Other equipment Funds- Short term 10 12 12 12 12 12) Medium term 9 11 11 11 11 11) 10-12 12 Long term 8 10 10 10 10 10) Internal Funds' Ordinary Loans Short ten 10 12 12 12 12 12 Medium term 9 11 11 11 11 11 Long term 8 10 10 10 10 10 Discount o bills 10 18 18 18 18 18 Important- industrial Funds Equipment Funds 12 12 Operating Funds 18 18 Other industrial Funds Equipment Funds 20 20 Operating Funds 23 23 / Included are power development, shipbuilding, coal, public utilities and marine transportation funds. b/ These various funds have been reduced to the heading classification as of January 4, 1969. c/ New sub-classifications of internal funds became effective on January 4, 190,) d/ Included are funds for electricity, coal, shipbuilding, iron and steel and other industries so designated by Presidential Decree. Source: Korean Development Bank, Monthly Economic Review, September, 1970. Table 6.4 E. Selected Interest Rates on Loans and Discounts of Special Institutions (percent per annum) Effective Date 1965 1967 1966 1969 19 Sept. 30 June 29 Oct.)1 Oct.) Jan.._ Jun.1 SQ 0TM.18 National Agricultural Co- operative Federation Banking funds for b/ Agriculture 15.0 15.0 15.0 15.0 Forestry 23.0 26.0 25.2 24.0 Rice Lien loans 11.0 11.0 11.0 11.0 Export reparation. - - 12.0 6.0 Government funds for AgricAlture a/ 10.0 10.0 10.0 10.0 Irrigation 3.5 3.5 3.5 3.5 Medium Industry Bank Banking funds for Medium industry 23.0 23.0 23.0) Medium industry equip- ) ment 15.0 15.0 20.O) Cooperative business 14.0 14.0 20.0) Government funds for Equipment - 12.0 12.0) Cooperative business 12.0 12.0 12.0) Citizens National Bank Banking funds for Mutual remuneration - 25.2)e/ 24.8 24.8 24.0 Mutual installments 20.0 20.0)- 20.0 20.0 18.8 Government funds for Household manuf actu- c/ ring 16.0 16.0) 16.0 18.0 18.0 Relief - 8.5)e/ 8.5 8.5 8.5 Korea Housing Bank Loans for housing Public - - 8.0 8.0 8.0 Private - - 10.0 10.0 10.0 Loans for forming housing sites Public - - 10.0 18.0 18.0 Private I- - 26.0 26.0 21.0 a/ Short-term funds provided from counterpart funds. l/ On development loans for sericulture, drought relief and livestock an interest rate of 9 percent is applied. c/ Enforced from December 1, 1968. U/ As of June 30, 1969. / As of March 15, 1967. Source: Bank of Korea, Monthly f/ Started operations in October 1967 Economic Statistics. Table 7.1: PRODUCTION OF AGRICULTURAL CROPS (In thousand M/T) 1962 1965 1966 1967 1968 1969 1970 Cereals 4 984 5 757 6,401 5 970 5 81o 6 686 6,15 Ries 3,1 3 T 3,919 3953,939 Barley 1,379 1,807 2,018 1,916 2,083 2,066 1,974 Wheat 268 300 315 310 345 366 357 Millet 69 61 67 42 78 60 h Rye 42 29 h1 27 25 27 22 Corn 18 40 34 60 63 63 68 Others 193 19 7 12 21 l4 12 Pulses 182 203 195 235 288 273 277 Soy beans 156 7O2 Others 26 29 34 34 43 44 45 Potatoes 1 563 3,577 3 378 2 237 2 666 2,722 2 741 Sweet I1T 2,99,7 ~ ~'T 20 2,123 White 412 580 688 566 617 599 605 Fruits 195 310 326 359 392 417 - Apples 117 17 17 190 199 219 - Peaches 20 54 63 71 72 68 - Pears 27 h0 h41 h1 48 46 - Persimmons 17 24 22 24 35 34 - Oranges 1 1 2 2 3 3 - Others 14 24 29 31 35 47 - Vegetables 12300 1 576 1 58h 11869 2 150 2,427 - Radishes 460 87 '~ '38U *'93 921 - Chinese cabbage 428 480 520 609 700 710 - Red peppers 35 46 67 67 84 62 - Others 377 463 400 613 676 854 - Special Crops h1 h1 57 62 67 83 - Cotton 1 12 1 12 13 17 - Others 23 29 43 50 54 66 - Tobacco 3 56 72 66 70 59 - Cocoon 3.6 --7.8 9.6 10.9 16.6 20.7 21.4 Source: Data supplied by Ministry of Agriculture and Forestry. Table 7.2: YIELD PER HECTARE BY MAJOR CROPS (Kg. per Ha.) 1965 1966 1967 1968 1969 1970 Rice (polished) 2,830 3,160 2,890 2,750 3,330 3,250 Barley (polished) 1,750 1,960 1,850 1,760 2,o50 1,930 Naked Barley (polished) 1,760 2,210 2,070 2,450 2,290 2,360 Wheat 1,960 2,040 2,030 2,170 2,370 2,240 Corn 800 790 1,180 1,490 1,400 1,44o soybeans 560 580 640 780 740 780 White Potatoes 9,570 11,290 9,670 10,180 10,610 11,210 Sweet Potatoes 19,500 18,040 12,110 114,900 15,540 - Apples 8,780 8,930 9,580 9,840 10,550 - Pears 7,640 7,370 6,930 7,750 7,380 - Peaches 5,120 5,830 6,200 6,150 5,910 - Radishes 14.110 14,130 13,010 13,980 13,260 - Cabbage 18,120 19,510 22,300 21,110 22,130 - Source: Ministry of Agriculture and Forestry. Table 7.3: UTILIZATION OF CULTIVATED LAND A. Area (In Thousand Chungbo)a/ Area of Planted Area of Major Crops Year Culti- Planted vated Crop Barley Miscl. Vege- Sericul- Land Area Rice & Wheat Grain Pulses Potatoes Fruits Tables ture & Other Tobacco Crops 1962 2,080 1,148 1,012 202 340 125 23 124 1965 2,275 3,586 1,238 1,211 216 368 214 43 151 84 61 1966 2,312 3,482 1,242 1,148 171 345 210 45 196 99 68 1967 2,331 3,540 1,246 1,150 162 380 196 48 177 107 7 1968 2,338 3,952 1,160 1,161 200 384 198 51 193 133 72 1969 2,330 3,574 1,230 1,120 144 379 193 55 226 138 89 1970 k,300 1,084 B. Percentage of the Total Average 1965-68 100.0 34.5 33.0 5.3 lo.4 5.8 1.3 4.8 3.0 1.9 1969 100.0 34.4 31.3 4.o 10.6 5.4 1.6 6.3 3.9 2.5 a/ 1 chungbo = 0.99 hectare. Source: Ministry of Agriculture and Forestry. Table_1.h: PADDY AREA CLASSIFIED BY IRRIGATION FACILITIES (In Thousand Chungbo) a/ 1962 1965 1966 1967 1968 1969 Area benefitted by irrigation facilities: Facilities provided by associations 256 284 288 295 285 298 Fully irrigated paddy with other existing facilities 391 425 W8 46o 452 519 Sub-total 647 709 736 755 737 817 Percentage of total 57 59 61 62 65 68 Partially irrigated pad&y 278 301 291 281 254 250 Rain-fed paddy 219 200 181 178 145 141 Total 1143 1L2 09 1,209 1 1,136 I,208 a! 1 chungbo = 0.99 hectare. Source: ULIA and Ground Water Development Corporation. Table 7.3t UTILIZATION OF CULTIVATED LAND A. Area (In Thousand Chungbo)a/ Area of Planted Area of Major Crops Year Culti- Planted vated Crop Barley Miscl. Vege- Sericul- Land Area Rice & Wheat Grain Pulses Potatoes Fruits Tables ture & Other Tobacco Crops 1962 2,080 1,148 1,012 202 340 125 23 124 1965 2,275 3,586 1,238 1,211 216 368 214 43 151 84 61 1966 2,312 3,82 1,242 1,148 171 345 210 45 154 99 68 1967 2,331 3,54o 1,246 1,150 162 380 196 48 177 107 T4 1968 2,338 3,552 1,160 1,161 200 384 198 51 193 133 72 1969 2,330 3,574 1,230 1,120 Ih 379 193 55 226 138 89 1970 4,300 1,084 B. Percentage of the Total Average 1965-68 100.0 34.5 33.0 5.3 10.4 5.8 1.3 4.8 3.0 1.9 1969 100.0 34.h 31.3 4.o 10.6 5.4 1.6 6.3 3.9 2.5 a/ 1 chungbo = 0.99 hectare. Source: Ministry of Agriculture and Forestry. Table 7,hs PADDY AREA CLASSIFIED B! IRRIGATION FACILITIES (In Thousand Chungbo) a! 1962 1965 1966 1967 1968 1969 Area benefitted by irrigation facilities: Facilities provided by associations 256 284 288 295 285 298 Fully irrigated paddy with other existing facilities 391 425 448 46o 452 519 Sub-total 647 709 736 755 737 817 Percentage of total 57 59 61 62 65 68 Partially irrigated paddy 278 301 291 281 254 250 Rain-fed paddy 219 200 181 178 1k5 141 Total 19143 1,209 11209 1,214 1,136 1 a/ 1 .chungbo = 0.99 hectare. Source: ULIA and Ground Water Development Corporatibn. Table 7.5: NUMBER OF LIVESTOCK AND OUTPUT OF LIVESTOCK PRODUCTS 1965 1966 1967 1968 1969 A. Number of Livestock (In thousands) Draft cattle 1,314 1,290 1,243 1,193 1,202 Dairy cows 7 9 10 14 19 Beef cattle 1 1 2 3 4 Pigs 1,382 1,457 1,296 1,396 1,338 Goats 178 161 133 109 99 Sheep 1 2 2 2 3 Rabbits 763 908 833 651 489 Chickens 11,893 14,008 17,079 25,968 22,651 Ducks 210 233 227 319 199 Turkeys 2 2 2 2 2 B. Output of Livestock Products Meat (1,000 MT) 99.7 146.1 130.6 136.4 155.0 Beef 27I 31.9 3 33T Pork 55.9 95.8 72.2 61.8 76.1 Poultry 14.6 18.7 24.0 35.8 42.2 Other meat 1.9 2.2 2.5 3.0 3.6 Eggs (million) 856.0 1,298.0 1,349.0 1,585.0 2,430.0 Milk (1,000 NT) 10.6 14.6 19.2 23.4 35.5 Source: Livestock Bureau, Ministry of Agriculture and Forestry. Table 7.6 : NUNER AND TONNAGE OF FISHING VESSELS Non-Powered Powered Total Average Average Average Number Tonnage Tonnage Number Tonnage Tonnage Number Tonnage Tonnage 1965 43,500 83,600 1.9 7,600 119,500 15.7 51,100 203,100 4.0 1966 h,4oo 85,500 1.9 8,900 160,500 18.0 53,300 246,000 4.6 1967 46,300 83,000 1.8 11,000 179,000 16.3 57,300 262,000 4.6 1968 50,558 86,600 1.7 11,hh4 206,362 18.0 62,002 292,962 4.7 1969 53,263 91,215 1.7 12,852 251,065 19.5 66,u5 342,280 5.2 Source: Office of Fisheries. Table 7.7: LOANS EXTENDED FROM NATIONAL AGRICULTURE COOPERATIVE FEIERATION (In million won) Composition % Terms and Interest 1965 1966 1967 1968 1969 1970 1969 Rate per Annum (as of Au.31) Banking Fumds Short-term al production 2,685 2,598 3,018 5,841 6,865 5,689 4.2 1 year @ 15 ' Agriculture and forestry 4,219 6,449 11,489 12,423 15,217Y 3,970 9.3 1 year @ 24 % Rice lien 1,974 1,965 1,589 1,068 131 - 0.7 1 year @ U % Fishery 1,015 1,421 2,136 8,843 13,824 9,303 8. 1 year @ 24 % General commercial 4,245 11,254 22,931 52,167 78,741 61,769 48.8 1 year @ 24 % Special fisheries 64 7 5 - - - - Business loans to cooperatives 9,532 10,367 12,193 10,569 9,653b/ 1,452 6.0 1 year @ 15 % Commercial farms - 622 1,828 5,320 4,661 6,191 2.8 1 year @ 24 % Export supporting -- - - 502/ 14,402 0.3 Medium-term Special program - - - 4,584 12,321d/ 3,617 7.5 3- 8 years @ 9% Sub-total Banking Funds 23,734 34,683 55,189 100,815 141,921 119,393 87.8 Government Finch Short- and medium-term Agricultural 4,435 4,018 5,433 5,387 10,289 3,123 6.4 1-15 years @ 9-12% Fisheries 34 - - - -- Price stabilization fund - - - - 2,032 1,123 1.3 1 year @ 0- 9% In-term rrigaion 3,828 1,248 1,917 .2,204 2,942 2,491 1.8 35 years @ 3.5% Warehouse 1 - 12 - 10 - - 25 years 0 8 % Foreign - - - 4,432 - 2.7 7-40 years @ 0- 8% Total of Extended Loans (A) 339,949 62551 108Z406 161L626 126 130 100.0 Total of Outstanding loans (B) 23,257 272106 34 377 52.814 87 7202/ 107L422 Turnover ratio (A/B) 1.38 1.47 1.82 2.05 1.84 Average term of loans (months) 8.7 8.1 6.6 5.8 6.5 a/ Loans to agricultural and forestry organizations. U/ Primary (Ri-ding) cooperatives support and member cooperatives (Gun cooperatives) business funds. On the table of Annual Report, member cooperatives business funds are excluded. (NACF, Annual Report 1969, p.25). c/ Foreign trade financing and export support. On the table we have offered to your mission through NACF, this loan is omitted. d/ In 1970, Special program . . . . . . . . . . 3,209 million won Others . . . . . . 08 million won e/ Excludes member cooperative business funds. Source: Ministzy of Agriculture & Forestry. Table 7.8 : FINANCIAL STATUS OF NACF AND ITS NETWaRKS (Outstanding in Billion*Won at the End of Period) 1965 1966 1967 1968 1969 Uses of Funds: Loans 23.3 27.1 34.4 52.8 84.3 (32%) (32%) (33%) (35%) (45.7%) Business operational funds 39.6 43.3 45.8 79.1 74.9 (55%) (50%) (45%) (52%) (ho.6%) Others 9.7 15.8 22.6 20.6 25.3 (13%) (18%) (22%) (13%) (13.7%) Total 72.6 86.2 102.8 152.5 184.5 (100%) (100%) (100%) (100%) (100%) Sources of Funds: Deposited by farmers 1.4 2.0 3.5 11.2 15.3 (2) (2%) (3%) (7). (8.3%) Deposited by non- farmers 9.2 18.9 24.3 35.6 60.6 (12%) (22%) (24%) (2h%) (32.8%) Borrowed from Government and BOK 31.0 38.2 43.4 53.9 79.9 (hb%) (hb%) (42%) (35%) (43.3%) Payable on business operations 25.0 22.1 23.2 5.0 17.1 (34%) (26%) (23%) (30%) (9.3%) Others 6.0 5.0 8.4 6.8 11.6 (8%) (6%) (8%) (h) (6.3%) Total 72.6 86.2 102.8 152.5 184.5 (100%) (100%) (100%) (100%) (100%) Source: BOKs Monthly Economic Statistics, November 1969, and NACFMs Annual Report, 196.8 Table 8.1: STRUCTURE OF MINIM AND MANUFACTURING: 1969 (In million won) Industrial No. of No. of workers Employees' Production Gross Value Tangible Fixed Assets Code Sub-section establishments ('000) remuneration Costs Out Added Investments Disposals 1-3 Mining and manufacturing 26,688 902 118,773 633,952 1,087,834 453,882 137,516 3,550 1 Mining 1,577 73 11,981 12,335 40,176 27,841 9,599 390 11 Coal 99 34 7,25h 7,215 22,493 15,278 6,023 166 12 Metal 114 12 2,262 2,479 9,973 7.193 1,766 1 13 Stone quarrying, clay and sand pits 175 4 659 967 2,143 1,176 544 9 14 Saltern operations 1,03 13 943 552 2,394 1,842 881 170 19 Other nonmtallic 146 7 862 1,120 3,170 2,050 383 2 2-3 Manufacturing 25,111 29 106,792 621,617 1,07,658 426,01 127,917 3,160 20 Food 3,380 63 6,886 60,270 88,987 28,716 5,527 159 21 Beverage 1,796 26 3,202 26,613 58,644 32,030 1,582 155 22 Tobacco 7 10 2,301 15,834 53,373 37,539 804 87 23 Textiles 3,083 210 23,138 107,360 171,346 63,985 29,227 683 24 Footwear, wearing apparel and made-up textile goods 3,935 61 5,915 26,608 41,548 14,940 2,696 118 25 Wood and cork 1,098 34 4,919 0,481 52,822 12,341 4,977 88 26 Furniture and fixtures 978 11 1,136 3,497 5,953 2,456 445 20 27 Paper and paper products 516 17 2,642 17,834 28,086 10,251 3,986 155 28 Printing, publishing and allied industries 1,193 28 5,284 11,032 23,745 12,713 2,493 155 29 leather and leather products 97 2 275 1,693 2,387 694 107 5 30 Rubber products 147 23 2,912 14,648 22,121 7,472 1,826 95 31 Chemical products 703 53 9,692 53,952 106,101 52,149 15,620 251 32 Petroleum and coal products 750 13 2,339 51,739 85,873 34,134 11,101 84 33 Clay, stom and glass products 2,343 49 7,027 28,531 54,426 25,895 20,910 140 34 Basic metal 355 29 5,276 45,584 62,633 17,08 9,385 217 35 Metal products 1,294 30 3,670 13,800 23,001 9,201 2,417 95 36 Machinery 1,138 24 3,078 10,681 18,887 8,206 1,640 78 37 Electrical machinery apparatus and appliances 483 37 4,608 25,770 41,029 15,258 5,o61 187 38 Transport equipment 984 44 7,488 46,701 73,837 27,135 4,782 226 39 Others 831 55 4,993 18,978 32,846 13,868 3,320 152 Source: Based on Economic Planning Board, Bureau of Statistics; Mining and Manufacturing Survey, 1969. Table.8, IND E INDUSRIAL PRODUCTION (1965 - 100) Weight 960 1961 196 196 196 196 196 1968 196 1970 Total 100.0 28.9 56.2 590.4 69.4 78.6 84.8 100.0 122.3 155.7 203.0 245.6 286.7 iing 11.0 17.0 56.9 64.6 76.7 87.4 96.3 100.0 109.2 113.1 103.3 104.1 119.1 Manufacturing 81.9 32.7 57.5 6o.o 70.1 79.3 84.7 100.0 124.4 161.8 217.9 265.3 309.6 Electricity 7.1 27.0 52.2 54.5 60.8 67.9 83.1 100.0 119.6 151.2 185.4 236.9 282.1 61.3 12.8 52.2 57.4 71.9 86.6 93.9 100.0 113.5 120.6 100.0 100.5 121,0 Metal 25.6 37.4 80.3 99.6 103.8 92.9 104.3 100.0 107.2 104.4 117.7 115.5 116.2 Stone, clay and sand pits 2.1 - - - - -- - 100.0 113.2 132.9 198.8 104.0 108.5 Non-ametal 11.0 - 55.5 62.9 600 83.9 111.1 100.0 89.4 87.4 69.0 98.2 117.3 Food 7.9 53.9 95.o lo4.4 loo.5 109.3 80.0 100.0 117.7 159.2 193.3 269.1 305.0 Beverage 5.6 58.9 89.7 94.3 89.0 80M7 84.7 100.0 127.0 157.8 168.8 208.5 259.6 Tobacco 4.2 50.4 57.3 62.2 69.4 77.1 85.0 100. 104.7 112.6 136.2 148.7 170.8 Textiles 15.5 45.4 66.9 61.0 70.7 73.4 85.0 100.0 118.4 157.5 227.6 306.7 395.8 Footwear, wearing apparel, etc. 4.2 - - - - - - 100.0 100.5 126.6 165.5 177.1 216.2 Wood and cork products 3.9 60.6 83.7 78.2 93.3 l10 91.0 100.0 137.2 2540 410.7 422.2 419.8 Manufacturing Furniture and fixtures 0,9 - - - - - - 10000 1157 145.6 124.8 141.8 139.9 Paper and its products 4.4 22.14 545 66o7 79.3 96.4 97.1 100,0 112.5 1223 202,6 209.8 223.3 Printing and publishing 4.1 31.6 64.7 52.3 64.5 68.7 85.3 100.0 123.5 135.3 176.9 182.1 209.2 Leather and its products 0.4 79.9 77o1 94.9 97.3 87.9 100.7 100.0 114.8 129.4 115.7 100.5 112.0 Rubber products 2,5 305 66.7 63.1 66.6 78.1 90.5 100.0 101.6 100,0 129.5 148o4 141.6 Chemicals and its products 8.9 17o1 48.5 58.3 68.9 85.8 88.4 100,0 125.0 203.6 319.3 362.5 452.5 Petroleum and coal products 5.8 - 26.7 36.6 42.9 47.5 68.8 100,0 126.7 154.4 199.1 257.9 335.7 Clay, stone and glass products 7.2 24.2 55.2 55.0 72.0 77.2 106.9 100,0 119.7 1144.3 163.3 201.7 247o7 Basic metal 5.2 21,2 71.3 61.0 85.0 95.8 111.0 100.0 11400 146.0 2296 282.2 313.4 Metal products 3.0 35.4 82.8 89.2 111,0 147.7 92o2 100.0 142.4 184.5 243.1 228.0 251.8 Machinery 3.2 97.1 83.8 122.3 167.4 123.5 112.9 100.0 102.6 190.5 209.0 177.4 171.9 Electrical machinery 4.0 7.3 33.7 45.4 83o7 109.4 121.7 100.0 177.2 179.3 204.4 324.1 337.5 Transport equipment 6.0 23.8 22.6 33,2 33o5 62.3 64.8 100.0 135.5 181.2 237.2 332.9 273.1 Miscellaneous 3.1 56.6 63,0 63.8 90.7 118.6 96.6 100,0 142.9 194.8 262.6 345.9 534.1 Note: Figures until 1964 are the 1960 base indexes linked to the 1965 base indexes, Source: Economic Planning Board. Table 8.3: GROSS OUTPUT IN MANUFACTURING (In million won: 1965 constant market prices) 1961 1962 1963 1964 1965 1966 1967 1968 1969 Manufacturing 264,101 307,862 371,780 378,406 457,o8 530,559 658,747 848,907 1,039,247 Food 44,040 47,058 62,192 54,684 64,697 74,254 99,424 125,614 161,261 Rice mill products, 8,524 7,545 7,337 9,214 9,079 10,163 9,521 11,187 14,868 Beverages 25,377 20,575 20,935 21,027 26,245 32,311 40,421 43,369 53,529 Tobacco 9,682 11,026 12,209 14,699 19,431 23,509 29,250 35,604 41,419 Textiles 58,733 66,500 74,676 80,100 108,720 120,277 145,146 182,292 231,738 Footwear, wearing apparel and made-up textile goods 17,744 23,645 26,209 21,002 22,206 22,160 27,311 32,294 34,555 Wood and cork products 8,048 11,564 14,483 14,101 16,433 21,646 26,120 39,879 42,228 Furniture and fixtures 3,103 3,486 3,515 2,723 3,091 3,155 3,893 6,011 6,848 Paper and paper products 6,017 8,453 11,166 11,547 12,618 14,943 16,622 19,889 21,008 Printing, publishing and allied industries 6,558 8,431 9,368 11,206 13,093 15,655 18,774 21,763 22,753 Leather and leather products 2,699 2,790 2,569 2,956 2,993 3,263 3,608 4,359 3,842 Rubber products 7,143 7,859 9.023 10,293 . 12,457 12,851 12,210 14,674 16,682 Chemicals and chemical products 11,323 16,550 25,757 23,499 21,330 26,004 32,072 45,390 50,172 Fertilizer 1,529 1,919 2,309 3,333 3,851 4,076 7,955 15,520 18,356 Coal products 7,266 8,851 12,347 13,280 14,197 16,187 16,826 19,402 21,459 Petroleum products - - - 4,704 10,015 12,949 16,958 29,711 41,567 Clay, glass and stone products 7,06 9,o65 10,74o 14,421 17,801 19,102 24,70 31,945 39,519 Basic metal industries 9,285 13,583 19,137 18,298 23,415 26,458 33,009 42,602 53,430 Metal products 5,937 6,787 8,060 6,904 9,337 10,721 13,143 16,303 16,171 Machinery 7,372 10,667 9,338 .8,624 9,816 9,861 14,134 15,524 14,299 ELectrical machinery 3,375 5,655 8,094 10,250 11,364 17,699 21,816 30,509 144,460 Transport equipment 6,04 7,467 10,6914 10,596 13,528 18,392 23,859 35,985 54,959 Railway equipnent 1,360 1,304 2,105 783 1,863 2,789 4,997 5,814 4,028 Miscellaneous manufacturing industries 4,146 5,000 6,004 6,269 7,169 7,681 8,458 9,200 11,851 Plastic products n.e.c. 1,740 2,082 3,513 3,893 3,299 4,453 8,515 14,067 18,245 Source: The Bank of Korea: National Income Statistics Yearbook, 1969 and supplemental data provided 'by the Bank of Korea. Table 8,s VALUE ADDED IN MANUFACTURING (In million wons 1965 constant market prices) 1961 1962 1963 1964 1965 I6 1967 1968 1969 Manufacturing 82,824 95,11 111,633 116,776 142,813 165,755 205,328 263,005 321,560 Food 7,707 8,235 10,884 9,570 11,322 12,994 17,399 21,982 28,221 Rice mill products 5,029 4,452 4,329 5;436 5,357 5,996 5,617 6,600 8,772 Beverages 9,364 7,592 7,725 7,759 9,684 11,923 14,915 16,003 19,752 Tobacco 5,006 5,700 6,312 7,599 10,048 12,154 15,122 18,407 21,414 Textiles 21,966 24,871 27,929 29,957 40,661 44,984 54,285 68,177 86,670 Footwear, wearing apparel and made-up textile goods 4,312 5,746 6,369 5,103 5,396 5,385 6,637 7,847 8,397 Wood and cork products 1,690 2,428 3,041 2,961 3,451 4,546 5,485 8,375 8,868 Furniture and fixtures 1,015 1,140 1,149 890 1,011 1,032 1,273 1,966 2,239 Paper and paper products 1,667 2,341 3,093 3,199 3,495 4,139 4,604 5,5?9 5,819 Printing, publishing and allied industries 3,463 4,452 4,946 5,917 6,913 8,266 9,913 11,471 12,014 Leather and leather products 874 904 832 958 970 1,057 1,169 1,421 1,245 Rubber products 1,821 2,030 2,301 2,625 3,177 3,277 3,114 3,742 4,254 Chemicals and chemical products 2,627 3,840 '5,976 5,452 4,949 6,033 7,441 10,530 116,400 Fertiliser 742 931 1,120 1,617 1,868 1,977 3,858 7,527 8,903 Coal products 1,148 1,414 1,951 2,098 2,243 2,558 2,659 3,066 3,391 Petroleum products - - - 1,298 2,764 3,574 4,680 8,200 11,472 Clay, glass and stone products 2,611 3,354 3,974 5,336 6,216 7,068 9,141 11,820 14,622 Basic metal industries 2,228 3,260 4,593 4,392 5,620 6,350 7,922 10,224 12,823 Metal products 1,342 1,534 1,822 1,560 2,110 2,423 2,970 3,684 3,655 Machinery 2,838 4,107 3,595 3,320 3,779 3,796 5,442 5,977 5,505 Electrical machinery 948 1,589 2,274 2,880 3,193 4,973 6,130 8,573 12,493 Transport equipment 2,206 2,725 3,903 3,868 4,938 6,713 8,709 13,135 20,060 Railway equipment 713 683 1,103 410 976 1,461 2,618 3,041 -1,946 Miscellaneous manufacturing industries 1,103 1,330 1,597 1,668 1,907 2,043 2,250 2,447 3,152 Plastic products n.e.c. 404 483 815 903 765 1,033 1,975 3,264 4,233 Source, The Bank of Korea: National Incane Statistics Yearbook, 1969 and supplemental data provided by the Bank of Korea. Table 8.5 : GROWTH OF DOMESTIC TRAFFIC A. Passenger Traffic (in million and %) Railways Motor Vehicles Coastal Shipping TOTAL- Passenger Passenger Passenger Passenger km % % % %_ 1962 5,869 51.1 5,161 7.5 1514 1.3 11,499 100.0 1963 6,676 49.6 6,571 48.9 172 1.3 13,447 100.0 1964 7,353 51.8 6,459 46.4 195 1.4 14,061 100.0 1965 6,917 45.7 -7,975 52.7 182 1.2 15,136 100.0 1966 8,665 42.5 11,463 56.2 197 1.0 20.379 100.0 1967 9,577 44. 11,698 54.3 223 1.0 21,5o40 100.0 1968 10,590 42.6 13,930 56.1 218 0.9 24,829 100.0 1969 11,590 39.6 16,688 59.2 256 0.9 28,200 100.0 1970 9,819 20,045 241 30,362 B. Freight Traffic (in million and %) Railways Motor Vehicles Coastal Shipping TOTAL Tonnage Tonnage Tonnage Tonnage Tonnage km Tonnage km Tonnage km Tonnage km 1962 17.9 3,977 87.2 16.9 388 8.5 2.0 194 4.3 36.8 4,559 100.0 1963 19.8 4,358 87.5 18.1 429 8.6 2.0 194 3.9 39.9 4,981 100.0 1964 20.3 4,522 86.2 18.7 510 9.7 2.2 213 4.5 41.2 5,245 100.0 1965 22.4 5,044 86.8 24.0 503 8.7 2.7 263 4.5 49.1 5,810 100.0 1966 24.1 5,450 81.6 24.5 558 8.4 2.7 672 10.0 51.3 6,680 100.0 1967 27.4 6,178 78.4 28.6 650 8.4 4.2 1,043 13.2 60.2 7,871 100.0 1968 28.9 6,865 73.6 46.1 1,065 11.4 5.6 1,1401 15.0 80.6 9,331 100.0 1969 30.6 7,328 62.2 56.6 1,307 12.2 8.1 2,107 19.5 95.3 10,742 100.0 1970 31.6 7,709 61.8 1,441 10.5 4,232 103.8 13,382 100.0 1/ Including domestic aviation whose contribution is still very small. Source: Ministry of Transportation. Table 8.6: KOREAN NATIONAL RAILROADS EQUIPMENT AND REVENUES A. Equipment 1964 1965 1966 1967 1968 1969 1970 Total Lepgth of Track 4,78o 4,897 5,09 5,132 5,319 5,381 5,99 (km) 1/ Number of Engines in Fleet: Steam 272 272 261 203 115 -15 109 Diesel 125 125 173 252 252 282 277 Railcar 80 77 163 163 159 161 158 Passenger Car Stock (Number) 1,22 1,390 1,418 1,363 1,593 1,662 1,681 Freight Car Stock (Number) 10,764 10,587 11,454 12,617 13,239 13,9994 l,407 B. Revenues (in billion won) Operating Revenue: 10.5 13.09 15.7 19.6 27.9 31.7 n.a. Passenger Fares 5.3 6.6 8.4 10.7 15.6 18.1 n.a. Freight Charges 4.5 5.5 6.1 7.3 10.0 11.1 n.a. Other 0.6 1.0 1.9 1.6 2.2 2.5 n.a. 1/ Including double track and sidings. Source: Korean National Railroad. Table 8.7: ROAD TRANSPORT I. Length of Highways in 1969 (Kilometers) Paved Unpaved Total Expressways 320 320 National Highways 1,650 6,410 8,060 First class 950 2,170 3,120 Second class 700 4,240 4,940 Local Roads 1,000 23,950 24,950 Special Cities 450 1,850 2,300 Provincial 120 10,180 10,300 City and gun 430 11,920 12,350 Total 2,970 30,360 33,330 Source: Ministry of Construction II. Number of Registered Automobiles End of Period 1964 1965 1966 1967 1968 1969 1970 Cars 14,586 16,280 20,328 25,710 33,112 50,229 60,677 Trucks 14,951 16,015 19,432 22,955 31,582 40,134 48,901 Buses 5,h40 6,037 8,062 9,024 12,786 14,237 15,831 Micro-Buses 2,160 2,385 .1,322 1,722 810 856 154 Special Vehicles 678 794 1,016 1,286 2,611 3,143 3,808 Total: 37,815 41,511 50,160 60,697 80,901 108,669 129,371 Source: Ministry of Transportation. Table 8.8: TRANSPORTATION BY MAJOR COMMODITY (in thousand metric ton) Military Anthracite Oil Grains Fertilizer Cement Freight Others Total Railroads 1966 10,534 1,225 459 1,258 1,675 2,103 6,810 24,066 1967 11,274 1,336 512 1,310 2,223 2,372 8,413 27,440 1968 9,758 1,693 1,561 1,467 3,173 2,754 8,451 28,857 1969 10,418 2,053 1,374 1,194 4,357 2,70 8,543 30,643 1970 12,072 2,420 1,300 1,052 4,860 3,116 7,731 31,551 (change 66-70 in %) 15 98 183 -16 110 6 14 31 Highways 1966 3,111 1,516 4,338 1,330 - - 1k,233 2k,528 1967 4,179 1,507 4,507 1,406 - - 17,017 28,616 1968 6,208 2,125 6,12k 1,983 2,647 - 27,006 k6,093 1969 k,700 2,672 7,362 1,873 2,512 - 37,k56 56,575 1970 5,037 2,872 1,815 3,739 - k1,073 61,775 (change 66-70 in %) 62 89 67 36 k1 - 189 152 Marine 1966 1,1k5 567 58 k5 33 - 838 2,686 1967 1,k31 1,394 80 103 129 - 1,036 k,173 1968 1,018 2,731 110 183 390 - 1,170 5,602 1969 915 4,k09 113 258 1,141 - 1,278 8,114 1970 1,370 6,388 123 18k 1,383 - 1,062 10,510 (change 66-70 in %) 20 1,027 112 309 4,091 - 27 291 Total 1966 1k,790 3,308 k,855 2,633 1,708 2,103 21,881 51,278 1967 16,884 k,237 5,099 2,819 2,352 2,372 26,k66 60,229 1968 16,98k 6,5k9 7,795 3,633 6,210 2,75k 36,627 80,552 1969 16,033 9,13k 8,8k9 3,325 8,010 2,70k k7,277 95,332 1970 18,479 .11,680 8,662 3,051 9,982 2,116 k9,866 103,836 (change 66-70 in %) 25 253 78 16 k8k 6 128 102 Source: Ministry of Transportation. Table 9,1: INDICES OF PRICES AND WAGES (1965=100) Weight 1966 1967 1968 1969 1970 A. Wholesale Price Index All Commodities 1000.0 108.8 115.8 125.2 133.7 145.9 Producer goods 401.5 15.0 110.9 11-7. 120.6 132. Raw materials 224.4 106.4 106.3 107.9 110.7 115.9 Building materials 76.2 112.8 114.9 125.4 130.7 159.1 Consumer goods 598.5 109.4 119.1 130.9 142.3 154.7 Grains 130.6 105.0 117.0 130.0 152.7 168.6 All Commodities excluding grains 869.4 109.4 115.7 124.5 130.8 142.5 B. Wholesale Price Index of Imported Goods All Commodities 1000.0 102.3 103.9 102.7 107.1 115.6 Machinery and machine parts 37 1056.0 110.56 127. 127.1 11J - Fibers. 62.4 88.7 86.7 86.1 86.4 88.1 Chemical products 459.4 104.4 104.0 102.1 102.0 108.1 Miscellaneous products 198.0 104.3 106.5 95.6 107.6 109.5 C. Index of Unit Value of Exports All Commodities - 109.1 114.1 117.6 111.8 117.1 D. Index of'Monthly Earnings Manufacturing workers - 117.8 144.3 182.6 245.0 307.6 E. All-Urban Consumer Price Index All Items 1000.0 111.3 123.4 136.7 153.6 187.0 t Food and beverages 526.b 107.5 116.6 127.1 148.7 191.2 F. Seoul Consumer Price Index All Items 1000.0 112.1 124.2 138.0 152.0 171.3 Food and beverages T97.5 107.7 116.1 1279 144.2 IM.5 a/ End November 1970. Source: Bank of Korea, Monthly Economic Statistics and Economic Statistics Yearbook. Table 9.2 : WAGE AND PRODUCTIVITY TRENDS IN MANUFACTURING 1960-1970 (1965 - 100) Annual Changes Real Nominal Real Unemployment Wa e Productivity Wage Wage Productivity (% labor force) percent per annu) 1960 54.7 121.0 64.0 n.a. - - 1961 60.0 17.2 70.7 n.a. -3.2 10.5 1962 63.6 113.6 71.2 n.a. -3.1 0.7 1963 70.3 104.1 78.8 8.1 -8.4 10.7 1964 85.0 93.5 84.0 7.7 -10.2 10.7 1965 100.0 100.0 100.0 7.4 7.0 19.0 1966 117.3 107.8 101.9 7.1 7.8 1.9, 1967 145.5 122.6 119.2 6.2 13.7 17.0 1968 181.2 144.7 137.4 5.1 18.0 15.3 1969 21.7 158.3 157.4 4.8 9.4 14.6 1970 261.0 178.9 178.9 4.5 13.0 13.5 1965-70 (average) - - - - 12.4 12.5 Note: Nominal wage data are derived from the Bank of Korea/EPB series but adjusted to exclude office workers. Real wage index is obtained by deflating the nominal wage by the wholesale price index. Productivity index is derived by dividing the manufacturing value added (in 1965 constant price) by labor import index of Korean Productivity Center (which is based on EPB series). Unemploy- ment is obtained from EPB surveys. Table 9.3: PRODUCTIVITY GROWTH AND CAPITAL LABOR RATIOS IN MANUFACTURING 1966-69 (in '000 wons) 1966 1967 1968 1969 Value Added per Employee (in current prices) 320.0 341.0 U61.0 506.0 Value Added per Employee (in 1965 prices) 285.5 307.2 371.2 391.0 Value Added per Employee (Index 1965 = 100) 100.0 107.6 130.0 137.0 Tangible Fixed Assets per Employee (in current prices) 418.0 460.0 763.0 845.0 Tangible Fixed Assets per Employee (in 1965 prices) 387.7 404.6 617.3 620.9 Tangible Fixed Assets per Employee (Index 1965 = 100) 100.0 10h.6 159.6 160.6 Note: All basic data are obtained from the Bank of Korea "Financial Statements Analysis", 1968 and 1969. Value added in manufacturing in current prices was deflated by an implicit deflator for manufacturing used in national accounts and the value of tangible fixed assets by an implicit deflator for capital formation in national accounts.