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by Rukmal Salgado

South Korea is an example of an Asian country that jumped the poverty trap to become an early economic success. In the 1950's, Korea was another under-developed Third World country. Her economic ranking was equivalent to an under developed African country. By early 1960's, the scenario was rapidly changing; Korea beginning to record growth rates of 8% sustained for 30 years. After her remarkable economic transformation, the country's economic status was that of an 'advanced economy'.

The Korean miracle was achieved through combinations of pro-growth economic strategies, market reforms, private sector participation, technology development and transfer, capital infusion and strong political leadership. There were other advantages too; like the small size of the country (about the same size of New York State), the homogenous character of the population (the most homogenous in Asia) and the hard challenges that brought equally tough opportunities to a country partitioned along a North-South rigid ideological divide.

Korea began recording impressive economic gains in the 1960's with the beginnings of globalization. A new dynamic was at work in globalization, from which Korea, alongwith other countries were gaining. Under globalization , export markets were transforming into global markets. With greater accessibility to global financial markets and capital flows, Foreign Direct Investments (FDIs) began to flow in multiple directions, across hitherto rigid national, regional and international boundaries.

Similarly, with rapid advances in Information Technology, new manufacturing processes were revolutionizing industry and trade. In these still early stages of globalization, Korea and other 'Asian Tigers' (Singapore, Hong Kong, Taiwan) moved up, taking quick advantage of an economic groundswell. They responded positively, implementing pro-growth economic policies and market reforms. Political stability and pragmatic leadership helped the Asian Tigers to successfully enter a new global economic race. Well ahead on the road of economic transformation and growth, within a very short time span, these countries benchmarked high levels of upward growth.

The rewards for the countries that elected to enter the new global milieu were plentiful. With the advances of globalization in different directions, would these advantages for Asian countries last? Even in the early stages of economic growth, there were distant rumblings of storms to come. Early warnings, however, were ignored; the erratic movements in money markets being attributed to the normal ebb and flow in the business cycle. Things would go on; that was the expectation. However, would they or could they?

The altogether not unanticipated storm broke out in the Asian crisis of the mid 1990's, affecting Korea alongwith other Asian states. The first signs were evidenced in volatile global financial markets. The crisis snowballed to other sections of the Asian economies. Korea, riding high for almost 30 years with 8% annual growth plummeted (in 1998) to a 7% low in production. Korea found itself in the grip of a serious crisis that would not pass away, or be wished out of existence. That Korea faced the crisis and came through it achieving what many believe is a near miracle is a tremendous achievement for the country, with lessons for other Asian countries as well.

The basic success of the Korean recovery program and its successful implementation underlines a number of significant principles in developmental economics; especially, the pivotal role politics play in economic programming. These include setting of goals, strategies and implementing policies.

The Korean crisis broke into its worst when the country was in the middle of a contentious presidential election. Economic gloom and the nervous atmosphere of uncertainty pushed rival candidates in the election fray to contradictory and unrealistic electoral positions. There was tall talk on election platforms of threats to re-negotiate IMF conditionalities of a rescue plan for the country put together by the world body. President Kim Dae-Jung, who made it to the top with a thin majority, was not himself immune to such talk, taking varying positions on the critical issue of reform. However, no sooner in office, the President-elect put himself behind a program of negotiated economic recovery oriented to growth.

The Korean recovery is an illustration of the critical role politics play in economic programs; the need, in other words, for a national political configuration for an economic agenda to succeed. In current terminology, this means a country accepting 'ownership' of the reform program by becoming stakeholders in it. In an earlier Asian milieu, political dogma and ideology dominated politics. Today, the opposite is the stronger trend. However, is Asia ready for the change? The political rhetoric of yesterday has of necessity to be replaced by political-economic rhetoric today.

The basic strategy in Korean recovery was to pump a lot of new money into the economy to boost it, and recover self-confidence. The banks have a critical role to play for this strategy to work; specially getting maturing debts and non performing loans out of the way. In the course of the Korean recovery program, President Kim Dae-Jung had to nationalize five major banks in order to bail them out. Two of these banks have now been re-privatized. The other three banks have reportedly improved their balance sheets.

The raising of interests rates was another mechanism that worked effectively in the Korean recovery plan. In the earlier stages, the interest rates were substantially upped. But they did not remain so for long. Within a relatively short period, exchange rates stabilized, returning to pre-crisis levels.

The private sector had a special role to play in the Korean economic recovery strategy. Beginning with the banks, immense re-structuring was needed in the private sector before the country could cross the difficult bridge from depression to recovery. The corporate world of Chaebol, a powerful strategic sector in the Korean economy, needed both regulation and control. President Kim Dae-Jung took several steps to reduce Chaebol debts and bring about transparency in governance.

A root cause and stumbling block to recovery plans was the domineering role and the powerful influence the Chaebols wielded in the economy. It was no easy task, even for government agencies to get past the entrenched power structures of the Chaebols and bring about reform.

Labor unions that wielded enormous power at all levels of production and manufacture was another tough problem that President Kim Dae-Jung had to tackle. To soften the blows of restructuring and the downsizing of the country's workforce.

President Kim set up a comprehensive unemployment insurance program. At the same time, he loosened labor laws to allow factories to employ temporary labour and legally discontinue them, according to changing manpower needs.

Economists and political analysts agree on the tough assignments President Kim took upon himself when he assumed office. His main priority was to make Korea grow economically. He did this creditably well, taking the country successfully through a tough crisis period. The main task confronting the new president elect is to continue the growth policies of his predecessor and strengthen the country's economic fundamentals.

In the volatile world of Korean politics, Kim Dae-Jung, (a Nobel prize Laureate) is leaving office under a heavy cloud which has surfaced at the tail end of his career. President Kim's financial dealings with North Korea is dubbed by the media as 'cheque diplomacy'. The irony is that Kim Dae-Jung won the Nobel Peace Prize for his peace diplomacy with North Korea, which is once again flexing its nuclear muscle.

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Copyright 2001 The Associated Newspapers of Ceylon Ltd.
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