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Korea? 2014 annual GDP growth may close at 3.4%KERI Economic Report

Korea? 2014 annual GDP growth is likely to close at 3.4%, affected by ?igh 1H-Low 2H?trend, owing to a slower global recovery, drop in exchange rates and lower consumer spending. This was disclosed by the Korea Economic Research Institute (KERI) on July 8, 2014 in its Economic Bulletin on the economic policy, economic trends and outlook. Excerpts follow:

Amid falling household propensity to consumption, conspired with other factors, such as a drop in consumer sentiment after the sinking of ferry Sewol and slowing employment growth, private consumption is expected to stay low in 2H. Investment recovery on facilities is expected to decelerate as policy risks widen after the June local elections. Export is expected to grow only by 5%, owing to growing uncertainty over global recovery, such as Europe (low growth, low inflation), China (slowing growth accompanied by the structural reform), Japan (recovery risk post-consumption tax hike), and emerging economies (risks associated with financial instability).

Consumer price in 2H are expected to be higher than that of 1H, as downward pressure is mitigated by narrowing negative production gap and rebound of international prices of raw materials. However, the speed at which it is ascending slows at 2.0% annually. Current account is forecast to record a US$83.1 billion surplus, marking higher than the previous year? record high of US$79.9 billion, owing to a growing surplus caused by a fall in imports due to sluggish domestic market. USD/KRW is expected to maintain a falling trend in 2H as dollar nudges on weakening euro and yen, and the won to float around a yearly average of 1,035 won/dollar.

Impact of the recent sluggish employment growth on consumption flexibility growth deteriorated by 1/3 compared with previous years; tangible recovery in private consumption hard to expect.

Although employment is increasing in recent times, consumption flexibility has steadily deteriorated, leading to a conclusion that the recent employment growth is unlikely to have an impact on consumption increase.

A closer look at the trends of average propensity to consumption by industry and age group shows that contribution of a newly employed on expenditure increase has fallen by about 35.8% between 2006 and 2013.

In particular, the group aged between 30 and 49 was the key downward factor, as the group showed a falling average propensity to consumption while employment growth was minimal.

The contribution from the group aged 50 or more, which showed the biggest employment growth, was insufficient to increase consumption flexibility growth as the positive impact of employment growth was outpaced by the fall of average propensity to consumption.

As a result, even though the number of paid-workers has increased by 476,000 in 2013, the number is estimated to be similar to 305,000 if the number is calculated based on its contribution on consumption spending.

In other words, it is difficult to expect a prompt recovery of private consumption based on a sign of quantitative increase in employment.

Quarterly Economic Forecast
by LG Economic Research Institute

During the five-year rule of President Lee Myung-bak

Korea loses $56 billion in overseas resources

development projects

Former President Lee Myung-bak is under fire from both conservative and opposition media over his ‘reckless resources diplomacy’ which caused the Korean taxpayers to lose a total of 56 trillion won (approx. US$56 billion). This was reported by Korean-language Internet news, Pressian, on Sept. 2, 2014 and related stories by Newsis, Sisa Journal, Kyunghyang Shinmun, Oh My News, Hankyoreh and various other media.

Earlier, there were similar reports by leading Korean-language daily Chosun Ilbo and the state-run KBS TV and Radio.

Chosun Ilbo found fault with former President Lee Myung-bak using his elder brother, Rep. Lee Sang-deuk, as a Presidential envoy on overseas natural resources, to perform resources-related business negotiations.

President Lee MB sent his big brother, Rep. Lee SD, to Bolivia to buy a lithium mine and an uranium mine in Nambia, but there have been no visible results from such projects.

Lee MB’s ‘resources diplomacy’ also included involvement in various other projects including diamond mine development in Cameroon, housing construction projects in Ghana and off-shore oil-rig project in Myanmar.

Most of such projects today are in a state of suspension.

KBS citied Lee MB’s signing of large-scale resources development MOUs with Indonesia, Panama, Kazakhstan and a number of other countries but that there have been no significant results from such projects.

Here are excerpts from reports by Pressian, Chosun Ilbo and KBS TV-Radio:

Lee MB invested 4 trillion 500 billion won (US$4.5 billion) to purchase Harvest Energy Trust in Canada and suffered losses totaling 2 trillion 300 billion won (US$2.3 billion) including losses that were suffered in similar projects in Iraq and Peru.

President Lee MB boasted that his government has won many lucrative resources development contracts from a number of countries which “you don’t even know the name of.” At that, Lee was quoted as saying, “We have won contacts from them after a keen competition with the advanced countries and I would say that they are a real feat for us because South Korea is a country that literally has no natural resources.”

However, no visible results have come about from any such overseas resources development projects (as of the end of the tenure of his office as the President of Korea). What has transpired from most of such projects was only an offensive smell of total corruption and irregularities involving Lee and his men involved in such projects.

In December 2010, President Lee sent the then Vice Minister Park Young-jun of Knowledge Economy to Myanmar to seek cooperation from that country for the development of off-shore oil-rigging project?investing one trillion won (US$1 billion).

Chairman Choi Kyu-sun of UI Energy (the main character of the so-called Choi Kyu-sun Gate that broke out during the government of President Kim Dae-jung), was given the job of developing the Kurd Oil Field in Iraq in a consortium with other Korean companies. In the Kurd Oil Field project, Korea lost about two trillion won (US$2 billion), according to MBN TV in Korea.

A Korean company named CNK was given the right to develop a diamond mine in Cameroon and won an enormous profit from the rising prices of stock of his company due to the news of his diamond project in Cameroon. However, the estimated diamond deposit there had been padded by up to 20 times of the actual size of diamond deposit. Rumors of the padded amount of deposit was suspected to have been leaked and spread with the help of senior government officials of Lee MB.

According to the result of investigations conducted later by the Board of Audit and Inspection, the actual amount of diamond deposit in Cameroon, which the Cameroon Government approved, was only 1.7 million carats, which accounted for only 0.4% of the announced size of diamond deposit.

Due to the adventurous investments in resources development projects overseas made by the state corporations on behalf of the government, their financial status has become very weak.

In the five years of the government of President Lee MB (2008 to 2012), the debts of the KNOC increased by 4.7 times (14.3 trillion won), Korea Gas Corporation (KOGAS) by 3.7 times (23.5 trillion won), Korea (Mining) Resources Corporation (KRC) by six times (1.9 trillion won) and Korea Electric Power Corporation (KEPCO) by 2.5 times (56.4 trillion won).

As a result, the debt ratio of these state corporations rose sharply from 2008 to 2012, namely KNOC from 64% to 167%, KOGAS from 227% to 385% and KRC from 103% to 177%.

Most of such debts are from foreign loans because the overseas resource developments projects mostly used foreign financing. The foreign debts of the four major state corporations reached 31.67 trillion won as of the end of 2012 when President Lee MB’s term of office expired, which represented an increase of 18 trillion won that was suffered during the five-year rule of President Lee MB.

The biggest debtor that used foreign loans is KNOC with 2.95 trillion won in debt in 2008, which jumped to 10.88 trillion won in 2012, which represented more than a three-fold increase.

Main cause of the heavy debts of the state corporations is President Lee MB’s investment in overseas resources developments. As a result, the state corporations who mainly handled energy, have become financially vulnerable.

On this situation, competent foreign financial assessment companies started sending out a signal of warning. Recently, the Standard and Poors downgraded the credit standing of the KMC from bb+ to just bb.

KNOC is the biggest investor in overseas resources development investing 57.3% of the total amount of investment in foreign resources (27.39 trillion won) from 2009 to 2012.

The recovery rate from overseas resources investments in the case of KNOC is very poor. It invested a total of 15 trillion 722.2 billion won in oversees resources development from 2009 to 2012, but the total amount recovered was 3 trillion 699.4 billion, which is less than 23.5%.

The government of President Park Geun-hye has repeated announced that it will sell the overseas assets of the energy-related state corporation such as KNOC. This is an indication that the overseas resources diplomacy of former President Lee MB has been a complete failure. And the losses caused by the government of President Lee MB should be paid for by the taxpayers.

So how much money has the Lee MB government made the people to lose?

From the Harvest Oil Trust Project in Canada and six other projects, Korea has suffered losses totaling 5 trillion 485.4 billion won (US$5.4 billion) to 6 trillion 336.9 billion won (US$6.33 billion). These are the figures that have been so far confirmed. The actual amount of losses could be much larger. There also are hidden losses that have yet to be disclosed.

The three major energy-related corporations (namely, KNOC, KOGAS and KMC) invested a total of 24 trillion 371.1 billion won (US$24.37 billion) in overseas resources projects, from which the recovered total amount is only 4 trillion 808.4 billion won (US$4.8 billion). Thus the total amount of losses stands at 19 trillion 371.1 billion won (US$19.37 billion).

Lee MB boasted his ‘outstanding ability for overseas resources investments’ saying that they were the greatest feat in the 5,000-year history of the Korean nation. However, it turned out that Lee MB only left the Korean people with an unprecedentedly enormous amount of debts totaling as much as 56 trillion won (US$56 billion).

CORRECTION AND APOLOGY:

A mechanical typographical error was inadvertently made in the original copy of the above story where KNOC was listed as KMDC in seven different places beginning with “debts of the KMDC increased” in the 68th line of the article from top and then in lines 73, 79, 88, 90, 95 and 104. The correct name in each line mentioned above is KNOC and not KMDC. We present our sincere apology for the mechanical error, and regret the inadvertent mistake.?Ed.

이경식 기자  edt@koreapost.com

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