REPUBLIC OF KOREA; An economic spring; The future is tied to stability and exports

The long, severe Korean winter is over. As buds swell and sap flows in trees preparing their greening, government officials, bankers, industrialists, and the working Korean public earnestly hope that spring will bring a progressive recovery from a bleak and depressing 1980.

President chun Doo Hwan's state Jan. 29 to Feb. 6 was the first major event of the year, as important for its symbolism as for its substance. First and foremost, the visit signified that Korean-American relations were back to normal after a long period of strain. That in turn gave reassurance of south Korea's security against the ever-present threat from communist North Korea.

Along with the improved domestic atmosphere shown by the reduced sentence granted to opposition leader Kim Dae Jung (his death sentence was commuted to life imprisonment) and a relatively smooth transition from martial law to the Fifth Republic, the state visit strengthened President Chun's own position and thereby helped promote the image of restored political stability.

Not that Seoul ever looked abnormal, except for a few days last april when the smell of tear gas hung heavy on the air, or when full martial law was declared May 17 and armed guards took up positions at the entrances to banks and news organizations.

The city still bustle with energy. A new bridge and highway links downtown Seoul to the airport in 20 minutes. Subway construction goes on space. Gleaming skyscrapers increasingly crowd out the picturesque pointed-roof courtyards and the maze of alleys in which much of the city's life still goes on.

At the same time, there seems to be an increase in the number of beggars and of disconsolate-looking men with sturdy wooden A-frames on their backs -- porters looking for loads to carry, perhaps pushed out of factory jobs by the current recession. Unemployment stands at 5 percent of the working population of more than 15 million. This year, the government says, it may go down slightly, to 4.9 percent.

Despite the Chun government's purge of allegedly corrupt officials and politicians and its frowning on evidence of conspicuous consumption, the affluent society is still very much in evidence in places like the Lotte hotel's 37th-floor restaurant.

Once Korean businessmen used such restaurants to entertain their foreign guests.They still do, but on almost any weekday the Korean clientele engulfs the occasional foreigner. And on Sundays Koreans come with their families, replenishing their plates from buffet tables groaning with delicacies from smoked salmon and raw oysters to roast beef and Chicken Oreintale.

And the restaurants down in the alleys where one can enjoy bulgogi (grilled beef) or seafood pancakes or any of a variety of exotic foods for a fraction of the cost of the Lotte are similarly crowded with office workers relaxing with their friends before having the crowded bus ride home.

So the economic picture is mixed. For every story of a business failure or of a ricebowl-winner forced out onto the street there is a matching story of grandiose plans for 1981. The restoration of political stability, however, is a very important ingredient in the renewed business confidence being shown this year.

No less important, in terms of the export orders, foreign loans, and investment that South Korean needs, is the image of a government with a coherent economic plan. Here too, after a period of confusion in the summer and autumn of last year, especially over plans to reorganize heavy industry and to force companies to divest themselves of unutilized real estate acquisitions, the Chun government seems to have got its act together.

Heavy industry is being reorganized. One key element, however, the merger of three automobile companies into one, has run afoul of foreign complications and the government may pragmatically allow things to remain as they are. Hyundai, with a link to ford, will continue to be South Korea's main passenger car manufacturer. Saehan, a smaller company, with a 50 percent investment by General Motors, will remain independent unless General Motors and Hyundai can reach a compromise share in Hyundai as well.

The government plan for 1981 forecasts a real economic growth rate of 5.4 percent, in contrast to the steep decline of 5.7 percent seen in 1980. (south Korea was the only non-communist country in the region to register a negative growth rate in 1980.)

To achieve this, the government hopes to hold inflation to 20 percent, in contrast to the more than 30 percent registered in 1980.

To achieve this, the government hopes to hold inflation to 20 percent, in contrast to the more than 30 percent registered in 1980.

Wages, which increased last year by 27 percent -- less than the inflation rate -- will be held this year to 15- to 17- percent raises. Government employees will be given only 10 percent raises -- if the government can get away with it. Will workers faced with continuing inflation accept a second straight year of reduced real wages? If the alternative is unemployment, they may.

The government is telling enterprises to set up labor-management councils in which the need to raise productivity before wages will be stressed. It was, after all, the continuous raising of wages in disregard of productivity after the oil shock of 1973 that diminished the competitiveness of Korean exports vis-a-vis rivals Taiwan and hong Kong.

These exports, in turn, are to be raised to $20.5 billion, compared with $17. 5 billion in 1980. The increase of 17 percent is modest, and according to Kim Woun Gie, former deputy prime minister and now chairman of the Korean Traders Association, the target should be easily met.

Imports will be $26 billion, compared with $21.7 billion in 1980, leaving a trade gap of $5.5 billion. Because South Korea's invisibles account (such as tourism, shipping charges, investment income, and repatriated income from workers abroad) will be more or less in balance, the current-account deficit will also be $5.5 billion.

To finance this deficit, a net capital inflow of $6.1 billion will be required. In round figures, South Korea will probably have to borrow about 8 According to Hah Young Ki, governor of the Korean Development Bank, South Korea now pays about $3 million a year in interest and repayment of principal on foreign loans outstanding. This means a debt-servicing ratio of 13 percent, comparing favorably with Mexico or Brazil.

In fact, foreign banks are eager to lend to South Korea, the main haggling point being the extent to which South Korea will have to pay interest above the London interbank lending rate (libor). A World Bank report says that in some recent loans the rate has gone beyond 1 percent above libor (libor is commonly used as the base rate in negotiating international loans by commercial banks).

South Korea expects its currency, the won, to float down a further 5 percent vis-a-vis the US dollar in 1981. This compares with a 36 percent decline during 1980. Devaluation helped South Korean exports but also spurred inflation because of the higher costs of imports (nearly all of south Korea's exports depend on processing imported raw materials or semifinished goods). Governor Hah and other South Korean financial authorities think the won is now about where it should be, at around 665 to the dollar. Thus, a further gentle decline of 5 percent will not have the severe effect on inflation that last year's steep slide had.

If South Korea can hold the line on wages, then the recovery of production this year will not of itself fuel inflation, because production early in the year stood at about 68 percent of capacity. When production recovers to around 80 percent of capacity, the authorities expect enterprises to resume investment in new plant and equipment, providing a further stimulus to the economy. The government hopes such investment to begin in the second half of the year.

Two international developments could upset this calculation.The first is the price of oil. South Korea experienced nearly a 100 percent increase in the price of oil last year over 1979. The government is assuming that increases in 1981 will not go beyond 15 to 20 percent and that oil companies may be able to buffer part of these additional costs.

The other international development that could affect South Korea's recovery plans is the state of the economy in the developed nations, notably the United State and Japan, which are South Korea's largest suppliers and largest markets. A sustained economic recovery in the US and Japan would spur Korea's exports.

Finally, nearly half the decline in South korea's economic growth last year was caused by a disastrous harvest brought on by a cold, wet summer. A normal harvest alone would add 2 to 3 percent to South Korea's growth rate this year.

"It is reasonable to expect that this year we are not going to repeat the extraordinary combination of factors that caused our economic growth rate to decline by 5.7 percent last year," Governor Hah says.

"These factors are: first, the social and political instability of the first half of last year. Second, the devaluation of the won by 36 percent. Third, the skyrocketing price of oil. Fourth, a harvest nearly 50 percent lower than normal.

"So, if we just have a normal year, it is not unreasonable to expect a growth rate of 5 to 6 percent."

Chung Ju Yung, South Korea's leading entrepreneur, chairman of the Hyundai Group and of the Federation of Korean Industries, is even more optimistic.

"Last year things were so uncertain no one wanted to invest," he said in a recent interview in his 14th-floor office near the state capitol and Kyungbok Palace. "This year, everyone wants the economy to grow -- the government, the public, businessmen themselves. Even without any special policy of stimulating growth, so long as we have social and political stability we are bound to have growth. I think that 7 or 8 percent is not at all unreasonable."

Which of these predictions and assumptions will prove true?

Foreign observers are cautious, seeing the problems that lie ahead both for the international economy and the Korean. But they know this nation of 38 million has shown great resiliency in the past. The level of education is high, the work force skilled and well motivated, despite what one prominent thinker calls the "revolution of rising frustrations."

If, for whatever reason, there is renewed political instability, if inflation gets out of hand and a new wage spiral begins or is violently demanded, then all predictions of economic recovery are invalid.

But most South Koreans know that they live pretty close to the margin, as it is. They may not all be enamored of PResident Chun or of the way he acieved power, but neither can they forget that North Korean troops and tanks are poised on their side of the demilitarized zone.

Despite the complaints and confrontations of the past, there is still time for military and civil officials, businessmen and workers alike, to come to a solid understanding that they must work together to build the better Korean they all want. If they do, the 1980s could see a second economic miracle no less impressive than that of the booming '60s and nearly '70s.