Sat, Jun 19, 2004 page12

• Debt-burdened South Koreans feel the pinch

  POST-BINGE PAIN Luxuries and even essentials are being given up as people struggle to pay their credit-card debts and companies try to make their payrolls

  • REUTERS
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  Ha Sang-won, a South Korean clothing merchant, leaves his car at home and uses public transport these days.

  Saddled with overdue credit and dwindling income, Ha is giving up luxuries one by one -- and even some essentials.

  

  A South Korean walks past a sign promoting a clothing shop in Seoul on June 9. Many South Koreans are increasingly feel a deepening economic pinch, despite the country's still robust exports and foreign analysts' generally upbeat view of the economy.

  PHOTO: REUTERS

  The 39-year-old businessman terminated accident insurance one year before a contracted five-year term, swallowing a US$1,000 cancellation charge.

  Before that, Ha switched from his car to public transport and walking to save on fuel in the face of record-high oil prices.

  "Life is very tough. I have to borrow more and more to pay salaries because business is not doing well," lamented Ha, who has five staff in his shop in central Seoul. "So, I cancelled insurance today to pay down debt."

  Ha is like many South Koreans who increasingly feel a deepening economic pinch, despite the country's still robust exports and foreign analysts' generally upbeat view of the economy.

  President Roh Moo-hyun, reinstated in May after two months in political limbo because of an impeachment vote, is making the economy a top priority.

  Little wonder. Many say times are worse than during the 1997 to 1998 Asian financial crisis, when South Korean banks and corporations, saddled with excessive debt, nearly went bust.

  After an international bailout, the government encouraged consumer spending to jump-start the depressed economy by easing regulations on credit cards and loans.

  The result was a spending binge that South Koreans are now struggling to pay for. This has depressed buying of goods and services, hurt businesses and in turn stalled jobs growth.

  Eight percent of South Korea's 48 million population are struggling with credit overdue for more than three months.

  Companies, wary of sluggish domestic demand, are cautious about expanding, helping push up the unemployment rate to a five-month high of 3.5 percent last month.

  "The economy is in trouble. The biggest problem is weak domestic consumption. Most of all, the economic conditions felt by ordinary people are poorer than ever," Roh told parliament on June 7.

  "But I can say for sure our economy is definitely not in crisis. There are difficulties but they fall short of a crisis," he said.

  Weak domestic demand could cut deeper into officially anticipated growth of more than 5 percent in the world's 12th largest economy after growing a provisional 3.1 percent last year.

  Ha is not the only one distressed by a credit crunch.

  Official figures show the number of life insurance contracts cancelled jumped to 8.19 million for the first 11 months of fiscal 2003, 37 percent higher than 5.98 million in all of 2002.

  Cash-strapped consumers such as Ha are also cutting down on daily essentials as well as insurance and other big-ticket items.

  The country's top dairy firm, Seoul Dairy, said sales of milk dropped more than 3 percent in the January to May period compared with the period a year ago.

  A TV station, CJ Home Shopping, which sells items as varied as food, oxygen-making machines and underwear, saw a 11.5 percent decline in sales in the first quarter this year.

  An opinion poll conducted by the Chosun Ilbo newspaper and Gallup Korea confirmed anecdotal evidence that wariness about the economy is worse now than in 1997 to 1998. Such pessimism further sours consumer sentiment.

  "The number of visiting clients fell about 20 percent this year," from last year, said Paek Seung-hak, a manager of the country's largest wholesale Namdaemoon market in Seoul. "Everyone in the market says it is much worse than the financial crisis."

  The world's liquor makers also start feeling the pinch, while executives of local spirits distributors are feeling the pain.

  Allied Domecq Plc, the world's No. 2 spirits group, which makes Ballantine's whisky and Beefeater gin, said in April that its fiscal first-half profit fell because demand shrank in South Korea, the world's No. 4 scotch importer after Spain, the US and France.

  Shin Young-sik and Jason Lee, sales executives of Diageo Korea Co, which sells Johnny Walker and Baileys, and Jinro Ballantine's respectively, ended up in hospital for a few days last month after spending several sleepless nights of drinking while marketing in karaoke bars to revive sluggish sales, their companies said.
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