Trade in South Korea

COUNTRY

Mosjeed South Korea

 

Formal Name: Republic of Korea.
Short Form: South Korea.
Term for Citizens: Korean(s).
Capital: Seoul.
Date of Independence: August 15, 1948.

GEOGRAPHY

South Korea in map

 

Location and Size: Strategic location in waters of the Sea of Japan, Korea Strait, and Yellow Sea. Total land area of Korean Peninsula, including islands, 220,847 square kilometers; approximately 98,477 square kilometers (44.6 percent) constitutes territory of South Korea.
Land Boundary: 238 kilometers with North Korea.
Disputes: Demarcation Line with North Korea; Liancourt Rocks claimed by Japan.
Topography and Drainage: Approximately 70 percent of land area mountains and uplands. Principal ranges--T'aebaek and Sobaek range and Chiri Massif. Tallest mountain--Mount Halla at 1,950 meters, a volcanic cone located on Cheju Island. Longest rivers--Naktong River, 521 kilometers; Han River, which flows through Seoul, 514 kilometers; and Kom River, 401 kilometers.
Climate: Long, cold, dry winters; short, hot, humid summers with late monsoon rains, flooding. Seoul's January mean temperature -5° C to -2.5° C; July, 22.5° C to 25° C. Cheju Island warmer, milder weather than other parts of South Korea. Annual rainfall varies from year to year but usually averages more than 100 centimeters; two-thirds of precipitation falls between June and September. Droughts, particularly in southwest; approximately one every eight years.

ECONOMY

General Character: Export oriented although domestic market increasing source of growth in late 1980s; real growth 12.5 percent 1986-88; 6.5 percent, 1989. Dominated by chaebol, or business conglomerates. Most industries, except mining, in urban areas of northwest and southeast. Heavy industry generally in south. World's tenth largest steel producer in 1989. Major electronics producer. Automobiles and automotive parts major domestic growth and export industry of 1980s. Armaments also manufactured for domestic use and export. Construction critical source of foreign currency and invisible export earnings. Textiles, clothing, and leather products important. Growing labor movement affects production and costs.
Gross National Product (GNP): In 1989 US$204 billion, US$4,830 per capita, 6.5 percent annual growth rate.
Gross Domestic Product (GDP): US$211.9 billion at market prices, 1989; real annual growth 6.1 percent. Average growth 6.1 percent 1986-90; high, 12.4 percent in 1986; low, 6.1 percent in 1989.
Industry: Main growth sector, produced 46 percent of GDP and employed 35 percent of work force in 1988.

Trade flow of South Korea

Resources: Peninsula has minimal resources. Mineral deposits mostly small, except for tungsten. Anthracite coal most important mineral product by volume and value, but also imported. Most energy needs met by nuclear power, coal, and crude petroleum imports.
Agriculture, Forestry, and Fishing: Employed approximately 21 percent of work force in 1989; generated 10.2 percent of GDP. Relative importance declining since mid-1960s; production grew 5.9 percent in first half of 1989. Major crops rice and barley, also millet, corn, sorghum, buckwheat, soybeans, and potatoes. Fishery products popular food and important export commodity. Inadequate forestry resources.
Foreign Trade: Annual trade in 1988 more than US$100 billion; first time world's tenth largest trading nation. Major trading partners United States and Japan. Main exports textiles, clothing, electronic and electrical equipment, footwear, machinery, steel, ships, automobiles and automotive parts, rubber tires and tubes, plywood, and fishery products. Main imports machinery, electronics and electronic equipment, petroleum and petroleum products, steel, grains, transport equipment, raw materials, chemicals, machinery, timber and pulp, raw cotton, and cereals. Balance of payments affected by oil imports and raw materials needs; surplus of US$4.6 billion in 1989, but deficit of US$1.9 billion, 1990.
Currency and Exchange Rate: January 1990, US$1=683.4 won (W).
Fiscal Year: January 1 through December 31.

FOREIGN ECONOMIC RELATIONS

Exports were the key to South Korea's industrial expansion. Until 1986 the value of imports was greater than exports. This situation was reversed, however, in 1986 when South Korea registered a favorable balance of trade of US$4.2 billion. By 1988 the favorable balance had grown to US$11.4 billion. Financing this persistent, although not unexpected, gap between domestic and imported resources was a principal concern for economic planners. In the 1950s and 1960s, much of the trade deficit was financed by foreign aid funds, but in the last two decades, borrowing from and investment in international capital markets have almost completely substituted for economic aid.

Aid, Loans, and Investment

Foreign economic assistance was essential to the country's recovery from the Korean War in the 1950s and to economic growth in the 1960s because it saved Seoul from having to devote scarce foreign exchange to the import of food and other necessary goods, such as cement. It also freed South Korea from the burden of heavy international debts during the initial phase of growth and enabled the government to allocate credit in accordance with planning goals. From 1953 to 1974, when grant assistance dwindled to a negligible amount, the nation received some US$4 billion of grant aid. About US$3 billion was received before 1968, forming an average of 60 percent of all investment in South Korea. As Park's policies took effect, however, the dependence on foreign grant assistance lessened. During the 1966-74 period, foreign assistance constituted about 4.5 percent of GNP and less than 20 percent of all investment. Before 1965 the United States was the largest single aid contributor, but thereafter Japan and other international sponsors played an increasingly important role.

Apart from grant assistance, other forms of aid were offered; after 1963 South Korea received foreign capital mainly in the form of loans at concessionary rates of interest. According to government sources, between 1964 and 1974 such loans averaged about 6.5 percent of all foreign borrowing. Other data suggested a much higher figure; it seemed that most loans to the government were concessional, at least through the early 1970s. International Monetary Fund data showed that imports financed through such means as foreign export-import loans with reduced rates of interest totaled 11.6 percent of all imports from 1975 to 1979. The aid component of these loans was only a fraction of their total value.
During the mid-1960s, South Korea's economy grew so rapidly that the United States decided to phase out its aid program to Seoul. South Korea became increasingly integrated into the international capital market; from the late 1960s to the mid- 1980s, development was financed with a series of foreign loans, two-thirds of which came from private banks and suppliers' credits. Total external debt grew to a high of US$46.7 billion in 1985. Positive trade balances in the late 1980s led to a rapid decline in foreign debt--from US$35.6 billion in 1987 to an expected US$23 billion by 1991. Account surpluses in 1990 were expected to enable Seoul to reduce its foreign debt from its 1987 level of about 28 percent of GNP to about l0 percent by 1991.
United States assistance ended in the early 1970s, from which time South Korea had to meet its need for capital investment on the competitive international market and, increasingly, from domestic accounts. The government and private industry received funds through commercial banks, the World Bank, and other foreign government agencies. In the mid-1980s, total direct foreign equity investment in South Korea was well over US$1 billion.
The fact that South Korea was so dependent on foreign trade made it very vulnerable to international market fluctuations. The rapid growth of South Korea's domestic market in the late 1980s, however, began to reduce that dependence. For example, a dramatic rise in domestic demand for automobiles in 1989 more than compensated for a sharp drop in exports. Furthermore, while Seoul's huge foreign debt left it vulnerable to changes in the availability of foreign funds and in international interest rates, Seoul's economic and debt management strategy was very effective.
The South Korea's philosophy concerning direct foreign investment had undergone several major changes tied to the changing political environment. Foreign investment was not allowed through the 1950s. In 1962 the Foreign Capital Inducement Act established tax holidays, equal treatment with domestic firms, and guarantees of profit remittances and withdrawal of principal. Despite the provisions of the act, there was little foreign investment activity until after the establishment of diplomatic relations between South Korea and Japan in 1965.
Seoul had to mobilize both external and internal sources when it launched its First Five-Year Economic Development Plan in 1962. The Foreign Capital Inducement Act was amended in 1966 to encourage a greater inflow of foreign capital to make up for insufficient domestic savings. A rapid inflow of investment followed until 1973, when the act was changed to restrict the flow of investments. Beginning in the late 1970s, however, the government gradually began to remove restrictions as domestic industries began to grow and needed to be strengthened to cope with international competition. But until the early 1980s, South Korea relied heavily on borrowing and maintained a somewhat restrictive policy towards foreign direct investment.

Donald S. Macdonald has pointed out that under the liberalization policy, restrictions on foreign direct investment were eased in 1984 and 1985. Seoul changed its control policy on foreign investment from a "positive list" to a "negative list" basis, which meant that any activity not specifically restricted or prohibited was open to investment. An automatic approval system was introduced under which all projects meeting certain requirements were to be immediately and automatically approved by the Ministry of Finance.
Seoul twice revised the negative list system after its initial introduction--first in September 1985 and again in April 1987--to open more industrial sectors to foreign investors. In 1984 there were 339 items, or 34 percent of the 999 items on the Korean Standard Industrial Classification, on the negative list. As of July 1987, there were 788 industrial sectors open to foreign investment. In the manufacturing sector, 97.5 percent of all industries (509 out of 522) were open to foreign investment.
In December 1987, Seoul announced a policy to liberalize the domestic capital market by 1992. The program called for liberalizing foreigners' investment funds, offering domestic enterprises rights on overseas stock markets, and consolidating fair transaction orders. Seoul planned to allow direct foreign investment in its stock market in 1992.
Of the total direct investment in South Korea from 1962 to 1986, which amounted to US$3.631 billion, Japan accounted for 52.2 percent and the United States for 29.6 percent. In 1987 Japan invested US$494 million, or 47 percent of the total foreign investment of US$1.1 billion. Japan invested mainly in hotels and tourism, followed by the electric and electronics sector. Direct investment from the United States showed a remarkable increase since the early 1980s, accounting for 54.4 percent of the 1982-86 total investment. The United States invested a total of about US$255 million, or approximately 24 percent of the 1987 investment. Cumulative United States investment was about US$1.4 billion by 1988.
There was a dramatic rise in foreign investment in the late 1980s. Approvals of foreign equity investments reached an all- time high of US$1.283 billion in 1988, a 21 percent increase over 1987. As in previous years, approvals for Japanese investments were the dominant factor; they totaled US$696 million (up 41 percent from 1987), followed by United States investors with US$284 million (up 11 percent), and West European sources, US$240 million (up 14 percent). Investment approvals in the service sector doubled in 1988 to US$561 million, which included two large Japanese hotel projects totaling US$344 million. Investment approvals in the manufacturing sector, however, declined from US$775 million in 1987 to US$710 million in 1988.
South Koreans began investing abroad in the 1980s. Before 1967 there was virtually no South Korean investment overseas, but thereafter there was a slow growth because of Seoul's need to develop export markets and procure natural resources abroad. In the 1970s, South Koreans invested in trading, manufacturing, forestry, and construction industries. By the early 1980s, a sharp reduction in development projects in the Middle East led to a decline in South Korean investment there. Mining and manufacturing investments continued to grow throughout the decade. In 1987, out of a total South Korean overseas investment of US$1,195 million (745 projects), US$574 million was invested in developed countries and the remaining US$621 was invested in developing countries.
One of the most noticeable economic achievements in the 1980s was Seoul's reversal of the balance of payments deficit to a surplus. This improvement was largely attributable to strong overseas demand for South Korean products and to the reduction in expenditures for oil imports. In addition, the "invisible" trade account (monies from tourism and funds sent home by nationals) had improved considerably in the late 1980s because of temporary increases in revenue from tourism, receipts from overseas construction, and structural decreases in interest payments.
South Korea's success in achieving a balance of payments surplus, however, was not without some drawbacks. It led to harsh trade disputes with the United States and other developed nations, as well as to inflationary pressures. To cope with these problems, Seoul had to modify its enthusiastic promotion of exports in favor of a policy restraining trade surpluses within reasonable limits.
An important measure restraining the growing foreign trade imbalance between South Korea and the United States was Seoul's decision to revalue the won against the United States dollar. A stronger won made American imports cheaper, increased the cost of South Korean exports to the United States, and slowed, but did not reverse, the growth in the South Korea-United States trade deficit as of 1989. The United States pressed for further appreciation of the won in 1989. In April 1989, the United States Department of the Treasury accused South Korea of continued "manipulation" of the South Korean currency to retain an artificial trade advantage. South Korean officials and businesspeople, however, complained that the already rapid appreciation of the won was slowing economic growth and threatening exports. In May 1989, South Korea avoided being called an unfair trader by the United States and forestalled possible United States trade sanctions, but the nation paid a high price by promising to open up its agricultural market, ease investment by foreigners, and remove many import restrictions.

Foreign Trade Policy

Seoul stated in 1987 that its foreign trade policy was structured for further expansion, liberalization, and diversification. Because of the paucity of natural resources and traditionally small domestic market, South Korea has had to rely heavily on international trade as a major source of development. Seoul also sought to diversify trading partners to ease dependence on a few specific markets and to remedy imbalances in the present tendency to bilateral trade.

Exports and Imports

The rapid growth of South Korea's economy in the late 1980s led to significant increases in exports and imports. In the wake of the 1988 Seoul Olympics, South Korea's trade surplus exceeded US$11 billion and foreign exchange revenue had increased sharply. Seoul's trade with communist countries surged in 1988. Trade with Eastern Europe was US$215 million, trade with China almost US$1.8 billion, and trade with the Soviet Union US$204 million.
In 1989 total exports grew to US$74.29 billion, and imports totaled US$67.21 billion. South Korea's annual trade exceeded US$100 billion for the first time in 1988, making it the world's tenth largest trading nation.
During the 1960s and early 1970s, the commodity structure of Seoul's principal exports changed from the production of primary goods to the production of light industrial goods. After 1974 there was a rapid expansion in the production and export of heavy industrial and chemical products. By 1986 the share of heavy industrial and chemical products in total exports had expanded to 55.5 percent (as compared to 18.9 percent in 1980) whereas the share of light industrial products had shrunk to 40.9 percent (as compared to 71.1 percent in 1980).
South Korea had depended greatly on the United States and Japan as its major trading partners, with 75.6 percent of all exports going to these markets in 1970. Success at diversifying export markets led to a reduction in the United States-Japan export market share to 55.6 percent in 1986. The Middle East accounted for 12 percent of South Korea's export trade from 1972 to 1977, but its share declined to 5.2 percent in 1986 because of the collapse of the construction boom in the Middle East and the Iran-Iraq war (1980-88). Exports to Western Europe declined from 18.8 percent in 1979 to 15 percent in 1986. Exports to developing areas, such as Latin America (0.8 percent in 1972; 3.6 percent in 1986) and Oceania (0.9 percent in 1972; 1.4 percent in 1986), grew.

Indirect Seoul-Moscow trade was estimated at about US$20 million in 1978, with Moscow importing electronics, textiles, and machinery and exporting coal and timber. By the late 1980s, South Korea's global fur trader, Jindo, was expected to produce US$20 million worth of fur garments annually in a joint venture with the Soviet Ministry of Light Industry. South Korean businesspeople were offered such Soviet products as instruments for nuclear engineering and technology for processing mineral ores and concentrates. In the first ten months of 1989, bilateral trade between Seoul and Moscow reportedly increased 156 percent from 1988 figures to US$432 million.
Since the early 1960s, the structural pattern of imports had shown changes, particularly in the relatively decreasing share of imported consumer goods and the accelerated growth of industrial supplies and capital equipment imports. The share of consumer goods imported in 1962 was 24.1 percent of total imports; this share declined to 9.8 percent of total imports in 1986 because of increased South Korean production of these goods for the domestic market. The declining share of raw materials as a percentage of imports during the early 1970s was reversed in 1974 because of the increased value of oil imports (caused by the 1973 war in the Middle East). By 1979 crude oil was 25 percent of South Korea's total import requirements. This figure dropped to 8.4 percent in 1988 because of the use of other sources of energy and the decline in the price of petroleum in the late 1980s.
South Korean exports to the United States in 1988 rose to US$21.5 billion, a 17-percent increase over 1987; imports rose to US$12.8 billion, a 46-percent increase over the 1987 level. The percentage of total South Korean exports destined for the United States market decreased to 35.3 percent in 1988 from 38.7 percent in 1987. At the same time, the United States' share of total South Korean imports rose to 24.6 percent, up from 21.4 percent in 1987. By 1988 Seoul's favorable balance had grown to more than US$8.7 billion.
In 1989 imports rose to US$57 billion (up 18 percent from 1988) whereas exports reached US$61 billion, a 2-percent increase from 1988. The trade surplus was reduced from US$11.5 billion to US$4.3 billion and was projected to decline even more. Invisible receipts rose 10 percent, but payments, mainly reflecting a big increase in South Korean travel abroad, were up 20 percent. Thus, the surplus on invisible trade was reduced from US$1.3 billion to US$400 million.

The Economic Future

The Korea Development Institute also forecasted in 1988 that South Korea's per capita GNP would exceed US$10,000 early in the twenty-first century. The institute predicted that Seoul would enjoy a higher sustained growth rate than average through the 1990s; that the manufacturing industry would play a pivotal role in the economy in the twenty-first century; and that the service industry would become knowledge-intensive in order to meet the needs of a highly diversified industrialized society. The share of the primary sector (agriculture, forestry, and fisheries) would sink to nearly 5 percent by the turn of the century, whereas the secondary sector (industry) would rise to over 40 percent and the service sector would be at about 55 percent. Major areas of industrial growth would include automobiles, electronics, and machinery.
In 1988 Kim Duk-choong of Sogang University listed five main points that were expected to make the "Korean economic future look bright." He noted that South Korea had drastically reduced its foreign debts since 1985, greatly increased the rate of domestic savings, improved on the equitable distribution of income throughout the population, increased the role of small and medium-sized corporations in the economy, and made the transition from a labor-oriented to a technology-oriented economy. He expected that these positive economic developments would easily outweigh existing problems and lead to real growth in years to come.
Kim's optimism had merit, but there were other important issues that could inhibit economic growth, for example, rising protectionist sentiments in the United States, Japan, and elsewhere. Another problem was the fact that the chaebol tended to restrict subcontracting and to keep as much production as possible inhouse, which meant that the smaller industries and businesses, which bore the brunt of slowdowns in Japan, would not be able to act as shock absorbers. Moreover, as South Korea moved up the technological ladder, it would face stiff competition from advanced nations like Japan and up-and-coming nations like Thailand. There also was the intangible problem of the resolve of South Korea's workers, who labored six days a week with little vacation time. What effect would a slackening of resolve have on the South Korean worker by the 2000? In general, the future of South Korea's economy looked very bright, but there were enough intangibles to make accurate predictions difficult at best.

South Korea trade center

There are numerous excellent works on the South Korean economy that offer a variety of perspectives. Historical studies charting the nation's colonial and modernization periods include Andrew C. Nahm's Korea under Japanese Colonial Rule and Ramon H. Myers' and Mark R. Peattie's The Japanese Colonial Empire, l895-1945. Donald S. Mcdonald's The Koreans provides information on the Korean economy from colonial times through contemporary society. Among the general works on the postwar economy are David I. Steinberg's South Korea's Economy and Chaebol, Han Sung-joo's and Robert Myers's Korea, Edward S. Mason et al.'s The Economic and Social Modernization of Korea, Jene K. Kwon's, Korean Economic Development, G. Cameron Hurst III's Korea 1988, Alice H. Amsden's Asia Next Giant, David S. Bell, Jr.'s, Bun Woong Kim's, and Chong Bun Lee's Administrative Dynamics and Development, Karl Maskowitz's From Patron to Partner, and The Rise of the Korean Economy by Byung-Nak Song.
Opposition groups' views of the South Korean economy are best expressed in Minjungsa's Lost Victory. The Far Eastern Economic Review publishes frequent articles on the economy, as does Asian Survey. For a South Korean perspective on the economy, articles in the English-language Korea Newsreview and the various publications of the Korean Economic Institute in Washington are valuable.

FINANCING DEVELOPMENT

Financing South Korea's economic development in the 1990s was expected to differ from previous decades in two main respects: greater reliance on domestic sources and more emphasis on equity relative to debt. Beginning in the 1960s, foreign credit was used to finance development, but the amount of foreign debt had decreased since the mid-1980s. According to the Sixth Five-Year Economic and Social Development Plan (1987-91), an average annual growth rate of 8 percent was expected, together with account surpluses of about US$5 billion a year through 1991.
To realize these growth targets, South Koreans needed the gross domestic savings rate to exceed the domestic investment rate; additionally, they needed the financing of future economic growth to come entirely from domestic sources. Such a situation would involve reducing foreign debt by US$2 billion a year; and South Korea would become a net creditor nation in the mid-1990s. Through the promotion and reform of the securities markets, especially the stock market, and increased foreign investment, the sixth plan encouraged the diversification of sources and types of corporate finance, especially equity finance.
Domestic savings were very low before the mid-1960s, equivalent to less than 2 percent of GNP in the 1960 to 1962 period. The savings rate jumped to l0 percent between 1970 and 1972 when banks began offering depositors rates of 20 percent or more on savings accounts. This situation allowed banks to compete effectively for deposits with unorganized money markets that had previously offered higher rates than the banks. The savings rate increased to 16.8 percent of GNP in 1975 and 28 percent in 1979, but temporarily plunged to 20.8 percent in 1980 because of the oil price rise. After 1980, as incomes rose, so did the savings rate. The surge of the savings rate to 36.3 percent in 1987 and 35.8 percent in 1989 reflected the sharp growth of GNP in the 1980s. The prospects for continued high rates of saving were associated with continued high GNP growth, which nevertheless declined to 6.5 percent in 1989.
According to Donald S. Macdonald, through the early 1980s funds for investment came primarily from bilateral government loans (mainly from the United States and Japan), international lending organizations, and commercial banks. In the late 1980s, however, domestic savings accounted for two-thirds or more of total investment.

Throughout the 1980s, the financial sector underwent significant expansion, diversification of products and services, and structural changes brought about by economic liberalization policies. As noted by Park Yung-chul, financial liberalization eased interest ceilings. Deregulation increased competition in financial markets, which in turn accelerated product diversification. In the early 1980s, securities companies were permitted to sell securities through a repurchase agreement. By 1985 banks also were allowed to engage in the repurchase agreements of government and public bonds. In 1981 finance and investment corporations started dealing in large-denomination commercial paper. The new form of commercial paper was issued in minimum denominations of 10 million won, compared to the previous minimum value for commercial paper of 1 million won.
In order to extend their ability to raise cash, investment and finance companies introduced a new cash-management account with a 4 million won minimum deposit in 1983. Investment and finance corporations managed client funds by investing them in commercial paper corporate bonds and certificates of deposit. Money-deposit banks in the mid-1980s began offering similar accounts, known as household money-in-trust. Trust business formerly had been the exclusive domain of the Bank of Seoul and Trust Company; however, after 1983 all money-deposit banks were authorized to offer trust services.
The financial system underwent two major structural changes in the late 1970s and 1980s. First, money-deposit banks saw a sustained erosion of their once-dominant market position (from 80 percent in the 1970 to 1974 period to 55 percent by 1984). One reason for this decline was that in the 1970s nonbank financial intermediaries, such as investment trust corporations, finance companies, and merchant banking corporations, were given preferential treatment. Further, because the costs of intermediation at these nonbank financial institutions were lower than at banks (with their many branches nationwide and their multitudes of small savers and borrowers), their cost advantages and higher lending rates allowed them a larger market share.
The second structural change was the rapid increase of commercial paper and corporate debenture markets. Another development was the steady growth of investment trust corporations in the 1980s.
Because of the introduction of tax and financing incentives by the government that encouraged companies to list their shares on the stock market, the Korean Stock Exchange grew rapidly in the late 1980s. In 1987 more than 350 companies were listed on the exchange. There was an average daily trading volume of 10 million shares, with a turnover ratio of 80 percent. In 1989 the stock market was tarnished by accusations of insider trading among the five major South Korean securities firms. The Securities and Exchange Commission launched an investigation in late 1989. The popular index of the market soared to a high of 1,007.77 points on April 1, 1989, but plunged back to the 800s in late 1989 and early 1990.
Business financing was obtained primarily through bank loans or borrowing on the informal and high-interest "curb market" of private lenders. The curb market served individuals who needed cash urgently, less reputable businesspeople who engaged in speculation, and the multitudes of smaller companies that needed operating funds but could not procure bank financing. The loans they received, often in exchange for weak collateral, had very high interest rates. The curb market played a critical role in the 1960s and 1970s in pumping money into the economy and in assisting the growth of smaller corporations. The curb market continued to exist, along with the formal banking system, through the 1980s.

Trade in Romania

Romania

Beautiful floating Mosjeed of Romania

 

Formal Name: Socialist Republic of Romania.
Short Form: Romania.
Term for Citizens: Romanians.
Capital: Bucharest.

GEOGRAPHY

Romania in map

 

Area: 237,499 square kilometers.
Topography: Almost evenly divided among hills, mountains, and plains; mountains dominate center and northwest; plains cover south and east. Highest point, 2,544 meters.
Climate: Transitional from temperate in southwest to continental in northeast. Average annual precipitation, 637 millimeters.

SOCIETY

Population: 23,153,475 (July 1989); average annual growth rate 0.44 percent.
Ethnic Groups: 89.1 percent Romanian, 7.8 percent Hungarian, 1.5 percent German, 1.6 percent Ukrainian, Serb, Croat, Russian, Turk, and Gypsy.
Language: Romanian spoken in all regions; Hungarian and German commonly used in Transylvania and Banat. Systematic discrimination against minority languages.
Education: Mandatory attendance, ten years; literacy, 98 percent. Highly centralized. Marxist ideology and nationalistic values stressed at all levels. In 1980s technical and vocational education emphasized.
Religion: About 70 percent Romanian Orthodox, 6 percent Uniate, 6 percent Roman Catholic, 6 percent Protestant, 12 percent unaffiliated or other.
Health and Welfare: Free health care provided by state. Most serious health threats cancer, cardiovascular disease, alcoholism. Infant mortality rate, 25 per 1,000 live births (1989). In 1989 life expectancy for men 67.0 and for women 72.6 years. Pensions inadequate; health care for elderly generally poor. Rural areas neglected.

ECONOMY

Industry in Romania

 

Gross National Product: US$151.3 billion (1988), US$6,570 per capita, with 2.1 percent growth rate. Industry accounts for 52.7 percent, agriculture 14.9 percent, other sectors 32.4 percent (1987).
Administration: Extremely centralized, directed by communist party. Detailed economic planning. State ownership of most fixed assets.
Fuels and Energy: Once extensive oil and gas reserves nearing depletion. Increasing dependence on imported fuels. Coal reserves large but of poor quality. Coking coal reserves inadequate. Significant hydroelectric potential under development. Nuclear power program lagging badly.
Minerals: Deposits of ferrous and nonferrous ores, salt, gypsum. Increasingly dependent on imported iron ore.
Foreign Trade: Split almost evenly between socialist and nonsocialist countries. Large surpluses run during 1980s to repay foreign debt. Major exports metallurgical products, machinery, refined oil products, chemical fertilizers, processed wood products, agricultural commodities. Major imports crude oil, natural gas, iron ore, machinery and equipment, chemicals, foodstuffs.
Industry: Fuels production and processing, metallurgy, chemicals, machine building, forestry, food processing, textiles.
Agriculture: About 91 percent collectivized. Primary crops: corn, wheat, barley, oilseeds, potatoes, sugarbeets, fruits and vegetables. Cattle, sheep, hogs, and poultry widely raised.
Exchange Rate: 14.5 lei per US$1 in January 1989.

ECONOMIC STRUCTURE AND DYNAMICS

Evolution

From earliest times, the Romanian lands were renowned for their fertile soil and good harvests. As the Roman colony of Dacia, the region supplied grain and other foods to the empire for nearly two centuries. During the subsequent two millennia, a succession of foreign powers dominated the area, exploiting the rich soil and other resources and holding most of the native population in abject poverty. It was not until the middle of the nineteenth century that a unified, independent Romania finally emerged, opening the way for development of an integrated national economy.

Modern machines in Romania

But even after Romania had gained independence, foreign interests continued to dominate the economy. Large tracts of the best grain-growing areas were controlled by absentee landlords, who exported the grain and took the profits out of the country. Outsiders controlled most of the few industries, and non-Romanian ethnic groups--particularly Germans, Hungarians, and Jews-- dominated domestic trade and finance. The centuries of outside control of the economy engendered in the Romanian people an extreme xenophobia and longing for self-sufficiency--sentiments that would be exploited repeatedly by the nation's leaders throughout the twentieth century.
On the eve of World War II, agriculture and forestry produced more than half of the national income. Reflecting the country's limited economic development, about 90 percent of export income in 1939 was derived from raw materials and semifinished goods, namely grain, timber, animal products, and petroleum. The most advanced industry at that time, oil extraction and refining, was controlled by Nazi Germany for the duration of the war and suffered severe bombing damage.
For several years following the war, the devastated economy was burdened with reparation payments to the Soviet Union, which already by 1946 had expropriated more than one-third of the country's industrial and financial enterprises. By mid-1948 the Soviets had collected reparations in excess of US$1.7 billion. They continued to demand such payments until 1954, severely retarding economic recovery.
After the installation of a Soviet-styled communist regime, Romania's economic evolution would faithfully follow the Stalinist pattern. Adopting a centrally planned economy under the firm control of the PCR, the country pursued the extensive economic development strategy adopted by the other communist regimes of Eastern Europe but with an unparalleled obsession with economic independence. The development program assigned top priority to the industrial sector, imposed a policy of forced saving and consumer sacrifice to achieve a high capital accumulation rate, and necessitated a major movement of labor from the countryside into industrial jobs in newly created urban centers. The first step on this path was nationalization of industrial, financial, and transportation assets. Initiated in June 1948, that process was nearly completed by 1950. The socialization of agriculture proceeded at a much slower pace, but by 1962 it was about 90 percent completed.
Beginning in 1951, Romania put into practice the Soviet system of central planning based on five-year development cycles. Such a system enabled the leadership to target sectors for rapid development and mobilize the necessary manpower and material resources. The leadership was intent on building a heavy industrial base and therefore gave highest priority to the machinery, metallurgical, petroleum refining, electric power, and chemical industries.
Shortly after Nicolae Ceausescu came to power in 1965, PCR leaders reevaluated the development strategy and concluded that Romania would be unable to sustain the rapid rate of economic growth it had achieved since the early 1950s unless its industry could be streamlined and modernized. They argued that the time had come to assume an intensive development strategy, for which the term "multilateral development" was coined. This process required access to the latest technology and know-how, for which Ceausescu turned to the West.
Economic growth during the first twenty-seven years of communist rule was impressive. Industrial output increased an average 12.9 percent per year between 1950 and 1977, owing to an exceptionally high level of capital accumulation and investment, which grew an average 13 percent annually during this period. But with the concentration of resources in heavy (the so-called Group A) industries, other sectors suffered, particularly agriculture, services, and the consumer-goods (Group B) industries.
After 1976 the economy took a sharp downturn. A severe earthquake struck the country the following year, causing heavy damage to industrial and transportation facilities. Ceausescu's vision of multilateral development had made little headway, as the bureaucracy was unable to steer the economy onto a course of intensive development, which would have necessitated major improvements in efficiency and labor productivity. The population was demanding production of more consumer goods, and an incipient labor shortage was hindering economic growth. By 1981 the country was in a financial crisis, unable to pay Western institutions even the interest on the debt of more than US$10 billion accumulated during the preceding decade. Obsessed with repaying this debt as soon as possible, Ceausescu imposed an austerity program to curtail imports drastically, while exporting as much as possible to earn hard currencies. Rationing of basic foodstuffs, gasoline, electricity, and other consumer products was in effect throughout the 1980s, bringing the Romanian people the lowest standard of living in Europe with the possible exception of Albania. In April 1989, Ceausescu announced that the foreign debt had been retired, and he promised a rapid improvement in living conditions. Most foreign observers, however, doubted that he could fulfill this pledge.

FOREIGN TRADE

Goals and Policy

During the postwar era, Romania used foreign trade effectively as an instrument to enhance the development of the national economy and to pursue its goal of political and economic independence. In this context, earning a foreign-trade surplus was not a primary concern until the late 1970s. The primary goal, rather, was acquisition of the modern technologies and raw materials needed to create and sustain a highly diversified industrial plant. The export program was geared to earning the required hard currency to purchase these materials and technologies. But in the 1980s, the focus of foreign trade was shifted to curtail imports and run large hard-currency surpluses to repay the debt that had accrued in the previous two decades. Enterprises that produced for export received preferential treatment in resource allocation and higher prices for their output.

Foreign exchange graph

Foreign trade was a state monopoly. Trade policy was established by the PCR and the government, and its implementation was the responsibility of the Ministry of Foreign Trade and International Economic Cooperation. Subordinate to the ministry were special state agencies--foreign-trade organizations--that conducted all import and export transactions. In 1969 the ministry was reorganized to become essentially a coordinating agency, and within a year only three foreign-trade organizations remained under its direct control. This decentralization was short-lived, however, as the number of foreign-trade organizations was reduced from fifty-six in 1972 to forty in 1975, and all but four of these were returned to the ministry's control.

Trading Partners

Before World War II, the West accounted for more than 80 percent of Romania's foreign trade. During the postwar period up to 1959, however, nearly 90 percent of its trade involved Comecon nations. The Soviet Union was by far the most important trading partner during this period. But the PCR's insistence on autarkic development led Romania into direct confrontation with the rest of the Soviet bloc. In the late 1950s and early 1960s, Soviet leader Nikita Khrushchev had envisioned an international division of labor in Comecon that would have relegated Romania to the role of supplier of foodstuffs and raw materials for the more industrially developed members, such as the German Democratic Republic (East Germany) and Czechoslovakia. In April 1964, however, General Secretary Gheorghe Gheorghiu-Dej threatened to take Romania out of Comecon unless that organization recognized the right of each member to pursue its own course of economic development.

Export areas in Romania

As early as the 1950s, Gheorghiu-Dej had begun to cultivate economic relations with the West, which by 1964 accounted for nearly 40 percent of Romania's imports and almost one-third of its exports. When Ceausescu came to power in 1965, the West was supplying almost half of the machinery and technology needed to build a modern industrial base. In 1971 Romania joined the General Agreement on Tariffs and Trade and the following year it won admission to the IMF and the World Bank. In 1975 Romania gained most-favored-nation trading status from the United States.
Between 1973 and 1977, Romania continued to increase its trade with the noncommunist world and initiated economic relations with the less-developed countries. In 1973 about 47.3 percent of its foreign trade involved the capitalist developed nations, with which it incurred a large trade deficit that necessitated heavy borrowing from Western banks. During this period, major obligations to the IMF (US$159.1 million) and the World Bank (US$1,502.8 million) were incurred.
To gain greater access to nonsocialist markets, Romania set up numerous joint trading companies. By 1977 twenty-one such ventures were in operation, including sixteen in Western Europe, three in Asia, and one each in North America and Africa. Romania held at least 50 percent of the start-up capital in these companies, which promoted its manufactured goods and agricultural products abroad. In 1980 Romania became the first Comecon nation to reach an agreement with the European Economic Community (EEC), with which it established a joint commission for trade and other matters.
During the 1980s, however, trade relations with the West soured. Ceausescu blamed the IMF and "unjustifiably high" interest rates charged by Western banks for his country's economic plight. For its part, the West charged Romania with unfair trade practices, resistance to needed economic reform, and human rights abuses. In 1988 the United States suspended most-favored-nation status, and the following year, the EEC declined to negotiate a new trade agreement with Romania. Meanwhile, attempts to increase trade with the less-developed countries had also met with disappointment. After peaking in 1981 at nearly 29 percent of total foreign trade, relations with these countries deteriorated, largely because the Iran-Iraq War had cut off delivery of crude oil from Iran.

Evolution of Romania

Frustrated by the downturn in trade with the West and the lessdeveloped countries, Romania reluctantly returned to the Soviet fold during the 1980s. By 1986 socialist countries accounted for 53 percent of its foreign trade. But the Ceausescu regime continued to assert its independence, refusing to endorse the Comecon program that would allow enterprises to circumvent routine bureaucratic channels and establish direct business relationships with enterprises in other member countries. And he refused to cooperate in Comecon attempts to establish mutual convertibility of the currencies of the member states.

Structure of Exports and Imports

The assortment of export products changed dramatically during the postwar era. Before the war, raw materials and agricultural products accounted for nearly all export income, but in the 1970s and 1980s, the primary exports were metallurgical products, especially iron and steel; machinery, including machine tools, locomotives and rolling stock, ships, oil-field equipment, aircraft, weapons, and electronic equipment; refined oil products; chemical fertilizers; processed wood products; and agricultural commodities.

Import, export statistic of Romania

Retirement of the Foreign Debt

After 1983 Ceausescu refused to seek additional loans from the IMF or the World Bank and severely curtailed imports from hardcurrency nations while maximizing exports--to the great detriment of the standard of living. As a consequence, Romania ran balanceof -trade surpluses as large as US$2 billion per year throughout the rest of the decade. With great fanfare, Ceausescu announced the retirement of the foreign debt in April 1989, proclaiming that Romania had finally achieved full economic and political independence. Shortly thereafter, the GNA enacted legislation proposed by Ceausescu to prohibit state bodies--including banks-- from seeking foreign credits.

Trade in Thailand

COUNTRY

Mosjeed of Thailand

 

Formal Name: Kingdom of Thailand.
Short Form: Thailand (formerly Siam).
Term for Citizens: Thai.
Capital: Bangkok.
 

GEOGRAPHY

Thailand in map

 

Size: Approximately 514,000 square kilometers.
Topography: Chief topographic features include central plain dominated by Mae Nam (river) Chao Phraya and its tributaries. To northeast rises dry, undulating Khorat Plateau bordered on east by Mekong River. Mountains along northern and western borders with Burma extend south into narrow, largely rain-forested Malay Peninsula. Network of rivers and canals associated with northern mountains and central plain drain, via Chao Phraya, into Gulf of Thailand. Mae Nam Mun and other northeastern streams drain via Mekong into South China Sea. Soils vary. Topography and drainage define four regions: North, Northeast, Center, and South.
Climate: Tropical monsoon climate. Southwest monsoons arriving between May and July signal start of rainy season lasting until October. Cycle reverses with northeast monsoon in November and December, ushering in dry season. Cooler temperatures give way to extremely hot, dry weather March through May. In general, rainfall heaviest in South, lightest in Northeast.

ECONOMY

Salient Features: Mixed economy includes both strong private sector and state enterprises; government assumes responsibility for general infrastructure development. Basically capitalist, committed to free trade. Rapid economic development of 1960s and 1970s slowed by worldwide recession of early 1980s. Strong recovery by 1987. Bangkok metropolitan area faced problems of rapid modernization, including housing shortages and pressure on such basic services as water, sewage, and health care.

Statistic of Thai business

Agriculture:Food surpluses produced by dominant agricultural sector of enterprising, independent smallholders. About 69 percent of labor force engaged in sector, and nearly 80 percent of population dependent on it for livelihood in the mid1980s . Agricultural commodities accounted for some 60 percent of export values in late 1980s. Major crops included rice, maize, cassava, rubber sugarcane, coconuts, cotton, kenaf, and tobacco. Forest cover decreased from more than 50 percent in 1961 to less than 30 percent in 1987. Fisheries important for food supply and foreign exchange earnings.
Industry: Modern enterprises mainly concentrated in Bangkok and surrounding provinces. Majority Thai owned, but joint foreign ventures numerous; state enterprises form important segment. In late 1980s, sector accounted for roughly 20 percent of gross domestic product (GDP) and 30 percent of total exports. Main categories of manufacturing included food and beverages, textiles and apparel, and wood and mineral products. Mineral resources contributed about 2 percent to gross national product (GNP) and included tin, tungsten, fluorite, antimony, and precious stones, all significant foreign exchange earners.

Energy Sources: Exploited domestic resources include small oil fields, large lignite deposits, natural gas in Gulf of Thailand, and hydroelectric power. Extensive, largely unevaluated oil shale deposits also identified, but exploitation economically infeasible in 1980s. Thermal (oil, natural gas, and lignite) power generation accounted for about 70 percent of total 7,570 megawatt installed generating capacity in 1986; hydropower, which remained largely unexploited, supplied about 30 percent. Electricity generally available in Bangkok metropolitan area and in about 43,000 of nation's some 48,000 villages (mostly near Bangkok). Rural program under way for electrification of remaining villages by late 1990s.
Foreign Trade: Major exports primary and processed agricultural products, tin, clothing, and other manufactured consumer goods. Major imports capital goods, intermediate products, and raw materials; petroleum products largest single import by monetary value since mid-1970s. Largest trading partners Japan and United States; trade with Japan characterized by large deficit.

ECONOMIC AND FINANCIAL DEVELOPMENT

In the 1960s and 1970s, the country's abundant natural resources, an enterprising and competitive private sector, and cautious and pragmatic economic management resulted in the emergence of one of the fastest growing and most successful economies among the developing countries. Between 1960 and 1970, the country's average annual growth rate of gross domestic product was 8.4 percent, compared with 5.8 percent for all middle-income, oil-importing countries. Between 1970 and 1980, the GDP rate of growth was 7.2 percent, compared with 5.6 percent for the middle-income oil-importing countries.

Bridge of business

The world slowdown by the late 1970s was mainly caused by the rise in oil prices. The Thai GDP in 1982 was US$36.7 billion. It rose to US$42 billion in 1985. The projected rate of growth for GDP during the early 1980s was around 4.3 percent as a result of falling demand and prices for Thai exports despite a drop in oil price. It was apparent that in the 1980s Thailand had lost its momentum; its Fifth Economic Development Plan targets had not been met because of serious macroeconomic imbalances, such as decreasing savings and investment rates, increasing budget deficits, and increasing debt and debt- servicing obligations. Whether Thailand could regain its former momentum depended on the success of its Sixth Economic Development Plan (1987-91).
Between 1970 and 1980, investment represented on the average 25.2 percent of GDP, compared with 24.7 percent by the mid-1980s. This proportion was one of the lowest investment rates in Southeast Asia. The national savings rate had fallen even more, from an average of 22 percent during the 1970s to around 17.8 percent by the mid-1980s. Hence, the average current-account deficit of 7 percent of GDP during the early 1980s had been caused by a declining savings rate rather than by an increase in investment rate. This imbalance was more serious than one caused by rising investment because rising investment could pay for itself with increased output and, possibly, increased savings so that debt could be repaid. With falling savings, foreign borrowing was used not to raise investment but merely to fill the investment-savings gap, which was mirrored in the external debt ratio of 39 percent of GDP and 146 percent of exports by the mid1980s . The total debt service ratio went up from 17.3 percent in 1980 to more than 25 percent by the mid-1980s. The increase was an important factor in the decision of the government to sharply reduce authorization for new commitments of public debt.

Financial Institutions

Thailand had many types of financial institutions, subject to different laws and regulated by different agencies. Most of them were privately owned, but some were state owned. The primary state-owned facility was the Bank of Thailand, which had responsibility and authority for monetary control in its role as the central bank. It served as the fiscal agent and the financier of the government; regulated the money supply, foreign exchange, and the banking system; and also served as the lender of last resort to the banks. Other state-owned facilities included the Government Savings Bank, the Bank for Agriculture and Agricultural Cooperatives, the Industrial Finance Corporation of Thailand, the Government Housing Bank, and the Small Industry Finance Corporation of Thailand.

By the mid-1980s, the 30 commercial banks had 1,526 branches handling the majority of all financial transactions in Thailand. The 16 largest banks accounted for over 90 percent of assets, deposits, and loans of the commercial banks, indicating a high concentration and little competition in the banking industry. Moreover, despite the impressive growth of banks, entrance by new banks was limited.
Finance and security companies comprised the second largest group of financial institutions with assets equaling nearly 22 percent of those of commercial banks. Concentration also existed in the securities industry, the 5 largest companies (out of 112) holding 19 percent of all finance and security assets. The finance companies were created by many domestic and foreign banks to overcome banking restrictions. Although they were intended to increase competition with commercial banks, the objective was not met because many banks used the companies as an extension of their own activities.

INTERNATIONAL TRADE AND FINANCE

International Trade

Thailand sustained a trade balance deficit from the early 1970s to the mid-1980s. Although the trade balance had improved during the first part of the 1970s, it worsened after the oil shocks of 1973 and 1979. In fact the net value of oil imports went from US$52.5 million in 1970 to US$684.7 million in 1982, with dependence on foreign oil reaching 75 percent in 1980 and declining to 50 percent by 1985. Although there was a general decline in the export performance of developing countries in the early 1980s, Thailand's recovery from the oil shock was further delayed by a loss in export competitiveness, a slowdown in the economies of major trading partners, and a growing debt service obligation resulting in part from rising interest rates. The current account balance deficits were not as severe as the trade deficits as a result of improving service balances. By 1986 the balance of payments had moved into surplus on current account. The major contribution to the service balance surplus was tourism, which increased from 630,000 tourists in 1970 to 2.6 million in 1986. Tourism was the top foreign exchange earner from 1981 to 1986. The trade deficit was caused in part by a decreasing growth rate of exports between 1980 and 1983, which improved slightly by 1985. The growth rate of imports also declined, but at a slower rate. Despite an increase in tourism, the trade deficit reached a peak in 1983 of US$3.9 billion. In 1985 exports totaled US$7.1 billion and imports US$9.2 billion, leaving an unfavorable trade balance of US$2.1 billion. By 1986 the deficit had decreased even further, with some of the reduction a result of the lower cost of imported oil.

The composition or structure of merchandise exports changed substantially between 1965 and 1985. Primary commodities accounted for 95 percent of Thailand's exports in 1965, and manufactured exports accounted for only 4 percent. By 1986 manufactured products comprised 55 percent of total exports, with textile products increasing from less than 1 percent in 1965 to 13 percent by 1986. Other major manufacturing exports in the mid-1980s included rubber products, processed foods, integrated circuits, metal products, jewelry, footwear, and furniture. Although agricultural exports as a percentage of total exports declined during this period, rice and other agricultural exports remained important for the Thai economy. By the mid-1980s, rice took the highest share of total agricultural exports. Cassava products, maize, sugar, rubber, fruit, and marine products were the other main exports in this category.
Between 1965 and 1985, the destinations of merchandise exports shifted from 54 percent of 1965 exports destined for developing countries to 56 percent of 1985 exports going to industrialized countries. This increase in the percentage of exports to industrialized countries, in combination with the changing structure of merchandise exports from predominantly agricultural to manufactured products, has fueled Thailand's economic growth. Thailand's major industrialized trading partners included the EEC, the United States, Japan, and the Netherlands. Furthermore, Thailand has developed significant trade relations with the newly industrializing countries (NICs) of Singapore, Hong Kong, the Republic of Korea (South Korea), and Taiwan. Additionally, Thailand has developed trade relations with Malaysia, the Philippines, Indonesia, and China.
Tariff barriers on imports from the developing countries had dropped with the implementation of the Tokyo Round (1973-79) of the General Agreement on Tariffs and Trade. Rising nontariff barriers, resulting from domestic and international economic conditions in industrial countries, had more than offset the tariff reductions. In the United States the proportion of imports subject to such barriers more than doubled, and in the other industrial countries it rose by as much as 40 percent. Examples of nontariff barriers were quotas, voluntary exports restraints, the Multifiber Arrangements, sanitation rules, and subsidies.
Thai rice exports encountered the stiffest barriers in Japan, where the tariff rate was 15 percent and a global quota was in force. In the United States, tariff on rice was only 2.6 percent, and no explicit nontariff barriers existed except for stringent controls by the United States Food and Drug Administration. In the other industrialized countries, Thai rice exports faced varying levies. Thai agricultural exports to the developing countries met with stiff competition from subsidized United States cereal exports. Thailand entered into a voluntary export restraint with France for its cassava exports because of strong resistance to imports from the French producers of cereal-based animal feed. Rubber did not face major barriers except for quotas imposed by Japan. Maize exports did relatively poorly because of subsidized production and high tariffs in the industrialized countries. Sugar exports also faced subsidy problems in Western Europe and a 50 percent quota reduction by the United States. Despite nontariff barriers, Thai agricultural and manufactured exports faced less protectionism than the NICs in the early 1980s.

Of Thailand's manufactured exports, textiles were most affected by barriers because Thailand had to enter into bilateral agreements with industrial countries, which were similar to the voluntary export restraints under the Multifiber Arrangements. In addition, tariffs escalated with the degree of processing. For example, in the United States the average tariff for cotton fabrics was 9.6 percent, whereas it was 18 percent for garments. The United States imposed countervailing duties on Thai textile exports in protest against Thai government subsidies to textile exporters in the form of export packing credits, rediscount facilities for industrial bills, electricity discounts, and tax certificates.
Tariffs in Thailand before the 1970s were primarily used to generate revenues rather than to influence domestic production. The rates ranged from 15 to 30 percent, with higher rates applied to finished consumer goods imports. In the 1970s, however, tariff rates on finished consumer goods imports increased 30 to 50 percent. Rising protectionism continued in the late 1970s and early 1980s, with high tariff rates and the application of surcharges, quantitative restrictions, price controls, and domestic contents requirements.

External Debt

The Thai total long-term public and private debt grew from US$728 million in 1970 to US$13.3 billion in 1985. The external debt was increasing at a faster rate during this period than the growing gross national product. In 1970 the external debt was 11.1 percent of GNP, increasing to 36 percent of GNP by 1985. The ratio of debt payments or debt service to the total export of goods and services, one indicator of Thailand's ability to meet debt payments, increased from 14 percent in 1970 to 25.4 percent in 1985. The growth of external indebtedness averaged 25.2 percent between 1970 and 1980, compared with an average of 21 percent for Southeast and East Asian middle-income oil-importer countries. Public debt as a percentage of exports went from 47.9 percent to 75.9 percent between 1980 and 1983, but the proportion of public borrowing from foreign sources dropped from 52 percent to 42 percent during the same period. This was indicative of the growing concern of the public sector with the enlarged foreign debt and hence a higher reliance on domestic borrowing, which went from 48 percent to 55 percent during the same period. In the early 1980s, Thailand was characterized by high competition between the government and the private sector for scarce domestic savings, which forced private firms to rely more on external borrowing.

The composition of Thai indebtedness in terms of interest rates, maturity, and currency structure appeared to be better than that in most other developing countries. Because of its high credit rating, Thailand could borrow at about 8.4 percent in late 1983, compared with an average rate of 10.1 percent for other middle-income oil-importer countries. It had also the longest loan average maturity, 17.2 years compared with 12.2 years.
In terms of currency denomination, the Thai external debt consisted mostly of two currencies: the United States dollar and the Japanese yen, with increasing reliance on the yen because of the willingness of Japanese banks to lend at a lower spread than the other banks. Thailand was exposed to the risk of yen appreciation in the early 1980s because Japan received only 14 percent of Thai exports while accounting for 26 percent of imports. Meanwhile, the value of the yen had appreciated substantially relative to the baht. The baht was pegged to the United States dollar until 1984 when it had a fixed exchange rate of B23 per US$1. Thereafter, the baht was pegged to a basket of currencies and devalued by 14.8 percent against the dollar. According to some observers, Thailand needed to revise its external debt portfolio as well as limit its reliance on external debt. 

Trade in Japan

Japan

Beauty of Japan

 

Formal Name: Japan (Nihon Koku or Nippon Koku; literally, Source of the Sun Country or Land of the Rising Sun).
Short Form: Japan.
Term for Citizens: Japanese.
Capital: Tokyo.

GEOGRAPHY

Japan in map

 

Size: Total 377,835 square kilometers; land area 374,744 square kilometers.
Topography: Mountainous islands with numerous dormant and active volcanoes. Four main islands (Hokkaido, Honshu, Shikoku, and Kyushu) and numerous smaller islands to north and south, all prone to earthquakes. Highest point Mount Fuji (3,776 meters). Numerous, rapidly flowing rivers largely unnavigable but provide water for irrigation and hydroelectric-power generation.
Climate: Generally rainy; high humidity. Diverse climatic range: warm summers and long cold winters in north; hot humid summers and short winters in center; and long, hot, humid summers, and mild winters in southwest.

Japan

ECONOMY

Gross National Product (GNP): US$3.7 trillion; per capita GNP US$29,760 in 1992.
Gross Domestic Product (GDP): US$3.3 trillion; per capita GDP US$27,005 in 1991.
Resources: Coal reserves in north and southwest; otherwise, minerals negligible. Most resources, including almost all nonrenewable energy sources, imported.
Mining and Manufacturing: 29.3 percent of GDP in 1991. Basic industries: automobile manufacturing and consumer electronics. Nonferrous metals, petrochemicals, pharmaceuticals, bioindustry, aerospace, textiles, and processed foods also important. Older heavy industries--mining, steel, and shipbuilding- -in decline but still important worldwide. High-technology industries prevalent, e.g., semiconductors, computers, optical fibers, optoelectronics, video discs, facsimile and copy machines, and industrial robots.
Services: 55.7 percent of GDP in 1991. Wholesale and retail trade dominant. Advertising, data processing, publishing, tourism, leisure industries, and entertainment growing rapidly.
Agriculture: 2.3 percent of GDP in 1991. Intense cultivation of diminishing arable land, already in short supply. Rice grown on most farmland, and intercropping common. Heavy use of fertilizers, mechanization, and experimental high-yield crops. About 70 percent of country covered with forests; large lumber industry. World's largest fishing nation; seafood essential to food industry.

Relation with the world

Exports: Approximately US$287 billion in 1990. Major partners United States, Germany, Hong Kong, South Korea, and Taiwan.
Imports: Approximately US$235 billion in 1990. Major partners United States, South Korea, Australia, China, Indonesia, and Taiwan.
Balance of Payments: Large and growing positive trade balance since early 1980s. Exports represented 55 percent, imports 45 percent of total annual trade in 1990.
Fiscal Year: April 1-March 31.
Exchange Rate: ¥110.42 = US$1 (December 1993).

FOREIGN TRADE POLICIES

Export Policies

For many years, export promotion was a large issue in Japanese government policy. Government officials recognized that Japan needed to import to grow and develop, and it needed to generate exports to pay for those imports. After the war, Japan had difficulty exporting enough to pay for its imports until the mid1960s , and resulting deficits were the justification for export promotion programs and import restrictions.
The belief in the need to promote exports is strong and part of Japan's self-image as a "processing nation." A processing nation must import raw materials but is able to pay for the imports by adding value to them and exporting some of the output. Nations grow stronger economically by moving up the industrial ladder to produce products with greater value added to the basic inputs. Rather than letting markets accomplish this movement on their own, the Japanese government feels the economy should be guided in this direction through industrial policy.

Export report of Japan

Japan's methods of promoting exports has taken two paths. The first was to develop world-class industries that can initially substitute for imports and then compete in international markets. The second was to provide incentives for firms to export.
During the first two decades after World War II, export incentives took the form of a combination of tax relief and government assistance to build export industries. After joining the IMF in 1964, however, Japan had to drop its major export incentive- -the total exemption of export income from taxes--to comply with IMF procedures. It did maintain into the 1970s, however, special tax treatment of costs for market development and export promotion.

Main Exportable product of Japan

Once chronic trade deficits came to an end in the mid-1960s, the need for export promotion policies diminished. Virtually all export tax incentives were eliminated over the course of the 1970s. Even JETRO, whose initial function is to assist smaller firms with overseas marketing, saw its role shift toward import promotion and other activities. In the 1980s, Japan continued to use industrial policy to promote the growth of new, more sophisticated industries, but direct export promotion measures were no longer part of the policy package.
The 1970s and 1980s saw the emergence of policies to restrain exports in certain industries. The great success of some Japanese export industries created a backlash in other countries, either because of their success per se or because of allegations of unfair competitive practices. Under GATT guidelines, nations have been reluctant to raise tariffs or impose import quotas. Quotas violate the guidelines, and raising tariffs goes against the general trend among industrial nations. Instead, they have resorted to convincing the exporting country to "voluntarily" restrain exports of the offending product. In the 1980s, Japan was quite willing to carry out such export restraints. Among Japan's exports to the United States, steel, color television sets, and automobiles all were subject to such restraints at various times.

Import Policies

Japan began the postwar period with heavy import barriers. Virtually all products were subject to government quotas, many faced high tariffs, and MITI had authority over the allocation of the foreign exchange that companies needed to pay for any import. These policies were justified at the time by the weakened position of Japanese industry and the country's chronic trade deficits.
By the late 1950s, Japan's international trade had regained its prewar level, and its balance of payments displayed sufficient strength for its rigid protectionism to be increasingly difficult to justify. The IMF and GATT strongly pressured Japan to free its commerce and international payments system. Beginning in the 1960s, the government adopted a policy of gradual trade liberalization, easing import quotas, reducing tariff rates, freeing transactions in foreign exchange, and admitting foreign capital into Japanese industries, which continued through the 1980s.
The main impetus for change throughout has been international obligation, that is, response to foreign, rather than domestic, pressure. The result has been a prolonged, reluctant process of reducing barriers, which has frustrated many of Japan's trading partners.

Exchange report of  Japan

Japan has been a participant in the major rounds of tariffcutting negotiations under the GATT framework--the Kennedy Round completed in 1967, the Tokyo Round completed in 1979, and the Uruguay Round completed in 1993. As a result of these agreements, tariffs in Japan fell to a low level on average. Upon complete implementation of the Tokyo Round agreement, Japan had the lowest average tariff level among industrial countries--2.5 percent, compared with 4.2 percent for the United States and 4.6 percent for the European Union (known as the European Community before November 1993).
Japan's quotas also dropped. From 490 items under quota in 1962, Japan had only twenty-seven items under quota in the mid1980s , and that number dropped again late in the decade to twentytwo with further agreements scheduled to come into effect in the early 1990s, which would reduce the number again. But those products still under quota proved to be highly visible and were the object of complaints by exporting countries. The reduction of controlled items in the late 1980s resulted from Japan's loss of a GATT case brought by the United States concerning import restrictions on twelve agricultural products. In addition, heavy pressure from the United States led to an agreement that Japan would end import quotas on beef and citrus fruit in 1991. The one restricted product that continues to prompt objections from other countries is rice, imports of which until 1994 were prohibited. Rice has traditionally been the mainstay of the Japanese diet, and farm organizations played upon the deep cultural importance as a reason for prohibiting imports. Farm organizations also had a disproportionate political voice because of the shift of the population to the cities without any significant redistricting for seats in the Diet. Despite such entrenched political and cultural opposition, foreign rice gradually found its way into Japanese markets and even on to the emperor's dining table by 1994.
Despite Japan's rather good record on tariffs and quotas, it continued to be the target of complaints and pressure from its trading partners during the 1980s. Many complaints revolved around nontariff barriers other than quotas--standards, testing procedures, government procurement, and other policy that could be used to restrain imports. These barriers, by their very nature, were often difficult to document, but complaints were frequent.
In 1984 the United States government initiated intensive talks with Japan on four product areas: forest products, telecommunications equipment and services, electronics, and pharmaceuticals and medical equipment. The Market Oriented Sector Selective (MOSS) talks were aimed at routing out all overt and informal barriers to imports in these areas. The negotiations lasted throughout 1985 and achieved modest success.
Supporting the view that Japanese markets remained difficult to penetrate, statistics showed that the level of manufactured imports in Japan as a share of the gross national product was still far below the level in other developed countries during the 1980s. Frustration with the modest results of the MOSS process and similar factors led to provisions in the United States Trade Act of 1988 aimed at Japan. Under the "Super 301" provision, nations were to be named as unfair trading partners and specific products chosen for negotiation, as appropriate, with retaliation against the exports of these nations should negotiations fail to provide satisfactory results. Japan was named an unfair trading nation in 1989, and negotiations began on forest products, supercomputers, and telecommunications satellites.
By the end of the 1980s, however, some internally generated changes in import policy appeared to be under way in Japan. The rapid appreciation of the yen after 1985, which made imports more attractive, stimulated a domestic debate over nontariff barriers and other structural features of the economy impeding imports. Greater openness in policies and structures began to be sought in response to domestic pressures rather than in response to foreign pressure and international obligation.
External pressure for change also increased when the United States initiated a series of bilateral talks in 1989 parallel to negotiations under the "Super 301" provision. These new talks, known as the Structural Impediments Initiative, focused on structural features in Japan that seemed to impede imports in ways outside the normal scope of trade negotiations. Issues raised in the Structural Impediments Initiative, and by the Japanese themselves in domestic discussions, included the distribution system (in which manufacturers continued to have unusually strong control over wholesalers and retailers handling their products, inhibiting newcomers, especially foreign ones) and investment behavior that made it very difficult for foreign firms to acquire Japanese firms. These discussions highlighted some of the fundamental differences in the Japanese and United States economies, but how quickly change might result from the talks is unclear.

MAJOR FOREIGN POLICY GOALS AND STRATEGIES

Japan's geography--particularly its insular character, its limited endowment of natural resources, and its exposed location near potentially hostile giant neighbors--has played an important role in the development of its foreign policy. In premodern times, Japan's semi-isolated position on the periphery of the Asian mainland was an asset. It permitted the Japanese to exist as a self-sufficient society in a secure environment. It also allowed them to borrow selectively from the rich civilization of China while maintaining their own cultural identity. Insularity promoted a strong cultural and ethnic unity, which underlay the early development of a national consciousness that has influenced Japan's relations with outside peoples and cultures throughout its history.