government - SK

Question 1

1950s-60s industrialization policies

Answer 1

rapid industrial expansion
1962 1st Five-Year Economic Development Plan
: established clear macro-economic growth targets in investment, industrial structure and trade balance
[49% of total investment allocated to infrastructure, 34% to manufacturing]

1967 2nd Five-Year Plan
: development of heavy and chemical industries, supported by legislation and key policy instruments
[more emphasis on capital-intensive investment in chemical, machinery, iron, steel]

Question 2

effects of government policy in 1950s-60s

Answer 2

• average annual growth rate for manufacturing was 14.7% and 20.8% in first 2 plans respectively
• manufacturing sector expanded from 15-30% of GNP from 1961 to 1971
• ratio of manufactured goods to total exports grew from 26% to 84%
• Korean exports soared from $42million to $1 billion, primarily manufactured goods in 1970
• exports grew at almost 22.9% per annum

Question 3

government’s regulation of FDI

Answer 3

FDI carefully limited and regulated by the state

To fund rapid industrialization the Park Government passed a law guaranteeing repayment for loans in July 1962

• From 1966 most FDI restricted to export-orientated and heavy chemical industry sectors - ceiling for foreign equity holdings set at 50%
• between 1964 and 1973, FDI accounted for only about 5% of all gross investment in manufacturing and 1% of total gross domestic capital formation.

Question 4

government 1970s

Answer 4

1. Nationalization of banking system
   [by 1970, the Economic Planning Board (EPB) controlled 96.4% of the country’s financial assets]
   -> allowed EPB planners to distribute resources to areas of industry deemed vital for industrial development
2. # continue to develop heavy industry1972 3rd Five Year Plan
   -> development of heavy industries such as petrochemical and machinery
3. shift to EOI
   [by 1973, unprecedented growth in exports of 75% from 1970]

[1981 exports totaled $20 billion]

Question 5

1980s DEBT (CA)

Answer 5

In 1981 and 1983, the dictatorial government under Chun Doo Hwan required a financial bailout from IMF in order to avert and economic disaster

CA: End of the Park Era (1979 Park’s assassination) saw subsequent successors that proved to be inadequate to carry on economic development as corruption and instability marred the 1980s
[needed a financial bailout from Japan in 1983]

Question 6

BUT government’s continual role:
Measures taken by government to stabilize economy

Answer 6

effect

1. freezing expenditures in 1984 to control inflation
2. raise interest rates
3. reduce available credit
4. adopting a tight fiscal policy and reduced the budget deficit by 39% by 1985
5. 1980 Policies for Retraining Economic Centralisation: introduced a cap on credit allocation to the chaebols and required governmental approval before a chaebol could launch a business

-> restructured business by pressuring companies to improve their performance or else they were shut down

-> 50 unprofitable companies were liquidated through acquisition, 17 were merged and 1 placed under legal management

-> reduce dependence on chaebols

[inflation remained low at less than 3% between 1983 and 1987]

Question 7

1980s:
#change in government’s role
#continuity in government’s role

Answer 7

change: 1981 Monopoly Regulation and Fair Trade Act

: reduced the role of government in the economy so as to promote more competition in the market

[Under Chun, the South Korean government attempted to reduce the role of the government in the economy and gave way to a more liberalized economy, although the government still played a crucial role in guiding the economic development]