Korea Emerges from Crisis

SEOUL: Last year saw the worst of times in South Korea since the end of the Korean War, with Asia's crisis bringing a devastating 33.8% drop in per capita GDP, from $10,307 to $6,823 and mass starvation in North Korea threatening stability on the peninsula. Times of crisis, however, like the approach of an execution, concentrate the mind. South Korea has focused on systemic reform and, today, despite labour unrest the signs of economic recovery abound and political prospects are brightening, too. Even relations with the North may be slightly more predictable.

In the year-and-a-half since South Korea received a $57billion IMF bailout, and the 13 months since former dissident Kim Dae Jung became president, the currency (the won) has stabilized, short-term debts have been rolled over into long-term ones, foreign reserves have increased, and interest rates have been cut. Foreign reserves stood above $50 billion at the end of 1998, compared to under $9 billion a year before, thanks mostly to a $39 billion trade surplus last year, the first in nine years. This surplus enabled a stabilizing of the won at 1,200 to the dollar, compared to the 2,000 to 1 ratio of 1997.

Much has been done, but South Korea has only touched the surface in restructuring its economy, its relations with the North, and domestic political reform. A cabinet shake-up this week points to President Kim's recognition that much more needs to be done. In all areas the direction is toward even liberalization, but President Kim's path to liberalism is through a curious kind of social corporatism. These detours are necessary because of the roadblocks posed by big labor and even bigger business. The most important challenge now is for President Kim to build a new ruling coalition that can ensure a measure of political stability at home as the economy is opened up and the knotty issues of nuclear weapons and ballistic missiles in North Korea are tackled.

So-called "Asian values" are not in President Kim's vocabulary. He believes that democracy and a market economy are not opposites but complement each other. After consulting the IMF, the government has pushed insolvent banks to merge or face bankruptcy, allowed for the first big layoffs of workers, and "downsized" the bureaucracy through a strict reorganization. In all this President Kim assumed personal leadership, surprising many with his grasp of, and commitment to, liberal economic ideas.