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Korea in Transition
A casual glance at the news from East Asia lately would suggest that the Republic of Korea is in big trouble. However, this assumption is being made too hastily. The failures of several major banks and chaebol (industrial conglomerates) have necessitated intervention from the increasingly beleaguered International Monetary Fund (IMF), which has stepped in with a record-breaking $57-billion aid package. Recently, appeals for such massive aid have come from nations like Indonesia, only partially developed and reputed for its system of political repression and corporate patronage, or Thailand, which has a habit of chucking its old Constitution every few years or so and reforming the government from the ground up.
But South Korea is different from these two nations in that the roots of democracy are taking hold. The presidential election to be held December 18 is downright normal, as three candidates are running elections in fairly American style: a healthy mix of mudslinging, finger-pointing, scandal-mongering, flag-waving, and finally, rising above it all, a serious discussion of the pressing issues of the day.
The major issue in the election is, of course, the economy. The IMF bailout is going to be painful in many ways, but most Koreans realize that it is an inoculation against a far worse (and far more contagious) disease. The IMF payments, though heavily front-loaded to relieve Seoul of its billions of dollars in short-term debt, are laden with conditions and demands. Korea must slash government spending, narrow the current account deficit, reform the credit and accounting practices of the chaebol, and ease trade barriers to open its markets. The initial $5.6 billion payment came December 5; the second payment of $3.6 billion will be available December 18, contingent to Seoul's cooperation with these (and other) IMF benchmarks. That gives Seoul two weeks to make a great deal of headway, which may be difficult with a lame duck in office and the political landscape occupied by an election campaign in its final sprint.
One condition in the IMF agreement was particularly telling. The IMF asked Seoul to "drastically lower economic growth," from the currently forecast 6.0 percent to 2.5 percent. The Korean Finance Ministry, which has agreed to the other IMF stipulations, responded by stating that Korea next year would lower growth to 3.0 percent. It is as yet undecided whether that cut in growth will be sufficient for the IMF, or whether the 0.5 percent is worth a squabble.
Why is the IMF pressuring Korea to cut growth when it seems like economic good news is in short supply? The answer, as usual, is inflation. While Korea was posting 6 percent growth, 5 percent inflation was fine. However, while the economic crisis will cut Korea's growth, it will not be so kind as to cut inflation as well. Nations developing at rapid rates can afford the 5 percent inflation that Korea currently endures. Matured economies cannot. Most major economies listed by the Economist as being "industrialized" nations enjoy growth of less than 4 percent per year, which is normal for a so-called matured economy. But the "developing" economies have, on average, much higher growth rates. Part of this difference is mere mathematical reasoning: going from one dollar to two is only growth of one dollar, but 100 percent. Going from 1 trillion to 1.002 trillion is growth of 200 billion dollars, but 2 percent. Thus, countries with a long way to go have an easier time growing rapidly, at least in terms of percentages.
However, the rest of the difference may be composed of the nature of a developing nation's economy and the higher-risks that nations with little to lose can afford. While many critics cite Korea's crisis as just one more example of the so-called "myth of the East Asian miracle," arguing that the "miracle" was no more than rapid development by underdeveloped countries, they may be missing the more pressing point. The Korean crisis is not the collapse of an economy, but the collapse of a system that can only work with developing nations. Korea could long afford the corruption that necessarily accompanies a high degree of collusion and cronyism. It can no longer do so. The Korean crisis is a series of growing pains, which will necessarily accompany any nation making a rapid transition from developing economy to developed economy.
The Japanese "bubble" of the late 1980s might have warned Asian nations using the "Japanese model" that they were setting themselves up for a bursting of their own. This economic model, in the words of Richard Hornik (former Hong Kong bureau chief for Time Magazine) was a "top-down" model, which bred "complacency, cronyism, and corruption." Whether this description is accurate is debatable, but the key idea here is a given nation's model of democracy. Japan's post-bubble economic woes led to a non-Liberal Democratic Party government for the first time since 1955. That Japan has since wallowed in indecision over financial reform is further evidence of the difficulty of abandoning a system that worked for so long.
Other recent recipients of IMF bailouts are in similar need of political reform. Indonesia's autocracy is unlikely to change until the death of the aging Suharto, which carries no promises of stability. Thailand answered the call and passed a new Constitution, but has yet to re-form the government. Jeffrey Sachs, the director of the Harvard Institute for International Development, cited Thailand as an example of how the IMF sometimes does more harm than good by intensifying panic. The IMF plan required the Thai government to shut down dozens of banks and securities companies. Sachs argued that "Rather than restoring confidence, the IMF's intervention merely confirmed to investors that they were right to flee." Yet the Korean bailout is not likely to produce such a result, if only because Korea is trying to further political reform, as the current campaign demonstrates.
The three main candidates, Lee Hoi Chang of the majority Grand National Party, Kim Dae Jung of the major opposition party National Congress for New Politics, and Rhee In Je of the New Party by the People, have already held two nationally televised debates in which all of them sounded like reasonable politicians. All three focus on the economy in the debates, vowing to resurrect the nation from its current woes. Also, all three blame the current President, Kim Young Sam, and want to create a neutral committee to investigate in possible presidential wrongdoing. They even used charts to explain their economic plans. Kim, although leading current polls, is faltering, as his ties to the current failing economy are seen as the most extensive of the three, and the election is still too close to call.
Even the mudslinging in this election is remarkably similar to that of most industrialized nations. Lee accused Kim of being "soft" on North Korea. Kim has countered by charging Lee with favoritism, since his sons somehow avoided the military service mandatory for Korean men. These charges have hurt Lee tremendously in the polls, particularly among the working class, which resents the political patronage that enables sons of rich and powerful men to avoid military service.
Some analysts see danger on the horizon, as many opinion polls cite the desire for a strong leader. The fear is that by "strong leader," the people mean a return to the virtual autocracy of the 1970s, where a military-backed regime enforced the successful economic system by resorting, not only rarely, to political strength. However, the Korean people are well-educated, and though political indoctrination was once popular, the press is free enough to give people the unadulterated information they need to make a rational decision. The fiercely independent Koreans, only recently given the right to vote, have shown no sign of wishing to return to autocracy, and will likely vote accordingly.
Korea is having its troubles these days, that is sure. But the current crisis in the economic system is the natural result of its own success. The "top-down" model of complacency, cronyism and corruption can no longer be used as the engine of success as it was for so long. Korea needs to readjust its sights, and accept that it can no longer achieve the 6 percent growth rates of a developing economy. It needs to further accept that reform of the political system, though painful, is a necessary condition for stable economic growth. If the Koreans can take these painful lessons to heart, it may not be long before the nation leaves the group of developing nations, and takes its rightful place in the elite group of developed nations.