Editor's introduction: Korea's transition to maturity

Abstract

Korea is currently undergoing a spectacular transformation as measured by any one of a number of yardsticks. Politically, this nation of 42 million people is approaching its destiny with democracy with increasing anticipation. Financially, it has the sole distinction among the highly indebted developing countries of actually turning the corner on external debt and reducing it in absolute terms. Structurally, it has managed to transform itself from an assembly economy to a high quality export producer. And socially, it now confronts a host of new but not completely unwelcome economic problems associated with rapidly rising living standards and even more rapidly rising expectations, as attested to by labor demands, commitments to universal health insurance, and recently enacted minimum wage and pension legislation. There can be no doubt, in any case, that Korea is on the brink of the final stage of development that will bring it to the ranks of the lower OECD economies before the end of the century. Despite this optimistic prognosis, Korea continues to face substantial hurdles. Some problems are perennial for developing countries, particularly those following an export orientation, such as protectionism in major markets, while others are new, such as dealing with the recently emerging current account surplus. Korean observers have every confidence that traditional pragmatism will dominate decisionmaking on these policy issues; however, there is equal concern that political events may short-circuit the economy’s remarkable performance of 1986 and 1987. Central to the economy’s performance in the postelection period will be the government’s ability to deal with economic and social demands from various segments of society and maintain effective management control. Korea has managed to post very respectable real growth in the last five years, with GNP increments averaging 8.7% since 1982, and to move its current account balance through successively smaller deficits and into surplus in 1986. Following spectacular performance in 1986 12.5% real growth and a $4.5 billion surplus 1987 has all the indications of being almost as strong despite labor strife and the ensuing large boosts in wages. Throughout the period, the won continued to appreciate. Indeed, exchange rate management has taken on a curious twist in the Korean context, as trade partners like the United States push for revaluation in hopes of stemming Korea’s export success. It is in fact somewhat ironic that just as Korean industrial policy has taken a major step towards less intervention, the imperfections of the global trading environment signal a new and potentially much more direct role for government in managing trade diplomacy.’ The quality of economic management has been one of Korea’s major achievements. It can be seen not only in the coordination of economic policies and for this the Economic Planning Board headed by successively effective Deputy Prime Ministers can be duly credited but also in the responses to economic shocks, which have included timely and successful adjustment programs, and in the implementation of far-reaching reforms of the trade regime and, to a lesser extent, the financial sector. Economic management also extended into the arena of industrial policy, largely through financial sector interventions, where market signals were often directed or amplified. This may lead to the curious paradox that while Korea’s economic agents respond so well to market signals, according to some “ca has not yet firmly taken root in Korea. 3 italism There are legitimate questions about the nature of economic management in the future, as technocrats who have so far been insulated from direct scrutiny, as Steinberg points out, now become more accountable to the public. This volume’s opening essays, Kim’s strategy and vision for the future and Steinberg’s speculation of new socio-political tensions, heightening nationalism, and greater fragmentation, provide an often neglected