IMF's bitter pill to restore Korea's health
The last few months have seen some drastic changes in Asian economies. First problems in Thailand, then Indonesia and now South Korea. All three are now in dire need of help from the International Monetary Fund (IMF). On the other hand, the IMF itself is not a cure for ailments; it functions differently in different places. In Korea, the goal is not to bail the country out but to assist it in meeting billions of dollars in foreign debt that could in all probability not be serviced because of the rapid decline of the Korean currency.
Thus, the IMF steps in with its own prescription. Like any bitter pill, this one has to be swallowed in order to correct economic ills. The treatment may include restricting government spending, reducing infrastructure projects, realigning the economy and, in most cases, raising interest rates. All these actions are viewed with suspicion and disdain by a people who have grown used to the good life.
This is what has happened in Korea, a country very high on the list of developed economies and a leading importer of Saudi Arabian crude oil.
Despite all this, the Korean economy is fundamentally healthy. It is based on manufacturing industry and advanced technology. It is further supported by a well educated, diligent and dependable work force.
None of this, however, prevented Korea from having internal debts equivalent to 150% of its GDP. It also has external debts and its banks have lent in emerging markets around the world where currencies have plunged. To make matters worse, Korean banks have also borrowed dollars.
These economic pains have forced the IMF to act. And it was not a good day in Kim Yung Sam's political career when he had to accept the bailout. In return for $55 billion, which may reach 80 billion, Korea will have to take some harsh measures indeed, such as reducing the current account deficit to 1% of GDP, lowering inflation to less than 5% and holding growth at about 3%.
Subsidies on exports are to be curtailed and imports restricted. The IMF conditions also include a tax boost and a change in labor laws. Fiscal responsibility and accountability on the part of company executives is now an imperative.
Presidential candidates, Rhee In Jae, Lee Hoi Chang and Kim Dae Joong, agreed in principle to implement the IMF's conditions which will involve passing banking and financial reform bills before the year's end. However, some like Kim Dae Joong and Rhee In Jae - both of whom are not well-versed in either international affairs or economics - are now making noises and demanding an option to make changes. Others are "crying" about lost economic sovereignty.
The pressure on the Korean government has not diminished and consequently it has to tackle the issue carefully. The opposition are taking advantage of an election to criticize the government. They are not, in truth and fairness, proposing any solution to the present crises. There is even talk of a coalition government. Many denounce this suggestion while others are waiting for the inevitable riots.
The Koreans are by nature very disciplined. Even their riots are well-planned and involve less bloodshed, violence and destruction than in other places. They should, however, not be fooled by promises from vote-seeking politician. What is needed is a tightening of the belt and a reorganizing of the economy.
There is a resolve on the part of even ordinary Koreans to overcome the current economic crisis. As The Korea Times noted a few days ago, "The problems involve much more than matters of mere economic reform, but in-depth changes to our social structure and deeply embedded values."
This should be emphatically pointed out to opposition candidates whose aim to be popular, gaining votes and power might well slow down Korea's economic recovery.
The Korean economy has to be viewed objectively from a distance. All candidates from whatever band of the political spectrum must realize this. Any talk of re-negotiating the deal will frighten away would-be helpers and the IMF assistance might also dry up. This of course would cause more pain and greater chaos.
Korea is a country of fiercely independent people who have braved colonialism as well as disease and famine as a result of war. Nonetheless, they have climbed high on the economic ladder and are today equal to Europe and the United States. Korea is because of this fact worthy of serving as an example to other countries in Asia and the Middle East.
Koreans have overcome many crises and observers of the country are optimistic that the government and people are now willing to sacrifice and to bear the temporary dislocation of readjusting their economic life to produce the desired result.
In this context the IMF conditions must be viewed as a means to a healthy, efficient and globally effective economy.