Koreans still cautious with their
cash By Andrew Petty
SEOUL -
The roads were congested with traffic during last
month's harvest holiday season as Koreans rushed home to
visit family. Before they took off, stores tried to lure
customers in to buy the usual amount of gifts exchanged
during Chusok: high-end foods, bottles of wine
and department store gift checks.
But people
like accountant Kim Hyun-bin picked up gift sets of
toothpaste and soap for family members since he didn't
get the holiday bonus he expected. Kim's company is
pinching on the extras to prepare for harder economic
times ahead as the nation's growth is expected to
weaken.
Koreans are under heavy pressure not to
open their wallets and it's causing major headaches
among businesses feeling the effects of decreased
consumer spending.
Putting gifts on plastic is
not an option. Many families like Kim's are buried under
credit card debt - some owing tens of thousands of
dollars - after the government campaigned to urge the
nation to use cards in order to boost the economy after
the 1997-98 financial crisis.
It worked. Retail
outlets and bars mushroomed across the landscape, raking
in yellow-colored receipts. Credit card companies even
offered the public 10,000 won (US$8.8) to sign up for a
card. Now consumers like Joo Young-hee wished the
government had warned them of the dangers of spending
sprees.
"At first I thought I could handle it,
but things just got out of control. Because the
government and credit card companies didn't put a limit
on the amount of spending, I could buy whatever I wanted
and how much I wanted," she said.
Third-quarter
reports show Koreans view their living conditions as the
worst since the financial crisis. The Bank of Korea's
(BOK) consumer survey index showed a drop to 67 from 69
in the previous quarter, the lowest mark since 66 was
reported in 2000. A reading below 100 indicates consumer
sentiment is negative. The last time it was optimistic,
it recorded 100 in the summer of 2002, right after Korea
co-hosted the FIFA World Cup finals.
Also in the
BOK's finding were people who said they worry about
conditions not improving for the next six months. Next
year, new taxes levied on cigarettes and alcohol will go
into effect. And soaring gasoline prices continue to
make travel uncomfortable and costly. Producer and
consumer prices rose 7.5% and 3.9% respectively, hinting
strongly at a wave of inflation. Wholesale goods and
commodities were strained by record-high crude oil
costs. For necessities such as noodles and rice, prices
increased 5.7% from last year and moved up 0.2% from
August.
The increase in consumer prices is
considered modest for the moment, according to Bank of
Korea officials. But they expect a big jump in coming
months as producer prices impact consumer prices in
about three months. "It's kind of inevitable for prices
to go up more," said Cho Hong-rae, a researcher for
Dongwon Securities. "But in my view, there will be no
stagflation," he told Asia Times Online.
Compared to other times in Korea's economic
history, the economy is now less sensitive to oil and
raw material prices, he said. The market could see
slight recovery as early as next year's first quarter.
For now, employees can't complain about meager salary
increases - the unemployment rate is too scary. Half of
Korea's unemployed lost their jobs last year due to
corporate restructuring. To fight back against the
sluggish economy, companies have sent people into early
retirement, laid off workers and suspended business.
Conditions look grimmer after examining the nation's
suicide rate: Korea now has the fourth highest rate
among the Organization for Economic Cooperation and
Development (OECD) countries.
President Roh
Moo-hyun, in his 2002 presidential campaign, promised
the nation an annual growth of 7% throughout his term.
After a number of setbacks, he has had to revise his
outlook downward to 5%. Most likely, Korea will not
reach that goal by the end of December, with analysts
predicting 4.6% growth. Next year, experts say, growth
will dip down to 4.1%. The Asian Development Bank
estimates it will slide down to a shocking 3.6% - for
the world's 11th largest economy.
Many believe
that one shouldn't equate growth in exports with a
harmonious domestic economy. A report from the
Federation of Korean Industries suggests a gloomy
outlook for Korea's 20 major industries in coming
months. According to the Federation of Korean Industries
report, only nine industries - autos, tires,
electronics, semiconductors, machinery, petroleum,
electrical machinery, paper and electric utilities -
will see improvements this year.
"Due to the
polarization between booming exports and sluggish
domestic demand, the performance gap is increasing
between exports-oriented companies and those relying
largely on the domestic market," the industrial
federation report said.
To resuscitate the
economy, President Roh has introduced 23 stimulus
packages this year, as many as four a month. The people
who suffer the most are the lowest income earners and
the elite spenders who buy Prada bags and real estate.
So the measures range from credit relief for those
smothered in debt to reducing taxes on golf clubs and
luxury items. The government is also encouraging
citizens to invest in private equity funds so the
construction industry can crank up its motors again.
This summer, a new bill passed by the National
Assembly went into effect, aimed at initiating a
five-day work week, as Koreans are known for working on
Saturdays. The idea is to get families to take short
vacations and have more time to visit department stores.
But restaurants, hotels and retail shops are
still reporting slow business. About a quarter of all
taxi drivers say they are not making their "boundaries"
or daily fees driver pay to use the companies' vehicles,
which means Koreans are finding ways to cutting corners
and save money, economists say. "Even though the
government is trying to stimulate the economy, I'm very
doubtful about its effectiveness," said researcher Hwang
In-seong of the Samsung Economic Research Institute.
Hwang told Asia Times Online that that Korean
customers are affected psychologically and will be
cautious with their spending during the next few months
despite positive reports or incentives to open their
wallets. A pet store is selling pure-bred cocker
spaniels for $150, a fraction of what they usually
fetch. "People just don't want to spend the extra money
on food, grooming and other care it takes for a pet,"
said store manager Park Sang-pil.
Surveys say
married couples are waiting several years to have
children, when they know their jobs are secure and they
have saved enough money. Korea is struggling now with an
all-time low birth rate and analysts are afraid of an
aging society developing quickly. "Our parents keep
nagging us about when we are going to have children,"
said Lee Ji-eun, 31, who has been married for three
years. "But right now, I think it's impossible."
Banks report an increase in deposits and total
deposits have jumped 3.3%. According to Cho's figures,
Koreans are using this penny-pinching period to pay off
their debts. "Time has been like medicine," he said.
Families have been haunted by their credit card bills
for over 20 months and are now determined to reconcile.
Cho predicts many will get out of debt by the end of
next year's first quarter and will begin to feel
comfortable with cash flow again.
Andrew
Petty is a reporter for the Korea Herald and a
freelancer based in Seoul.
(Copyright 2004
Asia Times Online Ltd. All rights reserved. Please
contact content@atimes.com for
information on our sales and syndication
policies.)
