Hot spots: South Korea.(International Section)

The recession is over, but a sustained expansion is not yet assured. The economy returned to growth in the third quarter of 2003, after two negative quarters that marked Korea's first serious downturn since the Asian crisis of 1997-1998. Real gross domestic product advanced by 1.1% over the preceding three months and by 2.3% year-on-year. If this trend continued in the fourth quarter, as seems to have been the case, the economy may show growth of around 3% for all of 2003, but this would be less than half the 6.3% rate of expansion registered in 2002. And the officially predicted 5.0% growth next year is still rather questionable.

The July-September expansion was carried almost entirely by exports, which rose by as much as 10.8% thanks to brisk demand from the booming U.S. and Chinese economies. Shipments abroad stayed strong in October and November. But consumer sentiment remained weak, and South Koreans spent 1.9% less in the third quarter than a year earlier. While Finance Minister Kim Jin-pyo says he is confident that "the effects of the government's expansionary fiscal policy" are being felt and consumer spending will recover fully in the second half of 2004, many private analysts are much more cautions in their predictions, given the reemerging financial crisis at the country's credit card companies. Moreover, corporate investment in July-September was off 6% from the preceding three months, and it looks as though labor union militancy and political uncertainties will hold back spending on new plants and equipment for quite a while longer.

Labor strikes hit the auto, transportation, shipbuilding and chemicals sectors in the third quarter of 2003. In November, more than 150,000 workers held an eight-hour work stoppage to demand the amendment of laws that allow management to sue union members over illegal strikes. More than 10,000 protesters also held a rally in front of the national assembly, criticizing the government's labor policies and calling for action to improve conditions for temporary workers. These demonstrations followed a violent march by 100,000 union members ha which scores were injured in a severe clash with riot police. The atmosphere is bitter and there is every indication that labor strife is adding to the problems that discourage local as well as foreign direct investment.

Business also must contend with uncertainties caused by intense feuding about a probe into illegal political donations. The problem arose last September, when "allegations emerged that politicians had received millions of dollars from the country's largest business groups (chaebols) in violation of election laws that limit such donations to less than USD 200,000. Opposition legislators have sought to focus attention on Pres. Roh's involvement in the scandal and have been calling for a special investigation into the charge that one of his aides received nearly USD 1 million from the SK conglomerate. Rob, in turn, has backed a much broader inquiry that would include the opposition Grand National Party (GNP), which has already admitted having received more than USD 8 million from SK The melee has brought legislative activity to a virtual standstill, as opposition lawmakers vowed to conduct "all-out war" ...