SOUTH KOREA-ECONOMY: Is Seoul Ready to Join OECD’s Elite Club?

By IPS Correspondents Reprint | | Print |

Magda Kowalzcuk

TOKYO, Nov 6 1996 (IPS) - South Korea is set to become the 29th member of the Organisation for Economic Cooperation and Development (OECD), making it the second Asian country, after Japan, to be accepted into the Paris-based so-called “rich men’s club”.

The question is: Is Seoul ready to play ball in the big league?

After years of robust growth, the invitation extended in October by leading industrialised nations for Seoul to join the grouping, comes at a time when the country is going through an economic downturn with no visible signs of a short-term recovery.

Growth slowed to a three-year low of 6.7 per cent in the second quarter of this year, and latest Asian Development Bank (AsDB) projections indicate the 1996 Gross Domestic Product (GDP) growth rate will be about seven per cent, compared to nine per cent last year.

In a report released this week, the Manila-based AsDB further forecast a slow recovery, with a predicted GDP growth rate of 6.7 per cent in 1997.

The report said among the primary causes for the downturn are a slowdown in exports and a deceleration in capital investments. The current account deficit for the first eight months of 1996 was 15.2 billion dollars — almost 2.5 times that for the same period in 1995.

“The widening gap is because of a depreciating (Japanese) yen and the falling price of memory chips that make up 20 per cent of total Korean exports,” said the AsDB. Analysts say semi-conductor exports may drop by about 20 per cent this year, to about 17 million dollars.

In the present circumstances, say opposition parties in Seoul, the timing is simply not ripe for South Korea to accept the invitation of the OECD.

The AsDB too cast somewhat of a shadow on the government’s liberalisation programme aimed at meeting the requirements for entry into the grouping.

According to the report released Tuesday, while the government has moved to open South Korea’s equity market to foreign participants it has not made enough headway in financial sector liberalisation.

The report also noted reservations on Seoul’s part, about liberalising ownership of its banks. Likewise, the bond market is basically closed to foreigners both as lenders and as foreigners.

Still, the government is determined to ratify a motion in the National Assembly later this month, to pave the way for South Korea’s admission to the OECD before yearend.

“Korea is ready for membership, and we are ready to cope with the standards of other industrialised countries although this does not necessarily mean we are a fully industrialised country,” says Lee Kyung Sue, an economic department official in the South Korean embassy in Tokyo.

“The benefits of membership…with that prestigious club…are obvious,” he explained. “For example, it will facilitate us in the globalisation process.” One drawback, he says, is that South Korea would have to narrow its interest rates “but that is not a significant disadvantage”.

Some observers in Tokyo and Seoul are also upbeat about South Korea’s joining of the OECD. Japan certainly is happy with the development.

“Seoul’s entry to the OECD is a major historic event,” commented Japanese foreign ministry spokesman Hiroshi Hashimoto. “Japan has always supported Korean efforts to become a member of the club.”

Tokyo has been keen to have its main economic rival in East Asia, become a member of the OECD. For one thing, it will mean that Seoul will have to abolish its import ban on Japanese made goods which are in direct competition with South Korean products.

“It is a politically sensitive move but it will work out well with time,” says Teruo Muta, a political commentator at the Asahi Shinbun, a Japanese daily.

He added that “the prestige” alone of being part of the OECD grouping would be to Korea’s benefit, even “if for the moment, the status will be more symbolic than real”.

“South Korea transformed itself after years of stagnation and political chaos, from one of the world’s poorest nations, to an industrialised country in an extremely short time,” said one Japanese economist who was confident that Seoul could ride out its current economic slump.

Since the 1960s, he noted that South Korea had increased the “per capita size of its economy more than 100-fold”.

But the economic picture is not so rosy at the moment.

In its latest forecast, the Korean central bank predicted an even lower growth rate than the AsDB for 1996. “The major economic indicators point to a sustained downturn, which is expected to lead to 6.8 per cent economic growth for the whole year,” Bank of Korea Governor Lee Kyung Shik told reporters.

As such, critics of the government’s rush to join the OECD, say that such a move would be premature, particularly as it would throw the Korean economy wide open to foreign competition at a time when national industries are in a period of consolidation.

Furthermore, they argue that Seoul is not in a position right now to grant major assistance to less developed countries, as do other donor nations in the industrialised club,

Proponents however say that the benefits outweigh the risks. It would for example attract a larger influx of foreign capital and administrative and technical know-how.

“It will boost the economy and will offer the country many opportunities for employment and strategic business ideas, boosting the capability of Korea to adapt to the system of an open market in a globalised economy,” says one Korean analyst.

The OECD was founded in 1960, replacing the Organisation for European Economic Cooperation (OEEC) which had been set up in 1948. Member countries cooperate in the formulation of economic and social policies that invariably impact on global trends.

Its present membership: Australia, Austria, Belgium, Britain, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, and the United States.

The newest members to the club are Mexico which joined in 1994, the Czech Republic in 1995 and Hungary in May this year. Poland will be number 28, the Warsaw parliament having already ratified Poland’s acceptance and only procedural formalities are to be cleared.