Korea in Focus

of the people by reforming economic institutions including the improvement

or simplification of existing financial and tax systems and administrative

measures. Furthermore, the Government will continue to endeavor to fully

realized the nation’s economic growth potential, strengthen its

international competitiveness, and improve the economic conditions of the

public.

If the plan is implemented as intended, the Korean economy is

projected to change as follows:

First with increased efficiency and greater realization of growth

potential, the gross national product should rise at an average annual rate

of about 6.9 percent, raising per capita GNP to US$14,076 in 1998.

Second, greater price stability should prevail as balance is

maintained between the more steadily rising demand and the more briskly

expanding supply, while wage increases are linked to rises in productivity.

The stabilization of the value of the won currency should help stabilize

the prices of imported goods and services. The net effect should be to hold

down the rise in consumer prices to an annual average of 3.7 percent, the

increase in producer prices to an annual average of 1.6 percent and the

rise in the GNP deflator to an annual average of 4.6 percent.

Targets of the 5-Year Plan for the New Economy

| |‘91 |‘92 |‘93 |‘94 |‘95 |‘96 |‘97 |‘98 |‘93-’9|

| | | | | | | | | |8 |

|GNP growth, % |8.4 |4.7 |6.0 |7.1 |7.2 |7.1 |7.0 |7.0 |6.9 |

|Per capita GNP, |6,51|6,74|7,30|8,19|9,33|10,7|12,3|14,0|14,076|

|US$ |8 |9 |6 |6 |9 |16 |05 |76 |2) |

|Rise in producer |4.7 |2.2 |1.8 |1.8 |1.7 |1.6 |1.5 |1.4 |1.6 |

|Rise in consumer |9.3 |6.2 |4.9 |4.3 |3.7 |3.6 |3.2 |2.9 |3.7 |

|Rise in GNP |11.2|6.3 |5.3 |5.3 |4.8 |4.5 |4.1 |3.8 |4.6 |

|Balance on curren |8.7 |4.6 |1.4 |0 |0.9 |2.1 |3.7 |5.3 |5.32) |

|Exports 1) ,US$ |69.6|75.1|82.3|82.3|99.3|110.|122.|136.|136.32|

|billion | | | | | |1 |6 |3 |) |

| Rate of |(10.|(7.9|(9.5|(9.5|(10.|(10.|(11.|(11.|(10.4)|

|increase, % |2) |) |) |) |2) |9) |3) |2) | |

|Imports, US$ |76.6|77.3|81.3|81.3|95.8|105.|116.|128.|128.12|

|billion | | | | | |3 |1 |1 |) |

|Rate of increase, |(17.|(1.0|(5.1|(5.1|(9.3|(9.9|(10.|(10.|(8.8) |

|% |5) |) |) |) |) |) |2) |3) | |

Note: 1) On a balance-of-payments basis

2) In terms of 1998 current market prices

The Real name Financial Transaction System

On August 12, 1993, the President took a decisive step toward

revitalizing the economy and eliminating corruption by announcing the

inplementation of the long-anticipated 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

institutionalized-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.

With the introduction of the real-name financial transaction system,

it appears that financial dealings are becoming fully transparent and

underground economic dealings and nonproductive land speculation are

diminishing. It is hoped the funds that had been channeled into political

circles in the past as a result of government-business collusion are now

available for more productive activities.

Encouraging Signs

The implementation of a real-name financial transaction system, the

easing of administrative controls, expanded capital investment by major

enterprises, and increased financial and administrative support for small-

and medium-sized enterprises all combined to lay a solid foundation for

another economic take-off. Exports rose 7.6 percent in 1993 to US$82.4

billion, while imports grew just 2.5 percent. Korea was thus able to

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. Furthermore, labor disputes decreased

markedly last year, while the composite stock index of the Seoul Stock

Exchange climbed markedly. In view of these indications, the Korean economy

seems to be well on the way to revitalization.

External Policies for Greater International Cooperation

Import Liberalization

Korea is committed to fulfilling its international responsibilities.

It positively supports the trend toward openness and utilizes it as a

catalyst for further enhancing the international competitiveness of

industry and thus speeding the advancement of the economy, so that it can

join the group of advancedcountries.

Since 1980, Korea has made continuous efforts toward import

liberalization. The import liberalization rate increased from 68.6 percent

in 1980 to 98.1 percent in 1993. The average tariff rate decreased from

24.9 percent to 8.9 percent during the same period and is expected to be

only 7.9 percent by the end of 1994, the same average level of tariffs

found in OECD member countries.

In October 1989, Korea decided to relinquish GATT balance of payments

protection which mostly covers agricultural products. According to the

decision Korea will move to eliminate its remaining restrictions or

otherwise make them conform with GATT rules by July 1, 1997.

Liberalizing Foreign Exchange Transactions and Capital Markets

In June 1993, the Korean Government made public the third-phase of

the blueprint for financial liberalization and internationalization, which

was implemented from the second half of 1993. Under the plan, procedures

for various foreign exchange transactions are being gradually simplified.

Beginning in 1994, the ceiling on foreign investment in the stock market

will be gradually raised, and the bond market will also be gradually opened

to foreign investment. Initially, from 1994 foreign investors will be

allowed to purchase convertible bonds, even those issued by small-and

medium-sized domestic enterprises.

Foreign-invested firms engaged in the manufacture of high-tech

products or banking and other services are currenlty allowed to induce

foreign credit repayable within three years. Beginning in 1997, the

liberal inducement of foreign credit by both domestic and foreign-invested

enterprises will be allowed.

Increasing Opportunities for Foreign Investors

In June 1993, the Korean Government also announced a five-year plan

for liberalizing foreign investment. Under the plan, 132 of the 224

business lines currently being protected from foreign competition will be

opened to foreign investment in five phases, over a period of five years

starting from July 1993. With the implementation of this plan, of the total

1,148 business lines under the standard industrial classification of Korea,

1,056 will be open to foreign competition. This means that the foreign

investment liberalization rate will rise from 83 percent as of June 2, 1993

to 93.4 percent by 1997.

Included among the business lines to be opened to foreign competition

under the plan are most of the service industries including distribution

and transportation, hospital management, vocational training and “value-

added” communications.

The business conditions for foreign-invested firms will also be

greatly improved through various measures, including relaxed control on the

acquisition of land by foreign-invested firms, the augmented protection of

foreign intellectual rights, and other similar steps.

Cooperation with the Rest of the World, Including Developing Nations and

Socialist Countries

Expanding Trade and Economic Exchanges

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 EU. 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.

Especially since the 1988 Seoul Olympics, economic interactions with

the former Soviet republics have been brisk. The Republic of Korea is also

increasing its support of economic development efforts in the Third World

on the basis of its more than three decades’ experience with successful

domestic development.

The nation will continue to pursue expanded and more diversified

trade and to promote economic cooperation on a long-term basis with the

rest of the world, taking into consideration the individual economic

characteristics of each country.

With the United States, the Republic of Korea will pursue not only

expanded bilateral trade and increased mutual private investment and

technological cooperation but also government-to-government cooperation in

industrial technologies. As for Japan, the Republic will pursue Forward-

lookoing practical economic relations and will, in particular, strive to

attract Japanese investment more effectively. Since Korea does not have

serious trade issues with the EU it will focus on promoting overall

economic cooperation, including mutual investment and industrial and

technological cooperation.

With the dinamically growing Asian economies, such as China and

Southeast Asian Nations, the Republic of Korea will endeavor to continue to

expand two-way trade, especially by helping to meet their expanding needs

for capital goods and intermediate products to support their continuing

rapid development, while increasing imports from them as much as possible.

The nation will also encourage Korean business investment in these

countries and make efforts to build an industrial structure complementary

with theirs.

The Republic of Korea is increasing its official development

assistance to developing countries proportionate to its economic strength.

In this, efforts are being made to combine such assistance with private

Korean investment, with the aim of maximizing its effect, while developing

two-way trade and other economic ties on a long-term basis.

Economic ties with the Commonwealth of Independent States and East

European countries will continue to focus on commercial applications of

their high technologies and other forms of technological cooperation and

joint development of natural resources.

Korea Trade with and Investment in Various Countries and Regions

|Country or |Trade (US$ bil.) |Investment (US$ mil.) |

|Region | | |

| |1987 |1993 |1987 |1993 |

|U.S.A. |27.1 |36.1 |165.3 |380 (30.3) |

| |(30.7) |(21.7) |(40.3) | |

|Japan |22.1 |31.6 |1.4 (0.3) |6 (0.5) |

| |(25.0) |(19.0) | | |

|EU |11.2 |19.6 |6.5 (1.6) |157 (12.5) |

| |(12.7) |(11.8) | | |

|China |1.7 (1.9) |9.1 (5.5) |6.0 (1.5) |260 (20.7) |

|Southeast Asia |8.9 (10.1)|27.8 |130.5 |179 (14.3) |

| | |(16.7) |(31.8) | |

Note: Figures in parenthesis represent percentage of the total.

Active Participation in Multilateral Economic Forums

Korea has actively participated in virtually all major multilateral forums.

During the Uruguay Round of trade talks, finally concluded in December

1993, Korea tried to make conrtibutions commensurate with its capabilities

as a major world trading power, and play a mediating role between the

developed and developing countries. Korea introduced various proposals in

the Uruguay Round negotiations to reduce tariffs, eliminate non-tariff

barriers, liberalize the textile trade, improve safeguards and reduce

subsidies and countervailing duties.

The Republic of Korea is actively participating in global efforts to

protect the environment, a crucial task facing all of humanity. In recent

years it has joined the Convention on Climate Change, the Basel Convention

on the Control of Transboundary Movements of Hazardous Wastes and their

Disposal, the Convention on the Prevention of Marine Pollution by Dumping

of Wastes and Other Matter, also called the London Dumping Convention, the

Convention on International Trade in Endangered Species of Wild Fauna and

Flora, and the Convention on Biological Diversity.

Korea has also begun an informal dialogue 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.

One organization in which the Republic of Korea has played a

particularly critical role has been the Asia-Pacific Economic Cooperation

(APEC) forum, a forum for multilateral discussions on economic issues

concerning the Asia-Pacific region.Two examples of Korea’s valuable efforts

have been the “Seoul Declaration” adopted at the third APEC Ministerial

Meeting hosted by the Republic which laid the foundation for the

institutionalization of APEC, and its diplomatic role in bringing China,

Taiwan and Hong Kong, three key regional economic powers, into the APEC

fold, giving the forum a new impetus. Subsequently, the Republic played a

leading role at the first APEC Leaders Economic Meeting in Seattle in

November 1993, which coincided with the fifth APEC Ministerial Meeting, and

was elected the chair member of the Committee on Trade and Investment

(CTI).

Conclusion

The rise of the Korean economy over the past several decades, often

called the “Miracle of the Han”, has been an inspiring model of modern

economic development. The rapid pace with which the Koeran economy rose

from the ashes of war and expanded stunned the outside world. However, this

rapid growth was not unaccompanied by growing pains which began to manifest

themselves in all sectors of society particularly during the late 1980s.

Excessive wage hikes, high capital costs and an overly bureaucratic

administration, not to mention institutionalized corruption, served to

weaken Korea’s international competitiveness, and this was aggravated by

unfavourable external circumstances. In the past year, though, strenuous

efforts have been made to overcome these impediments and through this, as

well as improving international economic climate, it appears that the

Korean economy is regaining its former vigor. The upcoming years pose

severe challenges for the Republic in light of the December 1993

conclusion of the Uruguay Round and the rise of the Asia-Pacific region as

the new global economic center, but with the increasing emphasis in both

the public and private sector on globalization and internalization, the

Republic seems braced to meet these challenges.

REFORM TOWARD A NEW KOREA

The Basic Goals and Reform Process of the Kim Young Sam Administration

What are the vision and goals of the Administration of Kim Young Sam,

inaugurated on February 25, 1993. In a nutshell, the answer is the

“creation of a New Korea” through “Reform Admist Stability.” This concept

was the keynote of the President’s inaugural address as well as the main

slogan of his presidential election campaign in December 1992.

“I have a dream. It is the creation of a New Korea in which a new

politics, a new economy and a new culture will bloom. This is my dream and

vision; it is the dream and vision of all our people.” This quotation

appears in the book, “Kim Young Sam: New Korea 2000,” published in Korea in

October 1992 prior to the presidential election.

In his inaugural speech on February 25, 1993, President Kim Young Sam

defined the three major priorities of his policies to create a New Korea:

the eradication of social injustice and corruption, the revitalization of

the national economy and the establishment of official discipline and

public order.

The President declared that the eradication of corruption was a vital

foundation for reforms in every sector of the country, and that there would

be no sanctuary from the investigation of misconduct. The movement to

establish official discipline and public order, which began with high-

ranking government officials, is intended to ensure integrity and high

ethical standards by “purifying the upper reaches of the stream,” i.e., the

upper levels of government and society.

The main purpose of these reforms is to revitalize the nation and

elevate the overall standard of living. President Kim Young Sam has thus

pushed ahead with firm determination since his inauguration, bringing about

enormous changes in this country.

From the very start of his Administration, President Kim Young Sam

concentrated on eliminating corrupt practices and behavior which arose from

decades of authoritarian rule. This kind of housecleaning was unhead of in

the past. President Kim believes, and popular opinion supports him on this,

that such reform must be carried on without letting up in the interest of

the long-term stability and economic development of Korea.

The Concept of a New Korea

The creation of a New Korea means the building of unified, fully

mature democratic state. To that end, drastic changes and reforms are being

pursued to raise the quality of life for all those who were sacrificed in

the blind quest for rapid growth over the past 30-odd years.

What will the future New Korea be like? Korea’s first non-military

President since 1961, President Kim in his inaugural address said the New

Korea will be:

. A freer and more mature democratic society.

. A community where people share, work and live together in harmony. A

higher quality of life will flourish and the dignity of the individual

will be upheld.

. A state where justice flows like a river throughout the land. In other

words, it will be a just society in which honest and earnest individuals

live well.

. A new country in which human dignity is respected and culture is valued.

. A unified land where the presently divided people live in peace as one.

. And, it will stand tall and proud on the center stage of the civilized

world, making vital contributions to global peace and progress.

Curing the Korean Disease

The problems which are widespread in Korea today are often referred

to as the Korean disease: (1) Korean industriousness and ingenuity - long

the envy of the world - seem to be evaporating, (2) values continue to

erode, due to injustice, corruption, lethargy, bigotry, inertia, strife and

confrontation, and narrow self-interests, and (3) self-confidence has been

lost and defeatism has set in.

To create a New Korea, the new Administration has been vigorously

addressing these symptoms through drastic change and reform. The President

outlined the goals of these changes and reforms in his inaugural address:

(1) the establishment of a new era of courage and hope by shaking off

frustration and lethargy, (2) the replacement of bigotry and inertia with

openmindedness and vitality, strife and confrontation with dialogue and

cooperation, mistrust with trust, and (3) the building of a society which

sees all citizens not only living together but also truly carring about one

another, discarding narrow self-interests.

Three Tasks

The President outlined three essential tasks in his inaugural

address.

First, misconduct and corruption must be rooted out. He defined

misconduct and corruption as the most terrifying enemies attacking the

foundation of society, and called for an end to all manner of impropriety

and graft, allowing no sanctuary. He called for immediate reform starting

from the very top.

Second, the economy must be revitalized. He vowed that the new

Administration would do away with unwarranted controls and protection and

instead guarantee self-regulation and fair competition. “Private initiative

and creativity will thus be allowed to flourish”. He went on to say. “The

Administration will be the first to tighten uts belt. Our citizens must

also conserve more and save more. Extravagance and wastefulness must be

eliminated... Only when the Government and the people, and labor and

business work together with enthusiasm will it be possible to turn our

economy around...”

Third, national discipline must be enhanced. “Respect for authority

must be reestablished... Freedom must serve society... The true meaning of

freedom is in using it to plant a flower in the park rather than picking a

flower from the park.” The President also said, “Ethics... must be made to

prevail. To this end, education must henceforth cultivate wholesome

character and unwavering democratic belief, as well as equip our young

people for the future with knowledge and skill in science and

technology...”

Four majot Goals of the New Administration

The four major goals of the Administration are clean government, a

sound economy, a healthy society and peaceful unification.

Clean government means a government free of corruption and

injustice. There is a saying that the lower reaches of a river will be

clean only when the upper reaches are kept clean. The President is

determined to keep the upper reaches of the stream clean, and all the

Cabinet members and high-ranking public officials will join in this effort

so that the public will have confidence in the Government.

The campaign to keep the upper reaches of the stream clean means

reforms from the top. The new Government has required high-ranking public

officials to register and make public their personal assets to discourage

the illegal accumulation of wealth under the Public Officials’ Ethics Law.

The President himself has made public his own assets and has said that he

would not accept political contributions.

A sound economy means a New Economy free of unwarranted controls and

protection - an economy which guarantees self-regulation and fair

competition and encourages the private initiative and creativity necessary

for economic revitalization. The economy has been marked by quantitative

growth in the past three decades; now it needs qualitative development. In

order to develop New Economy, Korea must (1) establish a liberal market

system, (2) liberalize financing, (3) decentralize economic power and (4)

promote economic reforms.

The New Economy emphasizes concentrated efforts for the renovation of

science and technology. In the 21st century, the strength of nations will

be measured by the development of science and technology. It is for this

reason the new Administration is sharply raising research and development

expenditures.

President Kim Young Sam announced on August 12, 1993, implementation

of real-name system for all financial transactions to assist in the

realization of economic justice and clean government. The new

Administration also has a firm position to control speculation in real

estate and institute tax reforms.

By effecting all these changes, it is predicted that the inflation

rate as measured by the consumer price index will fall to the 3-4 percent

range by the end of 1994 from the usual past level of nearly 6 percent,

while the balance on current account will shift into the black. The

economy as a whole should grow at an average annual rate of 6.9 percent,

boosting per capita GNP to US$14,076 in 1998 from US$7,466 in 1993.

A healthy society means a society in which all people work hard and

receive just rewards. It is obvious that a clean government and sound

economy alone cannot create a New Korea. A healthy society is absolutely

required as well. Everyone must spontaneously take responsibility for

keeping society healthy. Each and every person must be honest, courageous

and dignified.

Peaceful unification is the supreme task for Koreans. the Republic’s

Korean national Community Unification Formula envisages a Korean

Commonwealth, an interim arrangement designed to build political, economic

and military trust and restore national homogeneity, leading to full

national integration through free general elections throughout the Korean

Peninsula. President Kim will consistently pursue this unification formula,

widely regarded as being very realistic. He will, however, flexibly adapt

it to changes in the international situation. In a Liberation Day speech on

August 15, 1994, he thus prpoposed South-North joint projects for national

development, including light-water nuclear reactor construction in the

North, once the North Korean nuclear issue is resolved.

Reform backed by the Korean people

The Korean people’s deep support of President Kim’s comprehensive

reform agenda has been reflected in the Korean leader’s strong public

approval rating. President Kim has fared consistently well in public

opinion polls which indicate that his reform policies continue to enjoy the

support of a solid majority of Koreans.

Ethics Reform

To maintain the public’s trust, President Kim has pledged to create a

corruption-free political environment by establishing high ethical

standards for the members of his administration and political party.

Symbolizing his strong commitment to this goal on February 27, 1993, just

two days after his inauguration President Kim disclosed all of his

financial assets to the public, and encouraged all senior cabinet and

ruling party figures to do the same. A number of his government’s newly

appointed officials were forced to resign for their past unethical

financial conduct and President Kim declared that there would be “no

sanctuary” from his clean-up campaign. He stressed that the new ethical

standards “must be internalized and become a way of life” for all Koreans.

In order to institutionalize the disclosure of public officials’

assets, the existing Public Officials’ Ethics Act as revised in June 1993,

and ranking government officials are now required to register and

disclosure their assets under this law. As a result of the clean-up drive

resulting from the asset disclosure, 1,363 public officials were dismissed

for malfeasance and 242 were forced to resign due to improperly acquired

wealth.

President Kim’s inauguration brought to an end the deep involvement

of the military in Korea’s political arena. Corruption in the armed forces,

long a taboo subject, became a focus of the new reform drive. Promotion

kickback scandals were uncovered, and a number of senior military officers

have been removed from their posts. The Administration has also

investigated and taken legal action against defense procurement

irregularitites. At the same time, Prsident Kim has moved to depoliticize

the government bureaucracy. In particular, he has reformed the nation’s

intelligence apparatus, ending its involvement in domestic politics and

directing it to focus solely on Korea’s national security concerns.

President Kim has taken steps to reform the Office of the President

itself. The President’s residence and office complex, Chong Wa Dae, better

known as a Blue House, has been made more accessible to the public. For the

first time in decades, the avenue in front of the Blue House is now open to

traffic, as are the scenic mountain hiking trails adjacent to the

presidential residence. Gone are the lavish Blue House meals once served to

staff and guests. Instead, everyone, including the President himself, dines

on simple yet traditional Korean cuisine.

Financial Reform

Following this reform to require the disclosure of personal assets by

public officials, President Kim Young Sam boldly introduced a real-name

financial transaction system in order to achieve fundamental structural

reform that will greatly assist in the realization of economic justice and

clean government.

This real-name financial transaction system, which was put into

effect by an emergency presidential decree on August 12, 1993 is the core

of the entire reform movement, “the reform of all reforms.” This reform is

helping eradicate misconducts and realize economic justice by rectifying

the distorted economic structure and income distribution caused by

underground economic activities and real estate speculation and by cutting

shady financial ties between politicians and businessmen. In order to join

the ranks of advanced countries, Korea must eradicate the corruption and

irregularities stemming from certain aspects of past administrations’

pursuance of rapid growth-oriented economic development.

With the introduction of the real-name financial transaction system,

all financial dealing have become transparent, underground economic

dealings have diminished, and nonproductive land speculation has been

curbed. The funds that were channeled into political circles in the past as

a result of government-business collusion are now being invested in

business activities.

As a result drastic changes are occurring in political, economic and

social activities in virtually every sector of Korean society. Business

investment is actively increasing, and the past distorted economic

structure and income distribution is being rectified.

President Kim’s declaration not to receive any money from businesses

so as to maintain a clean government and to build a clean society, combined

with his political philosophy, laid the foundation for the introduction of

the real-name financial transaction system. The success of the real-name

financial transaction system is serving as a stepping-stone to a New Korea.

Reform Legislation Promoting Clean Polities and Participatory Democracy

As President Kim’s urging, a package of three political reform bills

was unanimously passed by the National Assembly on March 24, 1994. Marked

by heavy penalties for offenders, the Law for Electing Public Officials and

Preventing Electoral Irregularities is designed to ensure the transparency

of campaign financing, limit campaign expenditures while encouraging freer

campaigns, and ban “premature electioneering,” as well as all other

electoral misconduct. The amended Political Fund Law is intended to control

fund raising by political parties and individual politicians with the aim

of stamping out “money politics” and “politics-business collusion,” while

encouraging relatively small contributions by individuals and groups to the

coffers of the parties or politicians that they support. Together, these

two laws are aimed at ensuring free, fair, clean and frugal politics in

general. The revised Local Autonomy Law provides for the election of the

chief executives of local governments in addition to the local councils

already instituted in 1991 to restore local autonomy after a 30-year

hiatus.

Under the new Local Autonomy Law, four kinds of local elections are

scheduled to be conducted on June 27, 1995, to choose 15 provincial

governors and metropolitan mayors, 866 members of provincial and

metropolitan councils, 260 city mayors, country executives and municipal

district chiefs, and 4,304 members of lower-level local councils - for a

total of 5,445.

In line with the key goals of President Kim’s political reform, the

enforcement of these new laws will enhance the ability of Korean citizens

from all walks of life to more fully participate in the democratic

political process.

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Korea in Focus