Korea to Emerge Stronger than Ever - A Commentary
January 1, 1999
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For more information, see Republic of Korea and the IMF
By Michel Camdessus
Managing Director of the International Monetary Fund (IMF)
A look back at 1998 presents a very sobering view, one that extends well beyond the borders of Korea.
But the perspective on the coming year must be tinged with hope, no matter what difficult challenges lie ahead.
In the 13 months since your country entered in a major agreement with the international community to overcome a severe economic crisis, much has been accomplished, and the people of Korea have given to the world a remarkable example of courage, steadfastness, and solidarity in these adverse circumstances.
Even amid recession, the foundations of future success have been laid.
As a nation renowned for commitment and purpose in building itself into a global economic force, the sudden shift away from prosperity has been a shock.
The pain of unemployment and destruction of expectations is a wrenching turn of fortune, and the IMF is keenly aware of the hardships being felt by Koreans from all walks of life.
However, there are a growing number of signs that the Korean economy is decidedly improving as we enter the New Year.
The downturn in production has begun to slow, and various other economic indicators are turning more positive.
Korea's foreign exchange reserves, which were almost completely drained a year ago, reached a record high $47 billion, and your government is repaying emergency international loans on schedule, demonstrating that the trust of the international community was well justified.
The current account surplus for 1998 is expected to be close to $40 billion, compared with a deficit of some $8 billion in 1997.
The exchange rate has strengthened, and interest rates have fallen to levels well below where they stood before the crisis erupted.
The IMF shares your government's forecast that economic growth will resume during the course of 1999.
This is the silver lining that shows you are advancing toward the moment when your economy will grow again to its full potential, but, having cured several of its structural problems, now with better prospects of sustainability.
But the numbers are not the most important story to be told about the fledgling recovery.
What is more notable is the tremendous solidarity of Korean society that has helped to propel the country out of the crisis.
The world saw the news reports a year ago when Koreans of all ages lined up to donate gold to the effort to help the country.
And that spirit of cooperation and sacrifice has been evident at many other levels.
For example, the labor movement has shown a high sense of responsibility in working with the government and business under the tripartite arrangement; it has made some hard choices that required courage on the part of the leadership and a shared sense of solidarity by the workers.
And now the corporate sector is making the difficult decisions required by the task of restructuring.
Of course, there is still much more that needs to be done to ensure recovery for Korea, as the economic situation is still fragile.
As the restructuring of the financial system and the corporate sector gather momentum, the situation is finely balanced.
It would be wrong to be complacent and underestimate the difficulties that lie ahead.
The recapitalization of the banking sector will place severe demands on the government's financial resources, an effort that could not be justified without major improvements in bank management and government supervision.
The privatization of two large financial institutions early in the New Year will be a crucial signal of the government's support for greater competition.
The process of corporate restructuring is still at an early stage.
Further steps are needed toward rationalizing excess capacity and reducing overindebtedness.
These are big issues that defy easy answers.
As these problems could take several years to solve, it is essential that Korea maintain its sense of the long-term goals, and what constitutes progress in the short run.
Unfortunately, there is a human cost to restructuring, something that Koreans know all too well these days.
It is small consolation to be told that an economy will rebound, when you are directly feeling the effects of a recession.
That is one reason the IMF has encouraged the Korean government to take every possible step to ease the burden of joblessness.
The authorities have broadened the scope of the unemployment insurance program, and the difficult decision to boost the budget deficit to 5 percent of gross domestic product in 1998 and 1999 is precisely justified by this need to keep the social safety net in place, and to sustain recovery, and with it, job creation.
So if government, business, and labor maintain their commitment to reform, and the global economy shows some improvement, there is every reason to believe that the worst of the recession will be left behind in 1998.
The Korean economy should return to the growth path during this year, and confidence should revive.
This is our forecast; it is not wishful thinking.
It is justified by the determination of your people, which I know from first-hand experience a year ago to be second to no one in putting a crisis behind it, and in emerging from it stronger than ever.