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Inflation in Korea was one of the major economic problems in the 70s and early 80s, during which consumer prices rose at annual rates of 10-20 percent. Since 1982, Korea has managed to keep inflation down to a single digit. The ratio of domestic savings to GNP grew from 3.3 percent in 1962 to 34.9 percent in 1993.

Recent Challenges

Beginning in 1989, the Korean economy began experiencing slower growth, high inflation and a deterioration in the balance of payments. The GNP growth rate fell to 6.7 percent in 1989 from the 12 percent level of previous years. A slump in the growth of the manufacturing sector, from 18.8 percent in 1987 and 13.4 percent in 1988 to 13.7 percent in 1989, contributed largely to this decline in GNP growth rate. The export growth rate on a customs clearance basis, which was 36.2 percent in 1987 and 28.4 percent in 1988, fell to just 2.8 percent in 1989. Reflecting this fall in the export growth rate, the current account surplus lowered to around US$5.1 billion, a significant drop from the 1988 surplus of US$14.2 billion.

In 1991, the economic growth rate showed signs of recovery. The GNP grew during the year 9.1 percent. However, most of this growth was attributed to an increase in domestic demand, particularly domestic consumption. Exports increased 10.3 percent compared to 1990, while the growth rate of imports increased 17.7 percent. The trade balance deteriorate rapidly to a US$7.0 billion deficit in 1991 from the US$4.6 billion surplus in 1989. In addition, price stability, which had served to boost Koreas competitiveness, weakened. Consumer prices, which had risen on an annual average of 2-3 percent between 1984 and 1987, rose 9.3 percent in 1991.

Recent Economic Trends

91

92

93

94. 1 ~ 6

GNP

GNP

Growth Rate in %

9.1

5.0

5.6

8.5

Manufacturing Sector

Growth Rate in %

9.1

5.1

5.0

10.0

Private Consumption

Growth Rate in %

9.5

6.6

5.7

7.2

Investment

Growth Rate in %

12.6

0.8

3.6

10.3

Equipment

Growth Rate in %

12.1

1.1

0.2

17.7

Prices

Producer Price

%

4.7

2.2

1.5

2.2

Consumer Price

%

9.3

6.2

4.8

6.2

Balance of Payments

7.0

2.2

1.9

1.6

Export

US$ bil.

69.6

75.1

81.0

43.1

Imports

US$ bil.

76.6

77.3

79.1

44.7

Current Account

Balance

US$ bil.

8.7

4.5

0.4

2.7