[OUTLOOK]Learning the Lessons of the IMF Bailout

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[OUTLOOK]Learning the Lessons of the IMF Bailout

On Aug. 23, Korea "graduated" from the International Monetary Fund's management program. Three years and eight months after December 1997, when Korea requested the IMF bailout, Korea recovered its "economic sovereignty" - two years and eight months ahead of schedule.

The international response has generally been positive. Most world authorities and foreign press organs have given Korea good grades. Some journalists, with one eye in the direction of ailing Argentina, have even applauded Korea's recovery as "model."

Amid these high evaluations, an analysis by an expert in China stands out.

Over the last 20 years Korea has been an interesting economic model for its giant neighbor, both for its lightning economic development and, more recently, for its economic woes. Fan Gang, the director of the National Economic Research Institute of China, talked recently about some of the lessons he has distilled from Korea's economic sufferings.

His first point was that wage increases in Korea have been too high compared to its technological development and capital endowment. His second was that Korea has imported state-of-the-art, foreign technologies too recklessly. He argues that countries without the most advanced technologies should rely on appropriate levels of technologies that already exist in those countries because importing expensive advanced technologies can spark a financial crisis.

His third point was that though long-term structural reform is a fundamental solution to crisis, once crisis has broken out, the immediate concern should be kick-starting growth. He said that he personally did not agree with the IMF prescription, which emphasized structural reform, because it aggravates economic contraction and other woes.

His first point - that Korea's wage levels are too high for its productivity - must surely be a view shared by most. His second point and third points, however - that countries should adopt "appropriate levels of technologies" and that the IMF strategy was misdirected and overemphasized structural reform - are more controversial.

The reason why his analysis caught my attention is that it is true that Korea accepted the IMF reform program without any criticism and also that China, in comparison to Korea, has maintained high economic growth despite the worldwide economic blues.

The financial crisis came to Korea as something of a bolt from the blue. As Koreans panicked, a new administration was inaugurated and the adoption of the IMF program was accepted as inevitable. Though some argued against the program when the shock from the crisis had died down somewhat, full-scale discussion was still scarce.

During the IMF management, huge changes in the name of reform were started and are still going on. Among the top 30 chaebol - Korean business conglomerates - 14 collapsed. Over 500 insolvent financial institutions were merged or done away with altogether. Many dubious customs within financial and business sectors have been corrected, and surviving companies have become much sounder and more solid through their restructuring. It is indeed gratifying to see start-ups flourish in the space left behind by the insolvent companies.

However, it is true that the deepening of foreign economic dependence, the collapse of the middle class and the unstable employment situation are serious. So, people are not so impressed with the early graduation from the IMF program, despite a few good results, the thumbs-up from onlookers and positive prospects for the future. The continuous political conflicts, administrative immaturity and trial-and-error approach of government cannot take all the blame.

We must sift back through the last three years and eight months with the goal of finding the truth. We have to find the lessons of success and failure, from the fundamental problems of the IMF reform program to our current problems.

What if we are revisited by a crisis like that of 1997 foreign exchange crisis? What should be done? Perhaps we could find a clue on how to set a good example for China, not a failed one.


The writer is an editorial writer of the JoongAng Ilbo.

by Moon Byung-ho

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