Not long ago, our neighbors, who love kimchi and are rich in plastic surgery, lined up at the doors of all the banks in the Republic of Korea, and their citizens wanted to donate their gold and silver jewelry and valuable belongings to save the country that was about to go bankrupt. In January 1998, nearly a quarter of the South Korean people donated a total of 226 tons of gold, worth 2.2 billion US dollars.
But it still hasn't saved the heavily indebted country. What a call, obedience to fate! The South Korea we see now is actually a migrant worker of European and American capital. So what happened to South Korea? How did it end up here?
Fast forward to 1960, when south Korean presidents decided to let commercial banks lend to large corporations at ultra-low interest rates for the sake of the country's economy, that is, to cut interest rates. This model, ah, in the beginning to achieve a very very good effect, South Korean enterprises to get loans, increase production, export to earn foreign exchange, after the enterprises make money, the government to get more taxes, improve people's livelihood. You see, in just 35 years from 1961 to 1996, South Korea's per capita income has increased by as much as 100 times, from a country poorer than North Korea to one of the four Tigers in Asia.
But in a peaceful situation, South Korea forgot the biggest drawback of the borrowing model, and when it was too late, this is what we know as debt pressure. At the beginning of the loan of a Korean company. They all borrowed from domestic banks, but with the expansion of export business, their own wallets were not enough, and they began to borrow a lot of money from international capital in Europe and the United States, which laid the groundwork for South Korea's loss of control. Generally speaking, high debt will not be a problem during the period of high growth, but the economy has always been high and low! Once there is a recession, debt pressures increase significantly.
In 1995, the average debt ratio of South Korea's top 30 large conglomerates was as high as 428 percent. That is, if people let you pay back the money, it is not enough to sell you four times. The courage of these consortiums is not small, they began to gamble, betting that their government will give them the bottom, they do not expand, but the expansion of others, ah, just like this, the market share was robbed by others, so the big consortium panicked, on the dead road of borrowing money to expand, and the ordinary people due to the soaring income, also drifted, speculation, speculation, retaliatory consumption, impulsive consumption and so on.
Sure enough, the good meal is not afraid of late! The crisis is still coming. In 1996, South Korea's seventh-largest consortium, the Kia Group we know as it, owed $11.7 billion, while South Korea's foreign exchange reserves were only more than $30 billion, and even worse. Kia Group had a lot of investment in Southeast Asian countries, but the market in Southeast Asia at that time was not as good as South Korea! Therefore, Kia Group's investment in these countries for many years has been adrift, and the losses are very heavy. In July of that year, Kia had no choice but to file for bankruptcy protection. It is this willfulness that makes South Korea completely lose the opportunity to save itself, the company is highly indebted, the government does not support, what does international capital think? The South Korean government has no money in its hands in the hearts of investors! Confidence is more important than gold, once international capital loses confidence in you, the road of borrowing will not work, the foundation of South Korea's development has been shaken, and then there will be a desperate struggle, but South Korea will certainly not sit still, so what has South Korea done? Let's talk about it in the next issue!