From: Francisco Paulo Cipolla (cipolla@UFPR.BR)
Date: Wed Jul 21 2004 - 14:00:30 EDT
Thanks Rakesh for this very interesting article on South Korea. Is that figure for Korean foreign reserves right? $230 billion? Paulo Rakesh Bhandari wrote: > from pen-l. If I remember correctly, Sukhamoy Chakravarty analyzed > the underlying dependence of the Korean economy in the 80s. > > IHT article: > > The International Herald Tribune > > Philip Bowring: Who owns South Korea? > Philip Bowring IHT > Monday, July 19, 2004 > > Foreign vs. local investment > > HONG KONG At one level South Korea represents a triumph of globalization > over economic nationalism. Yet because of the head-in-the-sand policies of > the Seoul government this could well turn sour. > > Foreigners now own most of the commercial crown jewels of South Korea, the > newest and seemingly most nationalist member of the developed world. > Whether it is the world's leading chip maker and mobile phone challenger, > Samsung Electronics, or the world's largest and most profitable steel > producer, Pohang Iron Steel, or Korea's major financial groups Kookmin and > Shinhan, most of Korea's high-profile companies are now more than 50 > percent owned by foreigners. In some cases the foreign stakes go above 70 > percent. Foreigners now account for 44 percent of the total Korea stock > market capitalization of around $360 billion. > > The statistics are especially remarkable given that less than a decade ago > foreign ownership of equity in Korean companies was highly restricted. > Even when the nation joined the OECD in 1996, liberalization was at > snail's pace. It took the Asian financial crisis and strong-arm IMF and > creditor tactics to force Koreans to accept almost unrestricted foreign > ownership. > > Koreans still often express resentment at how the sudden withdrawal of > foreign bank lending in 1997-98 caused a collapse in the Korean currency > and asset values. The crisis opened the way to equity capital > liberalization and made it possible for foreigners to acquire large > portions of Korean commerce and industry at very depressed prices. > > Nor was this just a one-time process. The foreign buying of Korea has > continued steadily, and with occasional big waves. Over the past year some > $25 billion in new foreign portfolio equity has arrived. > > So far there has been no major backlash. Koreans may be uncomfortable with > the numbers, but they can take comfort from the fact that in most cases > foreign ownership is fragmented and management control rests firmly with > Koreans - frequently with the families of the former major shareholders. > Still, resentment of foreigners, especially when they try to exercise > their rights as shareholders, lurks not far below the surface. > > Yet Koreans are failing to acknowledge that they themselves now bear the > main responsibility for the foreign capital invasion. Instead of buying > their own companies, they are investing in government bonds, houses and > U.S. debt. > > Despite foreign buying, Korean equities continue to be priced at a > fraction of overseas equivalents. The Korean stock market is selling on > nine times its historic earnings compared with 21 for the S&P 500, 14 for > London, 15 for Taiwan, 16 for Hong Kong or 32 for Japan. The foreign > owners are even collecting dividend yields of around 2.5 percent - as much > as Koreans are earning on their massive holdings of short-term U.S. debt. > > The fact is that individual Korean savers are put off equity investment by > the volatility of the market, and by memories of 1997. In turn, volatility > is a result of the lack of Korean institutional investment, which is a > direct result of laws forcing the majority of Korea's vast household > savings held in insurance and pension funds into bonds and fixed deposits. > While foreigners buy their farm, Koreans are buying bonds. > > The situation grows more ridiculous by the day. The government is in the > process of issuing vast quantities of won-denominated bonds as a "war > chest" in order to be able to sell won and buy dollars to prevent the > exchange rate from appreciating. This obsession with maintaining an > undervalued currency will result in further expansion of bloated foreign > reserves. These are now $230 billion - far more than the foreigners have > spent acquiring their 44 percent of Korean equities. > > The Korean government's failure to let market forces determine the > exchange rate is leading directly to the foreign acquisition of Korean > assets by keeping them cheap in dollar terms and channeling Korean savings > into U.S. consumer debt rather than into ownership of the true pride of > Korea - Samsung, POSCO, etc. > > Such dumb policies could spark both a nationalist backlash in Korea and a > trade backlash by Korea's trading partners. > > IHT Copyright 2004 The International Herald Tribune | www.iht.com
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