The Multinational Monitor

NOVEMBER 1983 - VOLUME 4 - NUMBER 11


S O U T H   K O R E A

Rangoon Bomb Shatters Korean Cabinet

by Tim Shorrock

A bomb explosion in Rangoon, Burma last month fatally injured the four South Korean government officials most responsible for South Korea's ties with commercial banks and the U.S. government. Their deaths could mean an increase in tensions in this divided peninsula and lead to further economic problems for the world's third largest debtor country.

Killed in Rangoon were Kim Jae Ik, President Chun Doo Hwan's chief economic advisor; Suh Sook Joon, head of the powerful Economic Planning Board, Deputy Prime Minister, and former chief economic advisor to Park Chung Hee; Hahn Pyong Choon, Chun's chief secretary, a former pupil of Henry Kissinger and author of a thesis-much quoted by American conservatives-that democracy is impossible in South Korea because of Confucianism; and Lee Bum Suk, Chun's foreign minister, who was well-liked in Washington and very influential with the U.S. Embassy in Seoul.

Together these men were the key links between the military-dominated South Korean government and its major foreign partners: the U.S. and Japanese governments, the World Bank and the IMF, and the major commercial banks. Educated in American universities, they were the engineers of what commentators have been calling the "liberalization" of the Korean economy. Under these policies, the government has sold shares of its stateowned banks to private business, loosened regulations on foreign investment, and lifted import barriers. Key industries, such as machinery and autos, have been exposed to international competition.

The four officials-all of whom had served under the previous president, Park Chung Hee - were elevated to important advisory positions during the transition period between Park's assassination on October 26, 1979 and Chun's final seizure of power in September, 1980.

At the time, South Korea was the focus of considerable pressure by the U.S. government and the World Bank. The U.S. was worried by the "instability" caused by the rising opposition to military rule in the country; the Bank was frightened by the real possibility that South Korea might not be able to pay its debts as a result of overinvestment in heavy industry during the 1970s.

In February 1980, the World Bank issued a report urging the country's economic planners to curb domesticoriented expansion (such as the chemical and machine industries built by Park to replace imports), limit the government's role in economic decisionmaking, reorient the economy around export industries, and to hold down wage increases. The key paragraph of the report underlined the Bank's emphasis on integration with the international division of labor-that is, utilizing Korean labor to produce for multinational firms or for export. South Korea, said the Bank, "should let inefficient, high-cost activities disappear, to be replaced by firms that produce on an efficient scale and are integrated into the world economy... Further consideration should be given to participating in the international division of the production process that would involve producing some parts and components for domestic use and for export while importing others."

"A sustained economic' recovery," the report concluded, "requires a willingness to make difficult choices, and the ability to convince people through political means that a bout of austerity is in their selfinterest. "

Chun's military coup of May 17, 1980 and the subsequent bloody suppression of the revolt in Kwangju provided the Bank and the new government with the opportunity to carry out the plan. Their efforts were strongly supported by the U.S.

Heading the transition team for the junta was Kim Jae Ik. Educated at Stanford University, Kim spearheaded the economic realignment plan pushed by the Bank. In the coming months, companies were forced to merge, industries were completely reorganized, and moves were started to "liberalize" banking and get the government out of the business of allocating capital.

According to an American banker who was in Seoul from 1978 to 1982, Kim was "basically the salesman for Korea to foreign bankers. A lot of people had faith in the economy because of his ability to sell Korea in a way that French, British, and American businessmen and bankers could understand." Maud Easter, a former representative of the American Friends Service Committee who interviewed Kim in 1980, remembers that he emphasized "the criticalness of putting resources into the Korean educational system so Koreans could compete within the international division of labor."

In tune with their close ideological affinity with the U.S., Kim and the rest of the economic team were attempting to forge closer ties with American companies and banks and turn away from Korea's traditional reliance on Japan. In a Washington speech last year, for example, then Commerce Minister Suh Sook Joon proposed that South Korea could aid "Ronald Reagan's plan to `reindustrialize' the U.S. by making parts for American companies." This would "help improve overall American industrial competitiveness," he said. The announcement last summer (see MM, July 1983) that Caterpillar Tractor Company had signed a deal with South Korea's Daewoo Corporation to co-produce lift trucks was an example of these policies.

Politically, the technocrats had also moved South Korea much closer to the U.S. in its overall strategic policies. The country is now the Third World champion of the Reagan Administration's antiSoviet crusade-a role it has particularly relished since the shooting down of the Korean Airlines plane in September. Last year Foreign Minister Lee Bum Suk, strongly backed by the U.S., played a key role in negotiating the $4 billion loan from Japan which allowed South Korea to maintain its high level of military spending in line with U.S. policy. The loan also helped cushion the impact of the debt crises in Brazil and Mexico by assuring bankers that, for the time being at least, South Korea's $40 billion debt was not in jeopardy.

But the American technocrats had their enemies. The increasingly anti-American opposition movement saw Chun's economic policies as leading South Korea to further domination by foreign interests, and as the flip side to the repressive apparatus of Chun's police state. ("In a highly authoritarian political system," one Korean professor recently remarked to the Asia Wall Street Journal, "how can you really liberalize the economy?")

In addition, businessmen used to the "old way" of doing business under Park were bitter about being cut off from the cheap loans that were made available during the 1970s. Small and medium businessmen resented the opening of previously closed sectors of the economy to foreign investment and imports. The technocrats' desire to put controls on the unofficial loan market alienated members of the military-including a number of officers close to Chun - who made large profits from illegal loans to capital-starved businesses. Nationalist elements within the government bureaucracy also resisted some of the "liberalization" policies, and their actions may have been a major reason for the withdrawal last year of South Korea's largest foreign investor, Dow Chemical Company.

So far, there has been no convincing evidence to indicate who was responsible for the Rangoon blast. But analysts looking at possible motives within South Korea for the bombing may find some clues in the rising opposition to the policies pursued by Chun's pro-American technocrats.

Regardless of who did it, the bombing is sure to have a major impact on Korea, where tensions are already high. Clearly, relations with bankers will be shaky until new technocrats take the places of Kim, Sub, Hahn, and Lee. Economic policies may change. As in the past, anti-North Korean feelings-now at a fever pitch -will be used to stifle the voices of dissent. And if anybody within the Korean military was involved in the plot, instability in the South is sure to increase.

By all indications, President Reagan still plans to visit Seoul this month. With its 39,000 U.S. troops and estimated 700 U.S. nuclear weapons, South Korea remains a strategic forward base for the U.S. in Asia. But Reagan may want to reconsider: like the Philippines, South Korea is a volcano-and it may already have started to erupt.


Tim Shorrock visited South Korea this past June.


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