Korea best in Asia on investor confidence in economy: IMF

SEOUL

Kang Man Soon wept on the day 15 years ago that she gave her gold wedding ring to the government, joining the millions who donated heirlooms to boost South Korea’s reserves during the Asian financial crisis.

“We just couldn’t let the country go bankrupt after all the sacrifices and hard work to save it from Japanese colonial rule and civil war,” said Kang, whose husband fulfilled a promise to replace the gold band by giving her a one-carat diamond ring this year for her 60th birthday. “The economy is much bigger and stronger now and our cars and products and pop songs are famous around the world.” Underpinning the nation’s industrial success are the chaebol, large, family-controlled conglomerates held together by a network of crossholdings. Their size, government support and access to capital have made many world leaders — Samsung, for example, in mobile phones and flat screens, Hyundai Heavy Industries Co. in shipbuilding.

Park Geun Hye, former leader of the ruling New Frontier Party, center, waves after being elected the party’s presidential candidate at a national convention in Ilsan, north of Seoul, South Korea, on Monday, Aug. 20, 2012.

Since the 1997-1998 slump, South Korea has ridden economic crises better than most advanced economies. The stock market has risen fivefold, led by Samsung Electronics Co. (005930), which now makes almost a quarter of the world’s mobile phones, and Hyundai Motor Co. (005380) and its affiliate Kia Motors Corp. (000270) are the most profitable of the six biggest global automakers. With growth this year set to beat Asia’s other wealthy nations, the three biggest credit rating companies upgraded South Korea’s debt, citing the ability to weather shocks better than its peers.

“It’s this expensive lesson we learned that made us prepare so well for the next crisis,” said Kwon Dae Young, who was in charge of injecting foreign capital into banks at the finance ministry in 1997. “Korean companies now have much healthier balance sheets and the government is backed up well with a solid amount of foreign exchange reserves.”

With Japanese exporters hampered by a strong yen, Europe encumbered by debt, and U.S. unemployment hovering near 8 percent, South Korea’s resilience offers a bright spot in the developed world. The International Monetary Fund forecasts Asia’s fourth-largest economy will grow 2.7 percent this year, compared with 2.2 percent in Japan, 1.8 percent in Hong Kong and 2.1 percent in Singapore.

“I think South Korea will probably grow by around 4.8 percent over the next decade, which means it will continue to see its GDP per capita rise notably and relative to other developed countries, especially Japan and European countries,” said Jim O’Neill, chairman of Goldman Sachs Asset Management.

Gross national income per capita was $20,870 last year, compared with Japan’s $45,180 and Hong Kong’s $35,160, according to World Bank data.

South Korea’s resilience has given it the status of a safe haven in the bond market, where investors held 88.3 trillion won of local currency debt at the end of last month, double the amount in 2009, data from the nation’s financial regulator show.

South Korea’s won has appreciated 5.7 percent this year to 1,090.70 per dollar as of today’s close in Seoul, the thirdbest performer among Asia’s 11 mostused currencies. The won will strengthen another 1 percent by the end of the third quarter of 2013, according to the median estimate in a Bloomberg News survey.

The currency is “structurally undervalued” said Eric Stein, a Boston-based portfolio manager at Eaton Vance Management, which oversees $198 billion. “It will slowly but surely continue to appreciate.”

Standard & Poor’s, Moody’s Investors Service and Fitch Ratings boosted South Korea’s rating between late August and September, with all three citing strong fiscal fundamentals and room to respond to external shocks. The Bank of Korea has $322 billion of foreign exchange reserves, the world’s seventh largest, compared with a low of $20.4 billion at the end of 1997.

While opposition lawmakers have called for more public spending, the government on Sept. 25 released a budget proposal for 2013 that would reduce the fiscal deficit to 0.3 percent of gross domestic product, the smallest in six years.

Underpinning the nation’s industrial success are the chaebol, large, familycontrolled conglomerates held together by a network of crossholdings. Their size, government support and access to capital have made many world leaders Samsung, for example, in mobile phones and flat screens, Hyundai Heavy Industries Co. in shipbuilding.