Korea poised for the second economic take-off

The economy of the Republic of Korea today is poised for a second spectacular take-off, having already impressed the world with an economic miracle over the past several decades.

Since the early 1960s, Korea's economic growth has been among the fastest in the world. During this period, Korea has transformed itself from a subsistence level economy into one of the world's leading newly industrialized countries. Between 1962 and 1993, Korea's gross national product (GNP) rose from US$2.3 billion to US$320 billion, increasing the per capita GNP from US$82 to US$7,466.

Overcoming internally the inevitable rising demands that come with the process of political democratization and externally an increasingly complex trading environment, the Korean economy is preparing to enter the 21st century as a front-runner in the emerging Asia-Pacific era.

The government, headed by President Kim Young-sam who took office in February 1993, is well on its way towards constructing a new developmental paradigm called "The New Economy". As the term indicates, it signals a clean departure from the past when the government directed and controlled the concentrated investment in capital, labor and other resources in selected strategic industrial sectors to achieve rapid economic growth.

In sharp contrast with the earlier strategy, Korea is now promoting the autonomy and creativity of all economic actors in order to maximize efficiency, while ensuring the equitable distribution of income. This new strategy aims to enable Korea to leap into the ranks of the developed nations in the next five years.

Towards this objective, the "Five Year Plan for the New Economy" was formally announced in July 1993. This plan aims at an average GNP growth rate of 6.9 percent, raising Korea's per capita GNP to US$14,076 by 1998.

On Aug. 12, 1993, President Kim took a decisive step toward revitalizing the economy and eliminating corruption by announcing the implementation of the real-name financial transaction system.

In the past, it had been possible to open accounts and conduct business transactions under false names, directly and indirectly fostering corruption and illegal financial dealings. Deeming this reform as the most important in the creation of a new Korea, the President announced this action in a Presidential Emergency Decree, stating that the real-name system was essential for cutting the dark link between politics and business.

The implementation of the real-name system, easing administrative controls over economic activity, expanded capital investment by major enterprises, and increased financial and administrative support for small and medium-sized enterprises, laying a solid foundation for the next economic take-off in Korea. Exports rose 7.6 percent in 1993 to US$82.4 billion, while imports grew just 2.5 percent. Korea was thus able to register a US$600 million trade surplus last year for the first time in four years. The current account also yielded a surplus of US$200-300 million. Industrial production has been growing at about a 10 percent rate during the first half of 1994.

The Republic of Korea has emerged as a major global trader by steadily pursuing freer trade and greater openness, while promoting its business presence around the world. In the past, Korea's foreign trade concentrated on the developed world, mainly the United States, Japan and the European Union. In more recent years, however, it has rapidly expanded trade and capital cooperation with Southeast Asia, former and present socialist countries and Third World nations as well.

The developmental experience that Korea has gained in the last two decades has made it an unique bridge between the developed and the developing countries. While the Korean economy is advanced enough to assimilate the latest technology and develop innovative technologies, it is also eager to share its experience with other developing countries.

By stressing technology gained by scientific research and development, Korea is attempting to enter the 21st century at par with the scientifically and technologically advanced nations of the world. Towards this end, investment in research and development will be raised from the current 2.2 percent of GNP to four percent in 1998. Samsung Electronics Company for instance has recently developed the world's first full working die of 256M DRAM chip, thus securing a lead in the development of the new generation memory chips.

Korea has begun an informal dialog with the Organization for Economic Cooperation and Development (OECD) and has expanded participation in its various committees. Korea hopes and intends to improve its economic systems to the level of advanced countries so as to join the OECD in 1996.

The rise of the Korean economy over the past several decades, often called the "Miracle on the Han," has been an inspiring model of modern economic development. The rapid pace with which the Korean economy rose from the ashes of war and expanded stunned the outside world. (rlt)