The Republic of Korea's new President, Kim Dae
Jung, arrives in Washington on June 8 for a formal state visit and
summit talks the following day with President Bill Clinton. Long a
close political, trade, and security ally of the United States,
South Korea is reeling from its most serious economic crisis in
nearly two decades. President Kim has moved quickly to resolve this
crisis. Since assuming office just three months ago, he has
initiated a broad campaign to implement free-market reforms, reduce
government regulation, and open Korea's long-insulated economy to
foreign investment and competition.
During his U.S. visit, it will be
important for the Korean leader to communicate to the American
people and the business community his principled commitment to
reform. Equally important, he should reassure Americans that his
liberalization policies will be implemented faithfully and will
result in permanent changes.
Somewhat eclipsed by the economic crisis
is the lingering threat posed by communist North Korea. To deal
with the threat posed by North Korea's nuclear program, the Clinton
Administration in October 1994 concluded a formal, bilateral
agreement with the Pyongyang government, known as the Agreed
Framework. In this agreement, North Korea agreed to freeze its
nuclear weapons program in exchange for two internationally
financed and constructed light-water reactors, costing around $5
billion, and an annual $50 million supply of heavy fuel oil during
the eight-to-ten-year construction period. South Korea agreed to
pay 70 percent of the reactor costs, and Japan pledged to chip in
the rest. The U.S. Congress has appropriated a significant portion
of the heavy fuels cost, and the Clinton Administration is looking
for other countries to pay the balance of that bill.
inserting Washington as the major interlocutor with Pyongyang, the
Agreed Framework broke with previous U.S. policy, which had
stressed the primacy of direct North-South dialogue as the key to
reducing tensions and bringing lasting peace to the peninsula. The
United States has offered a plethora of concessions and enticements
to persuade the North to continue to forswear its nuclear weapons
ambitions and to coax the hard-line regime into a peace process.
Nearly four years after the Agreed Framework was signed, however,
there has been no substantive progress toward peace. The
Administration's 1996 proposal for Four Party Talks, in which the
United States, South Korea, North Korea, and China would negotiate
a peace treaty to replace the 1953 armistice, has ground to a halt
after an uneventful start, and inter-Korean tensions remain
the same time, American national security interests remain very
much at risk on the Korean peninsula. Today, while 37,000 American
troops are deployed on the peninsula to deter the North, the
multibillion-dollar North Korean assistance package linked to the
Agreed Framework has caused friction between Seoul and Washington.
President Clinton should use President Kim's visit as an
opportunity to review and redirect joint U.S.-South Korean policies
toward the North.
The Korean Economic Emergency
Beginning in the 1970s, Korea's phenomenal
economic growth was dubbed the "Korean miracle" and touted as a
model for the developing world. It is clear now, however, that the
miracle was largely an illusion.
Korea's accomplishments were built on
massive levels of debt and central government control of business
decisions. The Seoul government subsidized sprawling business
groups, known as chaebols, and simultaneously protected them from
foreign competition by shielding domestic markets from foreign
investment and imports. Eventually, Korea's $500 billion economy
became far too complex for economic bureaucrats to control
effectively. Bad business decisions proliferated, and this led in
turn to over capacity in core industries and inadequate demand in
both domestic and international markets. For instance, while the
United States has only three auto makers, Korea has five. Despite
sagging sales in markets both at home and abroad, the previous
Korean government defied sound business logic and approved the
nation's fifth auto company just last year.
month, Hyundai Motor Company laid off 8,000 of its 30,000
autoworkers. Around 8,000 more are idle as a result of sharply
declining production. Strains upon medium- and small-sized
companies are even more serious. Since the economic crash began
last November, company bankruptcies have exceeded 3,000 per month.
Unemployment, which totaled about 400,000 this time last year, is
approaching the 1.5 million level.
Korea's combined domestic and foreign
currency debt is estimated to be as high as $730 billion--almost
twice the size of its 1997 gross national product. This crushing
financial burden brought the Korean economy to its knees late last
year, and the previous Korean administration turned to the
International Monetary Fund (IMF) for aid. The result was a $57
billion IMF bailout package. A substantial amount of this came from
America: The U.S. taxpayer provides about 18 percent of the IMF's
President Kim's December 18, 1997,
election victory and February 25 inauguration were bittersweet
events for the former opposition leader, who had long suffered at
the hands of past authoritarian Korean regimes. For many years, he
criticized the central government planning and massive
debt-leveraged growth that wrecked the economy he now is struggling
to revive. Once in office, he wasted no time in turning the Korean
government's policies in the right direction.
Ending his nation's rock-solid
protectionist stance, President Kim has called for fully opening
Korea's stock and real estate markets and company equity ownership
to foreigners. Korea long has been known to foreign businesses as a
difficult and often hostile environment in which to operate; the
new president has pledged to minimize government intervention in
Korea's economy and welcome foreign investment. During a meeting
last month in Seoul, President Kim told representatives of The
Heritage Foundation that there are "11,000 regulations hindering
companies" in Korea and that he intends to end nearly all of them.
He also stressed the importance of ensuring that the government
bureaucracy faithfully implements his reforms.
President Kim's concern over
implementation is warranted. Korea has an entrenched economic
bureaucracy long accustomed to the perks of central government
control of business. There are many bureaucrats who will not easily
relinquish their authority over banks, domestic industries, and
foreign companies. Many remain fiercely protective of the
industries they regulate and will not willingly open their
portfolios to unfettered foreign participation.
Strong and effective "top-down"
implementation of President Kim's liberalization policies is
necessary in order to prevent bureaucratic delay. Foreign business
confidence in Korea's reforms must be strong before the country can
receive the international investment it needs to service its debt
and boost its hobbled manufacturing and export base.
The North Korean Stalemate
Although the Cold War has ended, communist
North Korea remains a stubborn holdout. Its Stalinist political
system is the most oppressive on Earth. Its people have lived under
tyranny since the regime's founding in 1948. Its socialist policies
have produced one of the world's worst economic basket cases and,
in recent years, widespread famine and starvation. Yet the regime
still maintains one of the world's largest standing armies and has
used its nuclear weapons program to extort support from the United
States and the international community.
President Clinton's North Korea policy is
firmly rooted in the U.S.-North Korea Agreed Framework. In addition
to shutting down its nuclear weapons program in exchange for new
reactors, Pyongyang promised explicitly to resume substantive
direct talks with Seoul. Until very recently, it refused to fulfill
this pledge, preferring to talk directly with the United States.
Finally, in April, the North held its first bilateral talks with
the South since 1993. These negotiations, held in Beijing, were not
encouraging. When the South called for specific steps toward
tension reduction in return for supplying much-needed fertilizer to
the North, Pyongyang balked. The North not only demanded delivery
of the fertilizer before agreeing to any tension reduction steps,
but also insisted that Seoul offer much more fertilizer.
the breakdown of the April talks, it is increasingly clear that
current U.S. policy does little more than paper over the threat
posed by Pyongyang. The U.S.-North Korean agreement is nearly four
years old, yet the North has not delivered on its specific pledge
to seek a reduction in tensions through direct talks with Seoul.
Nevertheless, the United States, South Korea, and other nations
have responded to the North's economic crisis with significant
supplies of food and other humanitarian assistance. The North has
succeeded in extorting aid from the outside world, but this cannot
continue much longer. As it continues its gradual tilt toward
economic collapse, it will be able to extract only token aid unless
it changes it behavior.
Washington's willingness to tolerate the
North's deception and delaying tactics has complicated relations
with Seoul. Many South Koreans believe that Washington has been too
flexible with the North. One of President Kim's pressing tasks is
to redirect joint U.S.-South Korean policy toward Pyongyang. In
this regard, he has gotten off to a good start. He has made it
clear that the bilateral North-South dialogue channel must be
addition, Seoul will require reciprocity from Pyongyang in all
official dealings. Future food assistance from the South, for
instance, must be accompanied by corresponding North Korean steps
toward tension reduction. While the U.S.-North Korea nuclear
agreement will remain an important policy cornerstone, the focus of
renewed inter-Korean talks should be the Basic Agreements ratified
by the Seoul and Pyongyang governments in 1992. Virtually ignored
by the Clinton Administration until recently, these pacts outline
specific and practical steps toward easing social, political, and
military tensions between the two Koreas.
What the U.S.
Long-standing U.S. political, trade, and
security ties with South Korea make the success of President Kim's
reform agenda very important to the United States and to the
Asia-Pacific region. The Clinton Administration should work closely
with the new Korean leader to help his policies succeed. During the
coming summit talks, President Clinton should:
Praise and call attention to
President Kim's economic reform policies. President Kim
should be urged to expedite implementation of his liberalization
package and to be vigilant against Korean bureaucratic resistance
that would thwart his plans. Potential American investors already
are beginning to doubt whether President Kim's economic vision will
be fully realized.
Embrace President Kim's new
emphasis on the primacy of North-South dialogue and his reciprocity
principle. Seoul and Washington should stand firm in the
face of North Korean defiance. Pyongyang's four-year-old pledge to
open the way for productive peace talks with the South must be
fulfilled if it expects improved relations with the United States
or further assistance from Washington and Seoul. Just as South
Korea did in the April Beijing talks, the United States must be
prepared to withhold further concessions or aid to Pyongyang unless
the North takes parallel steps toward long-overdue tension
reduction measures. The yardstick for these measures should be the
1992 North-South Basic Agreements, which called for breakthroughs
in such areas as reuniting separated family members; increasing
inter-Korean social, political, and economic exchanges; reducing
military tensions; and negotiating toward a formal North-South
three months into his five-year term, President Kim Dae Jung is
setting positive and hopeful new policy directions for Korea. He
has broken forthrightly with his government's protectionist past
and has moved to implement dramatic free-market reforms. He also
has taken appropriate steps to signal to North Korea that
Pyongyang's defiant resistance to tension reduction will no longer
be tolerated. President Kim's bold actions deserve strong U.S.
Daryl M. Plunk is a former Senior Fellow in The
Asian Studies Center at The Heritage Foundation.