This study examines the state of international debt problems and analyzes the foreign debt issues in Korea.
While the international debt problem in developing countries is emerging as a global issue due to stress in the international financial markets, debtor countries efficiently managing foreign debts is gaining importance. To help understand the characteristics of external debt and the problems related to this debt, this study introduces several models of analysis.
It is impossible to accurately forecast external debts because of data limitations, uncertainty in global economic recovery, and unstable oil prices. However, the growth rate of foreign debts is expected to fall after 1986, it must be noted that another debt crisis can occur at any time. When an oil crisis occurs (like in the late 1970s), when the economies of our export partners rapidly deteriorate, or when political and social situations in and out of the country destabilize, a debt crisis can be triggered.
This study makes several suggestions for debt management in Korea. Our debt problem evolved in the course of pursing high growth while domestic savings rate remained low. Therefore, the problem cannot be solved in the short term.
The fundamental factor that caused the problem was the low domestic savings rate. Korea’s domestic savings rate was 19.6 percent at the end of 1981, which was lower than the 32.2 percent of Japan, the 31.4 percent in Taiwan, or the 25.7 percent domestic savings rate of Indonesia. Policy support is necessary to increase domestic savings.
Second, price stability must be maintained. Price stability is necessary to promote domestic savings and strengthen international competitiveness, which contributes to the reduction in foreign debts and increases the capability to repay debts.
Third, the government should reduce its financial deficit and reduce the number of the projects that require excessive amounts of foreign capital. The practice of covering deficits through inefficient use of foreign capital and borrowings from the Bank of Korea should be avoided, as it can cause a decrease in productivity as well as inflation.
Fourth, Korea must boost export. We need to improve the capability to repay external debt with the foreign currency earned through export. We also should reduce foreign debts by decreasing the size of the current account deficit.
Finally, we need to build a system to efficiently manage foreign debts through a proper structure of foreign currency assets and foreign debts that can endure uncertain international economic conditions, such as changes in international interest rates or changes in foreign exchange rates.
개도국 외채문제와 한국의 외채관리(Debt problems of developing countries and external debt management in Korea)
서울 : 한국개발연구원
|Series Title; No||정책연구시리즈 / 84-01|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Trade|
|Holding||KDI; KDI School|