(UNTITLED)

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86T01017R000706910001-7
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 4
• Document Creation Date: January 12, 2017
• Document Release Date: March 3, 2011
• Sequence Number: 1
• Publication Date: December 12, 1986
• Content Type: MEMO

Sanitized Copy Approved for Release 2011/03/03: CIA-RDP86T01017R000706910001-7
Central Intelligence Agency
Washington. Q C 20505
DIRECTORATE OF INTELLIGENCE
12 December 1986
South Korea: Status of the Economy
Summary
A reinvigorated South Korean economy this year
should produce more than double the 5.1-percent real
growth in GNP achieved in 1985. In addition, Seoul
will post its first-ever trade surplus--over $4
billion dollars, which the government will use to
reduce South Korea's $46 billion foreign debt.
Although the economic outlook for the near term is
bright, unfavorable trends in exchange rates,
interest rates, or oil prices, as well as
protectionist measures imposed by major trading
partners, could cut the recovery short.
The Economic Rebound
Favorable oil prices, interest rates, and foreign exchange
movements have enabled South Korea to revitalize its economy
after last year's sluggish, for South Korea, 5.1-percent real GNP
growth rate. A weaker dollar, coupled with Seoul's aggressive
devaluation of the won last year, has bolstered the competitiveness of
This memorandum was prepared byl I Office of East
Asian Analysis. Information available as of 12 December 1986 was
used in its preparation. Comments and queries are welcome and
may be directed to the Chief, Korea Branch, Northeast Asia
Division, OEA
EA M 86-20150 A
DATE ' z
DOC
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South Korean goods in all developed country markets, and helped push
up exports through October by 19 percent. Seoul will post its first-
ever trade surplus this year--probably more than $4 billion, according
to government estimates--and economic officials are eyeing a possible
$4 billion current account surplus.
During the first nine months of this year, real GNP
increased an estimated 12 percent compared with the same period
last year. Growth will easily surpass Seoul's 8-percent goal for
1986, and the economy is likely to continue growing rapidly. The
Korea Development Institute, a quasigovernmental think tank,
recently forecast nearly 8-percent real GNP growth next year, and
the government has raised its average annual real GNP growth
target for the Sixth Five-Year Plan, which commences in 1987,
from 7 percent to 7.2 percent.
The Role of External Factors
The growth spurt, however, is closely tied to volatile
factors. Key forces shaping South Korea's economic advancement
include:
- Economic growth in developed countries. US economic
performance, in particular, will be a major determinant
of South Korea's fortunes. The US market takes over
one-third of Seoul's exports, a dependence that may
grow as South Korea looks to the United States to
absorb new export items such as autos and
semiconductors. But with many economists lowering
their projections for US economic gains, continued high
export growth is uncertain. Japan, South Korea's
second-largest trading partner, also faces a lackluster
economic outlook.
-- Protectionism. Developed trading partners have tried
to use quotas and voluntary restraints to stem imports
of South Korean textiles, steel, and footwear--which
make up over one-third of South Korea's exports.
Protectionist measures will probably increase as South
Korea emerges as a strong competitor in knowledge- and
technology-intensive goods, such as personal computers
and autos.
Security Issues. A relatively heavy defense burden--
nearly 6 percent of GNP--acts as a brake on South
Korea's economic growth and diverts scarce technical
expertise from commercial endeavors.
- Foreign Debt. South Korea's $46 billion debt is over
half its GNP and debt payments are about 20 percent of
export earnings. While Seoul has no major problems
servicing its foreign debt, economic technocrats and
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international bankers view continued high export growth
as the key to South Korea's creditworthiness. The
government has decided to spend part of this year's
current account surplus on debt reduction, particularly
short-term debt. Nonetheless, South Korea will remain
the fourth-largest LDC debtor.
The Political Factor
Our outlook is qualified by concern that an unstable
political climate could sour growth prospects. Notwithstanding
this year's favorable balance-of-payments situation, Seoul will
continue to require about $4 billion in foreign loans annually
through 1988. If civil strife hurts South Korea's credit rating,
Seoul at a minimum will face higher interest rate spreads on new
commercial borrowings, which will add to the debt burden.
Moreover, economic planners are counting on foreign investment
and domestic savings to spur capital spending and maintain South
Korea's industrial competitiveness. Political unrest that
undermines the confidence of domestic and foreign investors could
cut short the recovery.
Sanitized Copy Approved for Release 2011/03/03: CIA-RDP86T01017R000706910001-7
 Sanitized Copy Approved for Release 2011/03/03: CIA-RDP86T01017R000706910001-7
SUBJECT: South Korea: Status of the Economy
Distribution:
Original - Fred C. Ikle, Under Secretary of Defense
Room 4E830, Dept. of Defense
1 - Director, DCI/DDCI/Executive Staff (7E-12)
1 - NIO/EA (7E 62)
1 - NI0/Economics (7E 48)
1 - C/PPS/DO (3D 01)
1 - C/EA/0 (5E 18)
1 - OGI/FSIC/PI (2G 18)
1 - OEA/NEA/Korea Branch (4G 43)
1 - OEA/NEA/Japan Branch (4G 31)
1 - OEA/NEA/STI Branch (4G 43)
1 - OEA/NEA Division (4G 43)
1 - OEA/China Division (4G 32)
1 - OEA/SEA Division (4F 24)
1 - D/OEA (4F 18)
1 - C/Production/OEA (4G 48)
1 - FBIS Analysis Group (1014 Key Bldg.)
1 - DDI (7E 47)
1 - Senior Review Panel (5G 00)
1 Office of Legislative Liaison (7B 14)
1 - PDB Staff (7F 30)
5 - CPAS/IMC/CB (7G 07)
1 - CPAS/ILS (7G 50)
1 - C/PES (7F 24)
1 - NIC/AG (7E 47)
1 - DDO/EA Division (5D 00)
1 - DDO/EA/ 5C 45)
1 - DDO/EA/ (5C 19)
1 - DDO/EA/ (5C 19)
1
1
1 -
DDI/OEA/NEA/K 12 Dec. 86
Sanitized Copy Approved for Release 2011/03/03: CIA-RDP86T01017R000706910001-7