Merrill Lynch Report

Merrill Lynch, a U.S. financial services giant, released its report on the Korean economy, claiming Korea is at the “crossroads” due to economic difficulties including the credit card crisis.

On his report unveiled on August 9, Timothy Bond, chief economist at Merrill Lynch, evaluated, “The Korean economy is at its weakest point since the economic crisis in 1997.” He added, “The credit card crisis that took place in Korea between 2002 and 2003 is more damaging than the ‘oil shock’ in the 1970s or the ‘Volcker shock,’ named after former U.S. Federal Reserve Chairman Paul Volcker, when the United States suddenly and dramatically raised interest rates.”

“Since the polarization of the Korean economy became greater, profits from the recent economic growth have been given to conglomerates, exporting companies, engineering fields, and full-time workers. Other fields have stagnated or weakened,” he explained.

He also pointed out that the polarization of the Korean economy is a structural problem that might make weaken domestic demand and cause the recovery in exportation to slow down. He said, “Although consumer confidence seemed to have bottomed out, the recovery is still dragging thanks to the economic polarization and the skyrocketing increase in housing loans between 2000 and 2001.”

He predicted with anticipation that exports will suffer slow growth, domestic demand would not sustain growth by itself, and call rates would be lowered by 0.5-percentage point by the first quarter of the next year.

Jin-Hup Song jinhup@donga.com