Challenges and Tasks Faced by the Korean Economy In-Ho Kim (Republic of Korea) In-Ho Kim (Republic of Korea)

Challenges and Tasks Faced by the Korean Economy The History of the Korean Economy’s Crises and Challenges 1 The Korean War (1950) First Oil Crisis (1971) Second Oil Crisis and Political Instability (1980) Democratization and Labor-Management Conflicts (1987) Finacial Crisis (1997) But faced many hardship along the way: Korean Economy achieved great success under government-led export-oriented industrialization during the 60s and 70s. History of the Korean Economic development is series of challenges and efforts to overcome them I I

Challenges and Tasks Faced by the Korean Economy Shortcomings of Korean Development Model 2 II  Market Intervention Through Industrial & Financial Policies  Government Decided Investment Priority and Selected Winners  Need to Reassess Government’s Role & Function in the Changing Economic Environment  Inability to adjust to New Global Economic Order( i.e WTO) Government-led Investment Decision & Resource Allocation  Unhealthy relationship between gevernment and business 11

Challenges and Tasks Faced by the Korean Economy 3  Chronic Trade (BOP) Deficit  Ecnonomic & Business Management Overly enthusiastic for growth  Decreased Profitability weakened business balance sheet  Relying heavily on External Debt and External Demand resulted in Current Account Deficit Over-investment in Heavy and Chemical Industries  Uneven Development among sectors and industries 22

Challenges and Tasks Faced by the Korean Economy 4  Corruption & Crony Capitalism impeded transition toward market- based economy  Government Over-Involvement and “Korea, Inc.”  Political System Unmatched Economic Development: which resulted in decrease of Economic Efficiency  Negative impact of government’s over-involvement in the market Corruption and Crony Capitalism  Low level of trasparency decreased confidence of foreigh investors 33

Challenges and Tasks Faced by the Korean Economy Issues to be Resolved for Continued Economic Development 5 III Need to open non-competitive industries such as agriculture 11  World-class manufacturing and information industries vs. traditional industries  Need for continued opening and fundamental restructuring of traditional industries  Difficulties in nurturing domestic social cohesion  Resultant Conflicts with international community  Need for economic management consistent with global standards

Challenges and Tasks Faced by the Korean Economy 6 Financial Reforms  Significance of finance in achieving further economic development  Launching financial reform before and after the ‘97 Financial Crisis  Continued reforms in the financial industry increased profitability  Lack of market mechanism and unhealthy relationship between government and finacial industry 22  Need to restructure the financial market to increase competitiveness

Challenges and Tasks Faced by the Korean Economy 7 Consistency between Economic and other related policies  Most pressing issue: Reconciling the principles of the economy with operational principles of non-economic sectors  Inefficiency due to Discord with labor-management relations, social welfare, healthcare, and education  Improvement impeded by poor leadership and opposing interest groups  Dialogue with citizenry and sound political leadership needed 33

Challenges and Tasks Faced by the Korean Economy 8 Globalization and Adopting Global Standards  Need to actively adopt global economic standards  Stabilizing the principles of the Market Economy – Essential for Continuous Development  True competitiveness Attainable only under competitive market structure  Changes Required: shift in public perception, reform of government’s role, and political leadership 44

Challenges and Tasks Faced by the Korean Economy 9 The Role and Function of the Government  The government’s role during the early stages of development no longer sustainable  Such a role would hinder efforts for globalization and market economy stabilization  Government reform must start with the questions of what to do and what not to do  Despite efforts made after the financial crisis, need for fundamental reforms still remains 55

Challenges and Tasks Faced by the Korean Economy How Madagascar’s Development Efforts Can Gain from Korea’s Experience 10 IV The Government simultaneously a problem-solving entity and problem itself 11 Role of government is to evolve according to the pace of development Strong government forces weaken the market and the economy’s structure of competition Need to reflect on the government’s role and its relationship to the market Trade-off between Corruption and Government-driven economic development Strong leadership by example necessary for eradicating corruption

Challenges and Tasks Faced by the Korean Economy 11 Market Economy Structure and National Leadership 22 Adopting a market economy essential for economic success Determined national leadership necessary for economic success Specific program development needed to change the perception of political leaders, media, intellectuals, and the citizens

Challenges and Tasks Faced by the Korean Economy 12 The importance of globalization and the necessary national leadership 33 Appropriate economic system as well as cooperation and assistance from the international community needed for efficient economic development External competition is necessary to strengthen the economy’s competitiveness; however, may cause internal problems Implementation of advanced policy reform by a strong national leadership needed in pursuit of globalization

Challenges and Tasks Faced by the Korean Economy 13 Relationship between strong administration and Congress 44 Political democratization required for adoption of market economy and international cooperation Powerful administration (President) may result in conflict with Congress during early stages of development In the case of Korea, policy implementation driven by the administration was effective after the military coup, but often resulted in dictatorial rule Desire for democratization along with the economic development caused economic instability and slow-down of development Democratization and sound relationship with Congress required since it is not feasible for the administration to act alone Understanding and cooperation from politicians, including Congress, needed for smooth policy implementation