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Annual Report 2001

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Republic of Korea

Economic performance

Despite the weakened global demand for information and communication technology (ICT) in the latter part of 2000, the economy of the Republic of Korea grew around 3.0% in 2001, following an impressive growth of 9.3% in the previous year. The manufacturing subsector contracted during the first half of 2001; in the second half of the year, external demand led to a strong growth in the automotive subsector, offsetting the shortfall in the ICT subsector. On the other hand, regained strength in domestic demand boosted nonmanufacturing activities. Construction rebounded from previous years. Services also grew in 2001.

Inflation was controlled at 4.1% due to weak domestic demand and a stable exchange rate. In 2001, the Government cut taxes, accelerated planned expenditures, and passed a $5.1 billion supplementary budget to provide fiscal stimulus. Total merchandise exports, an indicator of the impact of the global economic slowdown, contracted by 14% in 2001, mainly due to substantial declines in electronic and semiconductor exports. Merchandise imports declined by 13.3% as a result of a significant reduction in imported raw materials used for exports. Current account surplus narrowed slightly to around 2.0% against GDP mainly due to the declining merchandise trade surplus. Revived nonmanufacturing activities and increased domestic demand contributed to a decline in unemployment.

To sustain economic activity, the Government averted capital market turmoil and worked out high-profile corporate restructuring in an increasingly difficult economic environment. The Government took steps to ensure the smooth functioning of capital markets by guaranteeing new bond issues through the Quick Underwriting Program and the Korea Credit Guarantee Fund.

ADB operations

Project implementation: Since joining ADB in 1966, the Republic of Korea has received 81 loans, of which only one technical assistance loan for institutional strengthening of the financial sector remained active at the end of 2001. The project scope of this technical assistance loan was changed to add a new component for financing management consulting services to commercial banks and other financial institutions for diagnostic review, mergers and acquisitions, training and advice on restructuring, and foreign capital inducement.

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