4 Years of IMF Structural Adjustment Program: What It Has Done To The Korean Economy and People
Min Choi is an activist at Policy & Information Center for International Solidarity(PICIS) and executive committee member of Korean People��셲 Action Against WTO & BIT(KoPA). This was originally written as the country report to the International Peoples' Tribunal on Debt, World Social Forum II, 1st-2nd February 2002, Porto Alegre, Brazil
By Min Choi
Korean People’s Action Against WTO & BIT(KoPA)
During the spring of 1997, an economic crisis hit the Asian continent. It started in February in Thailand and quickly spread to Malaysia, Indonesia and Philippines - breaking the myth of the '4 Dragons'. The economic crisis that started in Southeast Asia soon spread to East Asia, hitting on Korea, Taiwan, Singapore and Hong Kong. As danger spread, there was a massive capital flight from the Asian countries, and stock markets all over the world crashed.
Mainstream economists claimed that the economic crisis in Korea pertains to the particular strict protectionist policies and political corruption. Indeed, the State-controlled development and the constant corruption and bribes between businesses and the government were all to blame for the crisis. However, this is only a superficial explanation to the causes of the crisis - one that does not take into account the structural dimensions. In order to understand the causes and thus properly assess its effects on the Korean people, it is essential to look into the historical developments of the Korean economy, in light of its relationship with the contradictions within the imperialist, neo-liberal capitalism itself.
The Essence of the Korean Economic Crisis: Korea's Incorporation into the Neo-liberal Restructuring of the World Economy
Korea made fascinating progress in its economic development, enough to be 'praised' as one of the '4 Tigers of Asia'. Even the IMF, before the crisis, did not hesitate to show satisfaction with the Korean economy - it had smoothly liberalised its markets by effectively dismantling tariff and non-tariff barriers after the Uruguay Round of 1994, privatised the public sector while gladly accepting foreign direct investments, and freed restrictions on the movement of capital across the Korean border. In fact, the Korean economic development was based on monopoly by the Korean conglomerates, Chaebols, under strong State control -a complete antithesis to the principles of the IMF. However, Korea started to implement strong neo-liberal measures, incorporating itself fully into the globalisation process. It is only ironic that the IMF, after the economic crisis struck, should strongly criticise Korea for 'lack of liberalisation', when liberalisation itself -for which the IMF praised just a few years previously- was the reason of the crisis itself. In December 1997 at the outbreak of the crisis, the IMF and neo-liberal proponents such as mainstream media and international banks all blamed it on the Chaebols (which include transnational companies such as Samsung) and their long-aged collusion with the government, a much too large public sector, excessive concessions to the workers, and market protectionism. Thus they all prescribed structural adjustment as the best medicine for the typically 'Korean disease'.
The real reason behind the economic crisis is, in fact, structural. The typical 'Korean disease' -the Chaebol structure and its historical collusion with the government.- are only variants within this structural crisis. From a global perspective, the Korean economic crisis pertains to the overaccumulation of capital, the increase of speculative capital due to financial globalisation and expansion, and the destructive effects of the inequal GATT-WTO free trade system. Translating this onto the national level, the previous mode of capital accumulation which can be summarised as 'neo-colonial monopoly capitalism' came to its limits, to which the Korean government started to drive Korea to the depths of financial globalisation and liberalisation.
Although the Korean economic crisis pertains fundamentally to financial globalisation and liberalisation itself, the role of the Chaebol centered economic development and its collusion with the government cannot be underestimated. In the initial stage of economic development in the 1960s and 70s, big firms worked as an engine for fast economic growth. With exclusive government support and protection, these big firms grew to be the Chaebols. The Chaebols led fast industrial growth via monopolistic access to resources. The government gave the right to engage in certain businesses exclusively to the Chaebol. The government continuously employed an expansion policy favouring the Chaebol in the form of financial assistance, low interest rates, tax benefits, foreign exchange allocations, import and export licenses and foreign investment incentives.
The relationship between these conglomerates and military dictatorship governments is indeed historical -the Korean economy thrived through the symbiosis of the Chaebol and the State, exchanging preferential treatment with political funds, while the whole process was overseed by imperialist countries such as the US. However, the Chaebol-led monopoly capitalism, based on 'long-working hours, low wages', faced its limits during the 1980's -the clear manifestation of it which was the 1987 Workers' Struggles- and Korea had to shift towards a new model of accumulation. In other words, it began to feel the necessity to 'catch up' with the process of neo-liberal globalisation, especially financial globalisation. However, this conversion in the method of capital accumulation theoretically should have been manifested itself through an economic crisis at that time, but the possibilities of bringing on an all-out eruption was sutured, and the crisis prolonged. The government used several concessionary measures at the end of 1980's, especially as a result of the Workers' Struggles amidst the struggles for democracy throughout the 70's and 80's. The government, on a political level, consolidated the formality of democracy by revising the constitution to allow for direct presidential elections and also revising the Standard Labour Laws, while on the economic level, it allowed a substantial raise in nominal wages.
Then, during the mid-1990's, President Kim Young-sam affirmed that Korea should become a more active player in the global market, especially in the finance sector, instead of being reluctantly pulled into the system, if indeed 'there is no alternative'. As the first president directly elected by the people, President Kim Y.S. pushed his ambitions to make Korea into a economically 'developed' country. In 1995, the Korean government made a bargain with the US, promising to loosen all restrictions on the financial market, both internationally and domestically, in exchange for the prestigious membership into the Organisation of Economic Cooperation & Development (OECD). The government also loosened restrictions on private companies getting loans from foreign or international banks. The liberalisation of the financial market led to speculation against the Korean currency, increased speculative investment in the form of portfolios, and allowed private companies to indulge themselves with excessive borrowings from foreign banks. The 'connections' between businesses and the government also played its part during this era. Favours towards the giant capitalists continued into 1990's, where Chaebols continued to enjoy the freedom they had acquired to draw in short-term loans and spread its tentacles around the world, resulting in over-production. At the time the crisis struck, the debt-equity ratio for the 30 largest Chaebols reached 518%, while foreign debt increased to 155 billion dollars. Out of this amount, 65.1% comes from the financial sector, 30.6% from non-financial private sector and 4.2% from the public sector. The total amount is a quadruple from 1993, when total debt was approximately 40 billion dollars.
Dec. 1996
Dec. 1997
Mar. 1998
Jun. 1998
Aug. 1998
Total Debt (bil. dollars)
157.5
154.4
151.3
153.8
150.8
Long-term debt (%)
36.5
55.7
59.7
74.8
74.9
Short-term debt (%)
63.5
44.3
40.3
25.2
25.1
Source: Ministry of Finance & Economy
Korea could not keep its doors closed to the expansion and the pressure of neo-liberal globalisation, and its existing model of accumulation could not sustain in this global atmosphere. The innate contradictions of global capitalism, financial globalisation that only pushes world economy closer to the brink, and the contradictions within the Chaebol-driven 'neo-colonial monopoly capitalism' of Korea, led to its eventual explosion in 1997. With the overproduction of Korean companies in line with global overproduction and the immense pressure of its short-term debt, conglomerates started to crumble, which led to a massive capital flight out of Korea at first signs of danger. The foreign reserve emptied and Korea was struck with an all-out economic crisis. Most of Asian countries had no other choice than to devaluate their currencies. During the one year from July, 1997, Korea devalued the Won by approximately 98%. The myth of Korea as one of 4 Asian tigers crumbled, and concerned about the safety and profit of imperial capitalists, the IMF intervened. In December, Korea eventually received the financial package from the International Monetary Fund under the condition of implementing Structural Adjustment Programs, and the so-called 'IMF Era' started.
The IMF and its Structural Adjustment Program
The IMF came to the 'rescue' with a package worth 56 billion dollars, in exchange for draconian reforms to further liberalise and deregulate, especially in favour of transnational finance capital. The IMF conditionalities are not specific to Korea -which is one of the reasons IMF receive much criticisms from even the rightwing- but are part of the basic strategy which the IMF prescribes to any nation in crisis. Just like other countries struck with an economic crisis, it is IMF's intention to turn Korean economy into recording a positive international balance of payments through economy-stabilising policies in the indebted country, in order for that country to liberalise its markets and gain the ability to service its debts. On the national level, the IMF prescribed constraint on inflation, decrease in budget deficit and lowering of wages so that there would be enough deposit for debt-repayment. There should also be active privatisation of public companies. On the international level, deregulation policies, centered on the liberalisation of capital movement, were to be implemented. Also, to draw in more foreign investments, it is essential that interest rates be raised.
On 3rd December 1997, the Korean government signed the papers with the IMF that prescribe these basic guidelines for the 'revitalisation' of the Korean economy, and the Korean government, in turn, set about in planning and executing a broad agenda to completely reconstruct the Korean economy and society to satisfy the needs of the IMF and the global capitalist regime it represents. As well as setting guidelines on macroeconomic policies including monetary and fiscal policies, the government implemented restructuring in 4 major sectors (financial sector, private sector, public sector and labour), and a set of liberalisation policies on capital market, investment and trade.
- Macroeconomy: Guidelines and objectives were set up, such as containing external current account deficit at below 1%, restraining inflation at below 5%, and maintaining growth in real GDP at 3%. Monetary and fiscal policies were tightened, while exchange rate was made to maintain flexibility and interest rates were raised.
- Financial sector: Bills were legislated to give independence to the central bank and to enforce transparency in the operation of financial institutions. Special attention was given to the closure of troubled financial institutions or if deemed viable, to its restructuring and/or recapitalisation through public funds. The establishment and practice of financial operations and supervision were required to follow international standards. Deregulation on the financial sector was performed, to encourage foreign entry into the domestic financial market.
- Private sector: Transparency of corporate balance sheets were required to be increased, and it was agreed that no government subsidized support or tax privileges will be provided to bail out individual corporations. Drastic measures to lower the high debt-to-equity ratio of corporations, and to change the system of mutual guarantees within conglomerates were taken.
- Public sector: Under the ambition of making a 'small but efficient' State, the size of the public workforce was slashed, and areas that deemed unprofitable were subcontracted, or in more general terms, privatised to national and international capital.
- Labour market reforms: Measures were adopted to realise flexibility of labour to the full.
- Liberalisations on capital market, investment and trade: Restrictions on foreign investment into the Korean capital account were dismantled. The ceiling on aggregate ownership was raised from 26 percent to 55 percent by end of 1998. Foreign investments were also allowed to purchase equity in domestic banks, money market instruments, and the corporate bond market, while FDI procedures were simplified. On the matter of trade liberalisation, trade-related subsidies and restrictions on imports were ordered to be eliminated in accordance with WTO commitments.
The SAP and its Effects on the Korean People
On 23rd August 2001, Korea repaid its final installment to the IMF, much earlier than originally planned. President Kim joyfully announced that the Korean economy had finally awakened from the crisis and the IMF congratulated Korea for recording "a major milestone" and that "the close cooperation between Korea and the IMF has been exemplary... and serves as a model for other countries." Perhaps these reactions are not completely false, since the economic crisis and the restructuring that followed did benefit some. However, for the vast majority of ordinary peoples and workers, it has only been a continuation of a nightmare that sees no end. Almost 4 years have passed since Korea started its restructuring process, and now Korea stands as the world's highest indebted country in short-term (maturity of less than one year) debt, ranks seventh in total debt, and State debt has reached dangerous levels due to the astronomical amount of public funds poured into the restructuring process. Millions of workers have been thrown onto the streets and wages have plummeted - resulting in unprecedented levels of poverty and inequality. This seems rather grim for a country praised as being a model of 'IMF success'.
1) State finances on the verge of bankruptcy
To 'save' the financial sector in crisis, the government infused over 100 quadrillion won (approx. 830 million dollars) worth of public funds in the form of bond issues, to compensate for restructuring expenses and to 'socialise' the debt borne by the companies. However, not only was the amount inadequate, but as a result, State debt has risen to dangerous levels. After two years of restructuring, at the end of 1999, the total amount of state debt stood at 200 quadrillion won, marking 41% of the GDP. Interest expenditure alone was between 8 to 10 quadrillion won. Thus, it is clear that to save the crisis that emanated from the contradictions of global capitalism itself and the collusion of capitalists with the State, the government is jeopardising its own finances as well as spending the blood and sweat of workers and the ordinary peoples of Korea to save a handful of capitalists.
2) Public services become playgrounds for transnational capital
The effects of restructuring of the public sector, namely by privatisations, is immensely destructive, not only to the public sector workers, but also because it jeopardises the security of people's access to basic services. In the name of attaining efficiency, public companies were privatised and sold-off to foreign capital in accordance with the demands of global finance capital led by the IMF. Specifically, core companies that provide essential public services while maintaining its profitability such as POSCO, Korea Telecom, Korea Electricity etc. were sold-off by issuing depository receipts. Also, the budgets of these companies were drastically cut through management reforms, in accordance with the neo-liberal economy-stabilising policies, focused on budget constraints dictated by the IMF. However, the cut in spending comes mainly from decreased wages of public workers or lay-offs. Also, there is no guarantee that the restructuring will indeed eliminate the bureaucracy and corruption that had diseased public companies. Also, privatizations will further exploit workers and raise the prices of public services.
3) Employment becomes highly unstable
To tackle the problem of the fall in profit rate, it has become essential for capitalists to use workers more flexibly to decrease labour costs and increase control on the workers. Also, the success of the neo-liberal project relies on how much of workers’ social and political power and resistance can be weakened.
Instability of employment and the furtherance of exploitation and oppression of workers that come with it, are direct results of the government's policies (as dictated by the IMF and transnational capital) on attaining flexibility of labour. The restructuring process has led to massive lay-offs and aggravation of working conditions. The government’s estimate for unemployment in 1998 averaged 1.7 million (7-8%) people, an increase of 1.2 million from the four to five hundred thousand maintained before the crisis. It must be noted that these are official figures from the government. In studies made by the Korean Confederation of Trade Unions(KCTU) which includes discouraged unemployed and unpaid household work, unemployment is estimated to be at 4 million. The massive unemployment is paralleled by a serious aggravation of working conditions for those workers who managed to escape the fate of lay-offs. Work intensity has increased drastically, wages have been slashed, and working hours increased. Compared to the first quarter in 1997, the average wage for the first quarter of 1998 indicates an 8.2% decline in real wages. In the manufacturing sector, the situation is even worse. Nominal wages declined 2.7% but the real wages by 10.7%. The management is attempting, also, to introduce merit-based personnel management and wage systems as mechanisms for labour control and attack on trade unions.
Along the lines of increasing flexibility of labour, more and more workers are being changed into casual labour. Close to 60% of the total workforce consist of casualised workers, who get much less wage for more work in worse conditions without any protection of basic rights. Division and hierarchy between the workers themselves are also getting worse, since a majority of the casualised workforce is discriminately filled with low-skilled, women, migrant and other minority workers.
4) The Korean economy is being pushed into habitual danger
The IMF’s 56 billion dollars worth of the 'rescue package' did not repay the debt that Korea had accumulated over the last few decades of the hyper-development era, and the Korean people will continue to bear the brunt of the cycle of debt and the repayment of it with the skyrocketing interest rates. Korea has only fallen deeper into the debt crisis, which was the core of the one that came in 1997.
Moreover, the IMF package with Structural Adjustment Programs has deepened the reliance of Korean economy on imperialists and the neo-liberal system that they impose. The liberalisation of capital and the financial market only implies direct control on Korean capital and the working class. At the end of year 2000, the percentage of foreign owned stocks in the Korean market amounted to recorded 30.1%, more than a double from the 14.6% recorded at the end of 1997. Control from transnational capital has drastically increased, especially in the financial market. Weak banks were revitalised by using public funds and then sold off to foreign capital at bargain prices. The government is moving even more quickly to invite more and more foreign direct investments, under the false hopes that it will bring employment and technology transfers.
Not to mention the financial sector, foreign investment and acquisitions have more or less taken over the entire motors industry. In electronics and IT, Japanese companies are rushing into Korea. Also in heavy industries and petroleum, transnational capital is beginning to dominate the Korean market.
(in trillion dollars)
1995
1996
1997
1998
1999
2000p
2001
Jan∼Novp
Total
Direct Investment
1.78
2.33
2.84
5.41
9.33
8.73
3.04
33.46
Investment in Securities
13.87
21.18
12.29
-0.29
6.99
11.96
9.22
75.22
Investment in Stocks
4.22
5.99
2.53
3.86
12.07
12.97
9.90
51.54
Total
15.66
23.51
15.13
5.12
16.32
20.69
12.26
108.68
Source: Bank of Korea
p: estimate
Further liberalisation and opening of Korean markets will only push Korean economy to the brink because the Korean market will become much more vulnerable to speculative capital, which will cause habitual crises and worsen the debt situation.
The Show is Not Over… But Neither is the Resistance of the People!
Despite the fact that Korea has officially 'graduated' from the IMF by paying off its loans, restructuring of the entire nation is far from being over. The crisis itself and the draconian restructuring process signaled only a start - of being completely incorporated into the global world economy ruled by the doctrines of neo-liberalism. The parade in the sell-off of core national industries will continue -as is the case with government's plans to sell off Korea Railway to foreign capital.
Further liberalisations will be attained through bilateral investment treaties and free trade agreements. Even though the multilateral regime of the WTO New Round was successfully launched in favour of imperialist countries and transnational capital, the latter will continue to secure more profit and domination through bilateral and regional trade and investment deals. On 22nd December 2001, the text for the Korea-Japan Bilateral Investment Treaty was finalised and is scheduled to be officially passed during the first quarter of 2002. The BIT was modeled to contain all the major clauses that protect investors as was drawn up in the Multilateral Agreement on Investment(MAI), such as National Treatment and Most-Favoured Nation clauses, not to mention requirements for intervention of the State in cases of labour dispute. Negotiations for free trade agreements with the US and Chile are being hastened, while possibilities with New Zealand and Thailand are undergoing scrutiny. Talks on regional treaties -ASEAN+3 and the East Asia FTA- are also accelerating. In the meantime, the government will continue to promote its anti-worker labour policies, such as making revisions to the Standard Labour Laws that undermine the rights of workers, trying to mainstream the labour movement through the Korea Tripartite Commission, and in cases of disobedience, use violence to forcefully suppress the workers.
However, more and more casualised workers and the unemployed are organizing themselves. The casual workers of Korea Telecom have relentlessly been struggling for the last couple of years, while the newly democratized union of Korea Railway are leveling up their resistance to privatizations. Autonomous unions for women workers and migrant workers have been established and are acting as the base for organizing those workers who are the most oppressed and exploited. Teachers went on mass strike against government plans to introduce neo-liberal education policies. Tens of thousands of angry peasants took to the streets to protest the liberalization of the rice market and demanded the dismantlement of the WTO. Korean People's Action Against BITs & WTO (KoPA), a coalition of some 40 organisations, is leading the movement against free trade agreements and investment treaties. Korean workers, peasants, urban poor, students and social activists are no longer going to allow for the ruling elite to get away with the destruction they have brought to the country, and are resisting fervently against the government and its neo-liberal policies. The IMF and its Structural Adjustment Program is far form being over, but neither is the resistance of the people of Korea.
2002 / -0 / 2-
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