Posts tagged Korea

Is Abenomics Coming to a Halt?

Abenomics

Abe Shinzo, the Japanese Prime Minister, advocates yen devaluation

Wall Street Journal: Abenomics Will Be Felt Beyond Yen

Hankook Ilbo(Korean): 아베노믹스 ‘거꾸로 효과'(Abenomics ‘Reverse Effect’)

Abe Shinzo had explicitly announced that he would artificially devalue yen in the hope that this will help its export-dependent economy. His idea was that devaluation of yen against other currencies, especially USD, would improve price competitiveness of Japanese products overseas. This announcement was quickly criticized by many nations dependent on export such as Korea and Germany.

The Japanese government said that it would pump ‘infinite’ amount of money supply in the economy until it reaches its target inflation rate of 2%, thus achieving the devaluation of yen. Wall Street Journal expected that the inflation rate would make it less attractive for Japanese households to save and invest their money else where or simply use them to go on shopping. “Deutsche Bank said in a note Wednesday, spurring a “meaningful reallocation” of these deposits into offshore assets.” Therefore, Abe’s policy should have helped to vitalize the consumer sector of Japanese economy and at the same time increase its export to foreign countries.

However, Hankook Ilbo, a Korean newspaper, has published an article that Abe’s devaluation of yen is actually having a reverse effect on Japanese economy. According to the report published by Japanese Ministry of Finance in February 20th, 2013, exports decreased 9.4% compared to the previous month, while imports increased 8.2%. This resulted in 1.63 trillion yen deficit.

The newspaper analyzed that the main reason for this deficit is the rising prices for the energy imports due to the yen devaluation. The nation has been importing more of energy supplies such as LNG, oil, and naphtha, as it tried to diversify energy usage and reduce nuclear power following the Fukushima Nuclear Accident. According to Hankook Ilbo, “If Japanese firms fail to significantly recover from this deficit, Abenomics will be hit hard.”

In addition, many Japanese firms are showing their reluctance in raising wages for workers, which is very important for Abenomics to work in order to revive the real economy. They believe that devaluation alone will not simply rejuvenate the economy. Many Japanese companies have been outsourcing their factories overseas and it would be very hard to retrieve all those back to Japan in very short period.

Of course, it has only been several months, so it will be hard to tell whether Abe’s yen devaluation is doing well for the Japanese economy. But, I think that, from reading these articles, it would be better off for a Japanese economy to appreciate yen due to significant the increase in the energy import. The devaluation certainly is doing no good for Japanese economy and disturbing other export-driven economies such as Korea, Germany and etc.

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IA Commentary 3

ECONOMICS COMMENTARY COVERSHEET
Economics Commentary Number: 3
Title of extract: European Union and South Korea Sign Free Trade Agreement
Source of extract: International centre for trade and sustainable development. (2010). 14(35), Retrieved from http://ictsd.org/i/news/bridgesweekly/86983
Date of extract: November 4th, 2010
Word Count: 738
Date the commentary was written: November 8th, 2010
Sections of the syllabus to which the commentary relates: Section 4
Section: 4
Candidate Name: Sang Keun Kim
Candidate Number:

International Centre for Trade and Sustainable Development(ICTSD) reported that the European Union and South Korea signed a free trade agreement (FTA) on October 6th, 2010. Free trade agreement is an agreement to form a type of trade bloc between two or more countries to eliminate protectionism barriers such as tariffs and quotas. Tariff is a taxation imposed on any product when it is imported into a country. Also, quotas are limitation set on the number of imported good allowed in the country. In this commentary, the focus will be on the Korean side of the market, not the European market.

ICTSD reports that the FTA agreement will free almost all of the trade and eliminate 99% of European tariffs and 96% of Korean tariffs on imported goods. This elimination of tariffs will help markets between EU and Korea to eliminate dead weight loss, which is a cost caused by economic inefficiency.

By initiating free trade, EU and Korean markets will be able to get rid of the deadweight loss from the tariffs. Deadweight losses are costs that are caused by inefficient industries spending their resources inefficiently, and these costs are often passed on to the consumers. As EU and Korea initiate FTA, the prices of products will decrease from P(tariff) to P(world). Subsequently, the deadweight losses caused by inefficient industries are eliminated, getting rid of the burden off the consumers’ hands.


As EU and Korea get rid of the tariffs, there will be benefits for the consumers for several reasons. According to ICTSD, the Europeans will gain in chemicals, pharmaceutical, electronics, alcoholic beverages, and agricultural sectors. In other words, this means that the Europeans are efficient in these sectors and they have the ability to supply at the price of P(world), which is way cheaper compared to how Korean industries are supplying at P(domestic). Therefore, the Korean consumers benefit from a fall in price from P(domestic) to P(world) in these sectors. Also, the quantity demanded from the Korean consumers will increase from Q1 to Q2 due to its decreased price. So the consumers who could not buy the products from Q1 to Q2 now benefit from the EU-Korea FTA by the decrease in the price of the products. However, this will be especially bad for the Korean industries in these sectors. As it is illustrated in the diagram, their share of the market decreases from Q(domestic) to Q1 due to the EU-Korea FTA.

The efficient industries compared to other countries’ industries will benefit from gain in the share of other countries’ market by the FTA. These industries are most likely that they will not be badly affected by the FTA and will not lose any of the market shares within the domestic market. In the point of view of European industries in chemicals, pharmaceutical, electronics, alcoholic beverages, and agricultural sectors, these industries will not lose any of the market shares from the Korean industries in these sectors due to their competitiveness and efficiency. To illustrate, the Korean industries in these sectors will not be able to take away the European market due to its high price of P(world) compared to European industries’ price of P(domestic). Therefore, the supply curve will be above the equilibrium point and the Korean products in these sectors will not be appealing to the European consumers.

On the other hand, the Korean industries in automobiles, ships, and mobile communications sectors, they will not lose any of the market share from the European industries because of their cheap price of P(domestic) compared to P(world) of European industries.

In conclusion, the EU-Korea FTA will have a great impact and significance to both economies. There would be a losses and wins from both sides. However, the FTA is worth a try due to the elimination of deadweight losses caused by inefficient industries that are causing great burden on consumers. The elimination of deadweight losses mean the elimination of the inefficiency, and this will bolster the industries to be efficient as possible. Thus, this will benefit not only the consumers but also the industries because it will help them to be competitive in the global market. Increase in the competitiveness and efficiency will help the industries to export their goods and gain profit like how the other efficient foreign industries did. Also, the increase in the trade will greatly contribute to subside the ever-rising unemployment rate, which is troubling both the sides.

Word Count: [738 words]

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Free Trade vs. Protectionism

Satirical View of Protectionism

There are strong arguments from both opinions. However, I do think that an industry needs a protectionism in order to build up its capability to compete with international industries. There are many real world examples that support this idea of protectionism. Of course, it could be unfair for some of the countries that are trying to get in to the market, however, the country with inefficient, lack of technology on specific area will never get better just by initiating free trade with other countries, completely making the weak industry vulnerable to international siege of cheap… products.

There are many industries in East Asia that have benefited from protectionism. One of the most famous example would be South Korea. The country had set a quota, tariff and all methods of protectionism possible to grow one of the important industries. For example, the electronics industries have heavily benefited from the protectionism. From 1970-1990’s, the electronic companies such as Samsung or LG have had significant growth due to the protectionism. Thus, expanding economic growth within the country and lifting the standards of living of the South Korean people. If Korea did not use any kind of protectionism to bolster its core industries, they might be still suffering from poverty and low standards of living. This also includes Japanese, Taiwanese and other nation’s industries. These countries became wealthy by overcoming the lack of resources by protecting the important, lucrative industries.

It would be completely immoral for developed countries to impose and bully undeveloped countries to sign up for WTO and initiate free trade. These undeveloped countries will never have the chance to grow and develop their own industry and technology. It would be forcing a poor country to stay poor and never giving them a chance to have develop their own industry and raise the standards of living.

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Analysis on OECD Country Korea

Data source: World Bank, World Development Indicators

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
$3.69b $3.02b $8.90b $21.5b $63.8b $96.6b $264b $517b $533b $845b

I have researched about Korea, one of OECD countries, on its GDP. The graph above is the ‘norminal’ GDP, which doesn’t take account for the inflation/deflation.

As you see, Korea had significant economic growth since 1975. Backed up by government’s economic reforms, Korea experienced an exponential economic growth. The chart above shows the norminal GDP since 1960 to 2005.

Korea has experienced near-bankruptcy in 1997 due to lack of foreign currencies. As you can see in the graph, the GDP plunged down from $517b to $345b. It was because they had virtually no foreign currencies (especially USD). Korean government could not pay off debts that accumulated during trades with foreign countries. They only had $2.0 billion, which was too short to pay the debt of $19.5 billion. It did have money to pay of its debt by Korean currency Won, but the lenders would not accept the weak, invaluable Korean currency at the time.

Nevertheless, the government had succeeded in paying off all the debt at 2001, and the economy recovered. This could be seen from the graph that the GDP had recovered to the previous GDP of 1995.

In 2007, Korea’s GDP hit $1.05 trillion due to increased exports. It was the year that Korea exported so much that it dramatically lifted up its GDP by significant degree. However, as 2008 global economic recession started, the GDP plunged to $929 billion due to decreased exports.

So, this was the short analysis of Korean GDP from 1960’s to 2008. Before 1960’s, the GDP of Korea was not recorded because the country’s economy was devastated by wars. So it GDP before 1960’s does not mean anything significant.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
$13,300 $16,100 $19,400 $19,400 $17,800 $19,200 $22,600 $24,500 $25,000 $25,800

The GDP per capita of Korea has been increasing since 2000. It has almost been doubled compared to 2000 and 2009. This means that Korean people’s wealth have been double in 10 year time. In my opinion, this is rather astonishing. With increased GDP per capita, many companies would be shifting their markets to Korean domestic market because of doubled wealth of each person. The developed domestic market will solve many of Korean companies’ dilemma of too much dependency on foreign markets especially US market, which is the biggest market of the world.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
10% 9% 5.8% 6.2% 3.1% 4.6% 4% 4.8% 5% 2.2%

GDP real growth rate for Korea has been declining. As you see in the graph, its showing the declining trend for Korea’s real growth rate. This low real growth rate is the concern for Korea right now, however, many experts consider this a temporary consequence of global recession.

“Year”,”Value”
“2000”,”13300″
“2001”,”16100″
“2002”,”19400″
“2003”,”19400″
“2004”,”17800″
“2005”,”19200″
“2006”,”22600″
“2007”,”24500″
“2008”,”25000″
“2009”,”25800″

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Analysis on Japanese Crisis

Japanese Economy is in Deep Coma

Times Online: Click Here

According to Bronwen Maddox on Times Online, Japanese Crisis resulted from extremely inefficient bureaucracy culture, lack of risk-taking, aging population, and bad governmental budget.

The article states that Japanese government (local and central) have debt over 180% of Japan’s GDP. That means, the Japanese government has to pay almost double the country’s GDP to the lenders, who are mostly Japanese citizens. So, the Japanese government is carrying the unexpectable time-bomb of national bankruptcy. Japan is the second highest in debt percentage to GDP in the world, after Zimbabwe’s 200%. However, Zimbabwe’s GDP is so infinitesimal compared to the world’s second biggest Japanese GDP. So Zimbabwe could get support from other countries, but Japan will not be able to survive the misery even if there were some supports from other countries.

The main reason for Japan’s enormous debt is the Japanese government’s bad planning for budget. According to the article, over 45% of the governmental spending was borrowed from Japanese people’s savings. This kind of spending started from 1992, so this debt accumulated for 20 years until the debt almost went up to twice the country’s GDP. United States had deficit governmental spending just like Japan, however, Obama passed the Budget Plan for 2010 to minimize the deficit and ultimately get rid of the debt. Japan is not taking any actions to minimize and get rid of debts they are carrying. Instead, the new government is increasing the deficit almost forced by its populist economic policies. If the new government does not cancel its policies and sketch a new way to get out of this misery, Japan will face more serious problem than ‘lost decades’ : a bankruptcy.

There why are Japanese government spending so much money? My answer to this question was that Japanese people did not want to use money. That is why the Japanese government has to release money to the paralyzed Japanese market. I have heard and read that many Japanese people had lack of confidence in their futures because of the prolonged economic recession in Japan (lost decades). Even if they have one of the highest GDP per capita in the world, they do not use money in fear of another economic recession. This is called leakage in economic term. So Japan is suffering from deflation because of very very low demands in domestic market. Japanese domestic markets do have money to spend, however, people simply chose not to and save it. That is why Japanese companies are having a bad time in the domestic market. To get back to the point, the Japanese government has to release money in order to get the domestic market going, or else, it will collapse.

This lack of confidence or fear about future is devastating to the economy. This once happened to Korea when it was near national bankruptcy in 1998 during the economic crisis in Asia. People feared for the future and they stopped spending but saving. This had rather devastating effect on the Korean economy. So the government had made up the mind to get help from IMF, the international monetary fund, and cold-heartedly let the lazy banks or companies to go bankrupt. The government has forced many companies and economic figures to reform. The economic reform has resulted in tons of people without jobs, however, Korea managed to get out of the trouble until 2000, which only took them 4 years to overcome the trouble.

Japan, in the other hand, did not take such daring measures to overcome the economic crisis, which started from 1992. As a result, Japan has suffered from two lost decade, and ‘is’ suffering from another losing decade. The Japanese government was not determined like the Korean government so that the economic crisis of Japan has lingered around since 1992, almost 20 years from now.

There is another factor that is aggravating the crisis in a long term. It is the low birth rate. Japan has the birth rate of 7.64 out of 1000 population, which ranks 221th in the world. It was estimated that in 20 or 30 years, there will be 45% of Japanese population with old people over 65. This will reduce governmental income from taxation and aggravate the responsibility the young people have to carry out. Thus, it will have unenthusiastic young people and there will lack of labor in the market. Every economically active young person (at 25-30) will have to take care of 2 elders. This will give disincentive to the young people to get a job. Also, it will discourage the young people not to have babies because it’ll be even more burdensome. Thus, the low birth rate gets worst. The Japanese government has to do something to give incentive for the young people to have babies. Or else, the national will fall into the abyss of low birth rate and ultimately ‘extinction’ of Japanese people.

In sum, the Japanese government has to do something. The Japanese government should first pass a new budget plan in effort to minimize the deficit, and they should pass a new law to encourage young people to have babies. Also, they should get rid of the culture of bureaucracy. Or else, Japan will confront the irremediable problem of bankruptcy.

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Kim Jong-Ill’s Furtive $4bn ‘Emergency Fund’

Kim, Jong-Ill with his gang

The Daily Telegraph: Click Here

According to Telegraph, Kim Jong-il, the Supreme Leader of North Korea, has a $4 billion (£2.6 billion) “emergency fund” hidden in secret accounts in European banks that he will use to continue his lavish way of life if he is forced to flee the country.

South Korean intelligences announced that the most of the money was held in Swiss banks, however, Kim Jong-Ill started to transfer them to banks in Luxembourg.

Most of the money is gained from the selling its nuclear and missile technology, making narcotics, insurance swindle, the use of forced labour in its vast gulag system, and the counterfeiting of foreign currency.

I used to live in Kuwait located across the gulf of Middle East, and I remember lots of North Korean laborers working outside under 45~50° Celsius of heat building roads. At the time I thought that they were rightfully paid. However, I realized now that they were actually being exploited to satisfy the pocket of North Korean dictator Kim Jong-Ill.

Let’s get the question of why these banks are ‘hiding’ this unlawful money for Kim Jong-Ill. Ken Kato, the director of Human Rights in Asia answers this well.

“Somewhere in the world, there are bankers who are earning a large sum of money by concealing and managing Kim Jong-il’s secret funds, and at the same time, almost nine million people in North Korea are suffering from food shortages,” he said. “I believe the secret bank accounts are now in Luxembourg, or have recently been transferred from Luxembourg to other tax havens.”

So what Ken Kato basically say is that these banks are making profit from hiding Kim Jong-Ill’s secret fund. They can invest, speculate, and profit by using this illicit money. This was the case for banks in Swiss also until they strengthened the regulations related to it. The so-called ‘black money’ from dictators around the world has made these banks’ pocket full of money.

Kim Jong-I’ll is surely the cruel traitor of the Korean people. He could have used 4 billion dollars to recover the economy and most importantly he could have used it for feeding 9 million North Koreans who are starving. It really doesn’t take that much of money (looking at Kim Jong-Ill’s pocket full of money) to buy the rice to feed the people.

Let’s look at the international rice price.

Rice Export Prices

(US $/tonne)

Thailand

Vietnam

California

Pakistan

Egypt

332

407

1102

380

760

<The FAO Rice Price Update – January 2010: Click Here>

As you see in the chart above, the cheapest rice you can get is for $332 per one ton of Thailand rice. Okay, lets calculate how much money is needed to feed the poor undernourished North Korean people. According to South Korean standard, people in average eat less than 10 kg of rice per month.  So we are going to assume that the normal nourishment required for North Korean people will be 10 kg per person. $332/1000kg = $3.32/10kg. So it requires 3.32 dollars to feed a person for a month. Multiply 3.32 by the North Korean population. 3.32 x 23,110,000 = 76,725,200.

So you only need about 77 million dollars to feed the starving people. Compare 77 million to 4 billion. It only costs 0.02% of the furtive emergency fund that Kim Jong-I’ll is hiding in those banks in Europe.

Using 0.02% of this ’emergency fund’ to buy food supply will not only save the people from starvation, but also helps them to recover economy significantly. How could this help the North Korea economy to recover? Simply by feeding the people, the factories could operate properly by having nourished labor force. It’ll will also be a great incentive for the laborers to work hard as their standard of living is obviously extremely low. They’d be smiling not with one of those ‘forced, unnatural smiles’ but with genuine smiles of happiness even with meager amounts of rice. (it is sad, however).

Or, he could just sell one of those cruises and he’ll be able to feed millions. He will be forever remembered as a traitor of his people if he keeps billions of dollars rotting in European banks. Also, the banks that are ‘hiding’ Kim Jong-Ill’s money will be difficult for them avoid criticism for letting 9 million people die from starvation. These banks should freeze his unrighteous money and should follow the UN’s economic sanctions on North Korea.

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Some Ideas for the Seminar

Seminar Question: : Is capitalism so deeply flawed that all attempts to ensure the public good are doomed to failure?

Definitions:

Capitalism: An economic system in which the means of production and distribution are privately or corporately owned and development is proportionate to the accumulation and reinvestment of profits gained in a free market.

Public Good: A good that is non-rivalrous and non-excludable. A good or service that is provided without profit for society collectively.

Examples of Public Good:

  • Health Care System
  • Military
  • Police
  • High Road

Health Care System in North Korea

N Korea healthcare ‘near collapse’: Click Here

Main Point: North Korea’s healthcare system has failed. It does not have medicines in hospitals to cure its patients. Also, it lacks sufficient medical instruments.

North Korea’s health care system charges their people no fees. It is totally free. It is surely a great contrast from United States, which only started to debate whether they should have laws related to health care passed or not. However, there’s a big flaw in North Korea’s medical system. It simply does not have enough medicine and medical instruments to take care of the patients. Virtually, there is no point in going to the hospital because there simply are anything to cure with.

Health Care System in Cuba

Wikipedia: Click Here

Unlike North Korea, Cuba’s health care system is well-developed. It has advanced medical support for its people free of charge. Cuban hospitals are advanced as any other hospitals in United States or Europe. But, they provide medical surgeries with low fee compared to the hospitals in United States or Europe. So it attracted many health tourists for 20 years.

Sum: The example of North Korea’s medical system seems to imply that communist countries cannot provide medical service. However, looking at Cuba’s example, it contradicts to this idea that communism cannot support medical system.

<Pure Capitalism-Mixed System-Pure Communism>

There aren’t countries with pure capitalism or communism in the world. Even North Korea isn’t a pure communist country because it allows South Korean factories to do business in their ‘special economic district.’ Most countries are in the middle part where they mix a little bit of capitalism and little bits of communism.

US, which is the closest to pure capitalism, has failed to support medical services. Its citizens have to pay medical fee on their own. Pure capitalisms always fail to ensure public goods. Socialist (a capitalism but has some aspects of communism) countries such as France has successful medical system. It takes 40% tax on its citizens and use that tax on the public goods. Capitalist countries often have low taxation on its citizens to ensure their economic freedom. However, it makes it difficult for the country to establish a good medical system. As it has low taxation, it’ll be hard to provide government-owned hospitals. Instead, privatized hospitals dominate the medical market of the country and charge extremely high price for its medical service. Even though North Korea would have 100% tax on its people, as its economy is extremely feeble, it does not have any money to do anything. It’ll virtually have no money to establish hospitals and buy medicine even though it taxes its citizens 100%. So public goods can only be supplied when the economy has a firm foundation. However, even though the economy is strong, like US, the tax rate is so low that it cannot support medical services. So it is very important for countries to be communistic when it comes to public goods. However, not so communistic that you end up being like North Korea.

Capitalism is the best thing out there for growing markets ands economy. However, it does not ensure public good to be provided to the people. It is wise for countries to change their economic system to socialist system as soon as they achieved the goal of well found economy by capitalism.

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