Tag Archive | "United States"

The Federal Reserve Challenge for Korea

 By Kyle Ferrier

The Federal Reserve’s move to increase its benchmark interest rate hardly came as a surprise. Though the March 15 rate increase is only the third since the Global Financial Crisis of 2008, it is the second in three months and we are likely to see at least two more incremental rises this year. Janet Yellen and company’s decision to cool a strengthening economy and the expectation that they will continue to do so this year will certainly irk President Trump. Higher interest rates will dampen the effectiveness of his promised stimulus package and, vis-à-vis a stronger dollar, make U.S. exports more expensive. While the latter will further complicate Korea’s relationship with Trump over the bilateral balance of trade, the biggest challenge to Korea stemming from the Fed rate rises will hit closer to home.

As the Fed’s key interest rate converges with the Bank of Korea’s (BOK) we should expect to see a weaker won, or at the very least constraints on its appreciation. Though the won strengthened immediately in response to the Fed’s rate increase, this can largely be attributed to the less hawkish wording in the Fed’s decision than anticipated. Currency volatility aside, a weaker won encompasses several benefits to a struggling South Korean economy. A cheaper won makes domestic consumption less expensive—aiding fiscal stimulus measures, though tempered by higher import costs—and helps struggling export-oriented companies. However, if the Fed does follow through on the additional two interest rate increases, it could force the BOK to raise its benchmark rate sooner than it might be ready to, exposing critical risks in the economy. The most concerning of which is household debt.

In 2015, Korea ranked 9th out of the 35 OECD countries in household debt. Korean household debt has continued to reach new heights since then, with the most recent statistic of $1.15 trillion up 11.7 percent from last year and representing nearly 90 percent of GDP. Though other advanced economies rank ahead of Korea—a group that is led by Denmark, the Netherlands, and Norway—which households own how much of the debt is of particular concern for Korea.

Earlier this month the Financial Supervisory Service (FSS), Korea’s top financial watchdog, stated it has entered an “emergency response mode” after revealing the growth in household debt is primarily originating from nonbank lenders. These institutions tend to issue loans with higher rates to homes with lower incomes and credit, i.e. those which are more likely to default once interest rates rise. Only about 8 percent of households are considered marginalized—meaning at least 40 percent of disposable income is used to pay off loans—yet they hold an outsized 32.7 percent of the total debt. A one percent increase in the interest rate would add on around $22 billion in debt to these marginalized homes as well as create an additional 69,000 marginalized households. Government efforts to encourage less risky amortized loans, requiring monthly principal and interest payments as opposed to amortized loans which are interest only, have had limited success. Sixty percent of mortgages are non-amortizing and another sixty percent utilize floating rates, both of which are not mutually exclusive.

The danger to the Korean economy from household debt has hardly come out of left field. Oversized debt is not only a risk, it is a drag on sluggish domestic demand plaguing the economy. Seoul seems to recognize tackling the issue would kill two birds with one stone, but past efforts to curb household debt have been derailed in favor of short-term gains. President Park’s attempts to curtail debt growth early in her administration were undercut by a series of rate reductions starting in August 2014 and seemed to take a back seat to short-term growth thereafter. Perhaps the most notable example is the government disregarding IMF suggestions to cap debt in favor of safeguarding growth in the construction industry, essentially kicking the can down the road. With interest rates on the rise in the U.S., Seoul may now be running out of pavement much faster than it was expecting.

The benchmark U.S. and Korean interest rates will be the same by the end of the year if the Fed raises rates two more times by 0.25% and the BOK holds at its current rate. The prospect of this parity alone would be too distressing for the BOK to tolerate, but market forces in the interim should force their hand well in advance. If the Fed stays on course, all signs point to at least one BOK rate increase this year, though more would not be surprising to maintain some distance ahead of the U.S. The new Korean administration will inherit an economic dilemma that creative solutions alone cannot resolve. Past presidents may have sacrificed long-term stability for short-term gains, but the winner of the election in May must realize they will not have such an option.

Kyle Ferrier is the Director of Academic Affairs and Research at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Ervins Strauhmanis’s photostream on flickr Creative Commons.

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The Korean-American Vote: Update on the 2016 Presidential Election

By Junil Kim

Earlier this year, we examined Korean-American voting preferences and the importance of the Korean-American vote in the years to come. A May 2016 survey conducted by three Asian American NGOs showed a significant preference by Korean-Americans for the Democratic Party and its presidential nominee, Hillary Clinton. However, the survey also showed that Clinton only garnered 29 percent of the intended primary vote among Korean-Americans. Now, the newly released Fall 2016 National Asian American Survey (NAAS) shows that Clinton has strengthened her support among Korean-American voters since the previous survey.

The May survey, which consisted of telephone interviews with 1,212 registered voters from April 11 to May 17, 2016, reported that 60 percent of Korean-American voters had a favorable view of Hillary Clinton, with 37 percent holding an unfavorable view of the presidential candidate. The NAAS, which interviewed 1,955 registered voters from August 10 to September 29, 2016, showed that Korean-American voters largely maintained their views of the Democratic nominee, with 58 percent of Korean-American voters indicating they had a favorable view of Clinton and 41 percent indicating an unfavorable view. The overall 3.5 percent margin of error of the NAAS and the 3 percent margin of error of the earlier survey shows that the favorability ratings have essentially remained unchanged since this spring.

Korean-American voters also generally retained their unfavorable views of Donald Trump. The May survey indicated that 80 percent of Korean-American voters held an unfavorable view of the Republican nominee and only 10 percent of voters held a favorable view. The NAAS shows a slight uptick in both ratings, with 84 percent of Korean-American voters holding an unfavorable view and 12 percent holding a favorable view.

The primary vote choice results reported in the NAAS suggest that Clinton has taken advantage of her favorable ratings among Korean-American voters since this spring. The earlier survey, which occurred in the latter half of the primary season, reported that 29 percent of Korean-American voters had voted or planned on voting for Hillary Clinton in state primaries. Democratic candidate Bernie Sanders garnered 20 percent of the expected primary vote, Republican candidate Ted Cruz held 12 percent, and Donald Trump held 7 percent of the Korean-American vote. In addition, 32 percent of Korean-American voters also indicated they had voted or would vote for “someone else.” The NAAS, which occurred after both Clinton and Trump secured their respective party’s nomination, reported that Clinton actually garnered a much larger share of the Korean-American vote with 68 percent of voters saying they cast ballots for Clinton during the primaries.

Korean Americans Graph 1

Clinton’s sizable increase in her voting share among Korean-Americans raises questions about how she secured greater support. Although some initial Sanders supporters may have switched to Clinton, this does not completely account for the substantial difference in support from the earlier survey results. The likely primary source is from the 32 percent of Korean-American voters in May that reported their primary candidate choice was “someone else.” The option “someone else” likely indicated undecided or uncertain voters, and Clinton’s strong showing in the primary results may be due to the consolidation of these voters.

This gravitation by Korean-American voters to Clinton is also clear in their reported presidential vote choice. Clinton currently eclipses Trump by a massive 61 points among Korean-American voters, which shows a slight uptick in Clinton support among Korean-Americans compared to the primary results. Compared to Americans in general, Korean-American support for Clinton and Trump dramatically differs. In the latest four way RealClearPolitics polling average, Clinton’s holds 44 percent of the general vote and Trump holds nearly 40 percent.

Korean Americans Graph 2

As mentioned in our earlier blog, Korean-American voters and Asian-American voters in general are unlikely to swing the upcoming presidential election, but the rapid population growth of Korean-Americans in swing states like Florida, Nevada, and Virginia will make their vote increasingly important to political candidates. Although the latest survey results show immense Korean-American support for Clinton, the majority of Korean-Americans in the last presidential election did not identify with the Democratic Party and Korean-Americans still self-identify more as conservative than liberal. In an analysis of the 2012 presidential election, Dr. Taeku Lee noted the steady shift of Korean-American voters towards Democratic candidates over the past 20 years and that the GOP would have to moderate their views on issues like health care and immigration to earn a larger share of the Korean-American vote. The 2016 presidential race has done little to break the trend of growing Democratic support among Korean-American and other Asian-American voters, and future Republican nominees would be prudent to consider the importance of their vote.

Juni Kim is the Program Manager and Executive Assistant at the Korea Economic Institute of America (KEI). The views expressed here are the author’s alone. 

Photos from US Embassy New Zealand and Gage Skidmore on flickr Creative Commons.

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Korean Language Continues to Gain Popularity Worldwide

By Jenna Gibson

In Thailand, students applying to college will soon have the option of using Korean as their foreign language.

Beginning in 2018, Korean will become the seventh foreign language available on the test, along with Chinese, Arabic, Japanese, French, German, and Pali. English communication is also a required part of the exam.

This move comes amid growing demand for Korean language learning in Thailand, where Korean pop culture products are wild successes.

“Thailand has been swept by Hallyu for the past couple of years, and many Korean celebrities and singers are quickly gaining popularity. Not just second and third generation overseas Koreans, but also native Thais are wanting to learn Korean,” said Yoon So-young, director of the Korean Language Institute in Thailand, in response to the announcement. “The government’s decision to adopt Korean on the college entrance exam is taking a big step toward meeting the growing demand.”

Thailand is not the only country where the popularity of Korean pop culture, or Hallyu, has brought increased demand for Korean language classes. The King Sejong Institute Foundation, a Korean government initiative that has established 130 language institutes in 50 countries, was established in 2012 in part because of “Rapid increase in the Korean language education thanks to the spread of Hallyu.”

TOPIK Graph

But celebrity crushes are not the only reason more people around the world are interested in learning Korean. As a recent article in The Phnom Penh Post noted, thousands of Cambodians are diligently studying the language in the hopes of getting a coveted work permit to move to South Korea or to get a job with a Korean company in Cambodia. Nearly 55,000 Cambodians have applied to take the official Korean proficiency exam (TOPIK) so far in 2016.

Meanwhile, across the Pacific, American institutions continue to increase the availability of Korean language courses. Famous for its language instruction, Middlebury College opened its School of Korean in 2015. And MIT recently announced that they will begin offering their own Korean courses in the fall of 2016. The school had been offering four Korean classes in partnership with Wellesley College since 2014, but after two years of excess demand MIT decided to create their own courses.

“There’s been a lot of interest in MIT-Korea on campus,” Matt Burt, managing director of MIT-Korea, told The Tech, MIT’s campus newspaper. “People are interested in Korean popular culture, but also want to explore Korea’s growing technological scene, which appeals to the MIT community.”

“MIT-Korea launched in 2012. The first year, we only had five interns. This year, so far, we had 16 students travel to Korea over IAP and at least 20 interns will be working there in the summer,” Burt added. “I suspect that there would have been more students going had there been the option to take MIT-taught Korean classes, so hopefully, the number of participants in MIT-Korea will only rise with this change.”

These new courses are part of a wider trend in the United States, as American students grow increasingly interested in learning Korean. In fact, Korean was the only language to experience significant growth in the United States over the last few years, with the number of students studying Korean increasing 44.7 percent even as overall language enrollment decreased 6.7 percent.

 Jenna Gibson is the Director of Communications at the Korea Economic Institute of America. The views expressed here are the author’s alone.

Photo from Hyunwoo Sun’s photostream on flickr Creative Commons.

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