Boom on Borrowed Time
KELMAN, STEVEN
SOUTH KOREA'S ECONOMY: Boom on Borrowed Time BY STEVEN KELMAN Seoul Careful about local sensibilities, Western economists, foreign-aid officials and diplomats have cultivated the habit of...
...and Japan...
...This gave the government virtual veto power over who was to receive foreign capital at the bonanza interest rates...
...As more Asian and African countries go into electronics and textiles, too, the potential for market gluts will increase...
...Furthermore, a developing economy largely based on export growth is vulnerable to the vagaries of world trade, from recessions to import restrictions...
...The claim is occasionally heard around Seoul that the economic boom has not affected South Korea's poor...
...One is struck by the constant repetition of the word "liberty" in this country where press freedom is limited, where officials try to buy off potentially troublesome students, and where election managing is widespread...
...The major problem hindering further economic development is the huge foreign debt South Korea has amassed...
...A major highway connecting Seoul in the north and Pusan in the south was recently completed, and government investment still accounts for just over half of the total capital formation...
...Particularly hard hit are the South Korean military contractors, who have made about $585 million in Vietnam since 1965...
...A recent and dangerous increase in the bankruptcy rate raises the question whether Korea's spoon-fed businessmen can keep things going...
...Since the South Korean won is not a convertible currency, foreign banks demanded government guarantees for dollar conversion of loan payments...
...Following the example set by Japanese businessmen who capitalized on the Korean War, these entrepreneurs have been delivering war supplies, carrying out construction projects, running laundry shops, providing entertainment and other services to U. S. troops throughout South Vietnam...
...Faced with the stark reality of their own situation, however, most South Koreans abandon euphemism and refer to their land as "underdeveloped...
...But while the rich--or at least those among them with friends in power--are certainly growing richer at ridiculous rates, the new prosperity has also benefited the average man in the cities...
...The highest priority, however, was given to increasing exports...
...Mercantilism, of course, was succeeded by Adam Smith's notion of laissez faire, forcing businessmen to compete on the free market without government protection...
...While it may well be wishful thinking to describe many Third World countries as "developing," South Korea's GNP rose (in real terms) 13.3 per cent in 1968 and 15.9 per cent in 1969...
...They show that South Korean exports--mostly textiles, assembled electronics equipment and plywood--increased almost 16-fold during the '60s and are still climbing 40 per cent annually...
...Though only half the level of Hong Kong and a third that of Singapore, this index puts South Korea well ahead of India, Indonesia and several other Asian nations...
...While current pressures for protectionism in the U.S...
...Kyungbang Limited, for example, the first textile mill the Japanese colonial regime permitted native Koreans to set up in 1919, has been upstaged by several new firms with better government connections...
...Despite a superficial resemblance to socialism, the government's role in the economy has actually been more akin to 18th-century mercantilism, bestowing monopolies and other concessions to favored companies...
...The easy days of economic growth are coming to an end, and continued progress in South Korea will depend on industrial efficiency and ingenuity...
...The key to South Korea's growth was foreign capital, not so much direct American aid--which has steadily declined from a peak of $236 million in 1961 to $110 million last year--as bank loans from the U.S...
...One student activist I met spoke repeatedly of "sinister Communist agression" and "hideous Red brutality...
...A Peace Corps volunteer told me he has noticed some improvement during his stay, such as villagers pooling their resources to buy farm machinery...
...As long as businessmen could obtain U.S...
...Determined to compete successfully with their more highly industrialized Communist neighbors, South Korea began serious economic planning in the early '60s, focusing on the development of the nation's infrastructure and the establishment of government enterprises...
...Credited with leading his nation to its new stability and prosperity, he is expected to win in the April 27 balloting...
...As the Americans withdraw, Korean companies are having to find new opportunities abroad or return home...
...are directed mainly against the Japanese, the quotas will also apply to Korean products...
...The International Monetary Fund has imposed limits on loans from abroad, forcing an austerity program that slowed last year's real growth to less than 10 per cent...
...Peasant life, though no worse than before, remains dreadfully impoverished...
...SOUTH KOREA'S ECONOMY: Boom on Borrowed Time BY STEVEN KELMAN Seoul Careful about local sensibilities, Western economists, foreign-aid officials and diplomats have cultivated the habit of calling nations in Asia, Africa or Latin America "developing countries...
...Following his reelection in 1967, the Constitution was amended, allowing him to stand for a third term...
...The Presidential campaign has intensified the kind of Cold War rhetoric that has been largely abandoned in the West but is still very much alive here...
...Steven Kelman, a frequent contributor, is currently touring Asia...
...That is a phenomenal growth rate, even if the official figures are somewhat exaggerated, as some critics charge, by a method of computation weighted toward bullish sectors of the economy...
...Businessmen were granted a series of special concessions, ranging from tax rebates to loans of foreign capital to tariff-free importation of raw materials...
...Attracted by industrial jobs, the rural youth is depopulating the countryside in a massive exodus to the cities...
...Combined with a very expansionary--and inflationary--monetary policy, these incentives created a boom atmosphere and new export firms sprang up...
...Individual South Koreans are prohibited by law from holding dollars...
...Park, it will be recalled, retired from the Army and was elected President in 1963...
...Nonetheless, American aid experts see little possibility for this mountainous country to become self-sufficient in rice production...
...Beyond the reach of government fudging, moreover, are the equally dramatic trade statistics...
...The crude stridency of editorials in government newspapers frequently rivals the outpourings of Pyongyang or Peking...
...funds at well under 10 per cent, they were in effect borrowing the money for free...
...The GNP per capita, below $100 in 1960, topped $200 this year...
...military cutbacks in Korea itself...
...South Korean students and intellectuals, though critical of their government and often anti-American on nationalistic grounds, share the official anti-Communism...
...That, plus the political democracy necessary to redress the abuses of the private sector, may be what South Korea most needs now...
...And the foreign exchange loss is compounded by U.S...
...It naturally chose to grant loan guarantees to its political friends and to keep its opponents out in the cold...
...In industry, real wages have been rising 10 per cent annually, and long-time residents report marked improvement in the quality of clothes and other consumer goods...
...Domestic interest rates average around 25 per cent, partly because of an inefficient capital market but mostly because of the 10-15 per cent annual inflation...
...As a result, some newcomers with little proven business skill were made millionaires overnight, while other entrepreneurial talent remained underutilized...
...South Korea's sudden Wirt-schaflswunder, after years of embarrassingly slow progress, is largely due to the efforts of the young military officers--led by General Chung Hee Park--who took over the country in 1961...
...Economic planners are aiming for a per capita GNP of $500 by 1980, higher than that achieved by Japan a mere decade ago...
...Their modesty is unwarranted...
...It now totals more than $2 billion, and servicing it consumes about one-fifth of the nation's annual foreign exchange earnings...
Vol. 54 • April 1971 • No. 8
