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A new political economy of economic policy change in South Korea, 1961—1963: Crisis, uncertainty, and contradiction
Yoo, Ho-Yeol Paul, Ph.D.
The Ohio State University, 1990
Copyright ©1090 by Yoo, Ho-Yeol Paul. All rights reserved.
300 N. Zccb Rd. Ann Arbor, MI 48106
A NEW POLITICAL ECONOMY OF ECONOMIC POLICY CHANGE
IN SOUTH KOREA, 1961-1963i
CRISIS, UNCERTAINTY, AND CONTRADICTION
DISSERTATION
Presented in Partial Fulfillment of the Requirements for
the Degree Doctor of Philosophy in the Graduate
School of the Ohio State University
By
Ho-Yeol Paul Yoo, B.A., M.A.
*****
The Ohio State University
1990
Dissertation Committee: Approved by R. William Liddle
Bradley M. Richardson
David Pion-Berlin Adviser Department of Political Science Copyright by Ho-Yeol Paul Yoo . 1990 To God
ii ACKNOWLEDGMENTS
I express sincere appreciation to Dr. R. William Liddle
for his guidance and insight throughout the research. Thanks go to the other members of my advisory committee, Drs. Bradley M. Richardson and David Pion-Berlin, for their
suggestion and comments. Gratitude is expressed to Drs.
Norman Uphoff at Cornell University, and Chung-in Moon at the University of Kentucky, for their support and encouragement. The assistance of Mrs. LaVonne Raney in correcting my English is gratefully acknowledged. Also I express my appreciation to my colleagues at Ohio State,
Chung-Mook Lee, Sang-Min Sohn, and Chang-Hon Oh, who had read my early draft and given me a number of suggestion. I also extend my gratitude both to my parents and Yeong-Ae's parents, without whose spiritual and financial support I could not finish this dissertation. To my wife, Yeong-Ae, X offer sincere thanks for her unshakable faith in me and her willingness to endure with me the vicissitudes of my endeavors. To my children, Jimin and Jae-Earn, I thank them for understanding my absences at so many nights in preparation of this dissertation.
iii VITA
November 21, 1955 ...... Born - Seoul, Korea
1978 ...... B. A. (Political Science), Korea University, Seoul, Korea
1978-1981 ...... Research Assistant, The Asiatic Research Center, Korea University
1981 ...... M.A.(Political Science), Graduate School, Korea University
1983-1987 ...... Teaching Assistant, The Ohio State University, Columbus, Ohio, U.S.A.
FIELD OF STUDY
Major Fields: Political Science, Comparative Politics, Politics of Developing Countries, Comparative Public Policy, and International Political Economy
iv TABLE OP CONTENTS
ACKNOWLEDGMENTS ...... iii
VITA ...... iv
LIST OF TABLES ...... xi
LIST OF FIGURES ...... xiv
LIST OF ABBREVIATIONS ...... xv NOTE ON ROMANIZATION ...... xvi
CHAPTER PAGE
I. AN OVERTURE OF A NEW POLITICAL ECONOMY ...... 1
Research Problems ...... 1
Contending Theories ...... 5
Neo-Classical Economists ...... 7 Radicals ...... 8 Historical Structuralists ...... 11 Institutionalists ...... 14
Critique of the Literature ...... 17
Alternative Analytical Framework: A New Political Economy of Change ...... 20
Choice ...... 21 Exchange of Resources ...... 23 Stratification of the Political Community. 25
Research Framework and Hypotheses ...... 26
Methodology and Data ...... 33
Dynamic Process of Factor Exchanges ..... 33 Theoretical Rigor ..... 34 Partial Analysis ...... 34
Significance of the Research ...... 39
v II. ESTABLISHMENT OF THE MILITARY GOVERNMENT: GOAL, CHOICE, AND STRATIFICATION ...... 41
Variation of Resource Positions ...... 42
Rapid Growth of the Korean A r m y ...... 42 The Status of the Military in the Korean Society ...... 44 Factional Strife within the Military .... 46
Institutional Structure of the Military Regime ...... 49
The Supreme Council for National Reconstruction ...... 51 The Cabinet ...... 53 The Korean Intelligence Agency(KCIA) .... 56
Resources of the Military Government ...... 57
Coersive Power.and Authority ...... 57 Industrial Production and Financial Flow . 59 Poor Resistance from Political Parties and Politicians ...... 63 Social and Political Status and Legitimacy ...... 67
Political Goals of the Coup Leaders ...... 69
Pledge of the Military Revolution ...... 70 Chang Do-Young and Senior Military Officers ...... 73 Kim Jong-Pil and the Young Colonels ..... 76 Park Chung Hee on the Apex of the Revolution ...... 80
Park's Political Choice and Stratification .. 83
Remain in Authority in the F u t u r e ...... 83 Induce Social and Economic Change ...... 85 Arrangement of the Major Sectors ..... 88 A Contradictory Exclusive Model ...... 91
III. RESOURCE EXCHANGE ONE: A COUNTER POLICY ON USURIOUS DEBTS IN RURAL COMMUNITIES ...... 94
Emergence of the Counter-Usury Policy in Rural Communities ...... 95 Legacies of the Agricultural Credit Policy under Rhee and Chang Regimes ..... 96 Usurious Debts ...... 98 The Counter-Usury Program ...... 100
Farmers and Fishermen ...... 102
Lack of Resources within the Rural Communities ...... 103 Government's Agricultural Policy ...... 105 The Land Reform ...... 107
Productivity of the Counter-Usury Program ... 110
The Junta's Original Calculation ...... Ill Policy Implementation and Resource Change. 112 Termination of the P o l i c y ...... 114 Assessment of the Program and a New Distribution of Resources ...... 116
Stratification of the Sectors ...... 120
The Stratification of Major Sectors and the Counter-Usury Program ...... 121 Establishment of the National Agricultural Cooperative Federation ...... 123 New Civilian Ministers within the Military Government ...... 125 A Structural Change within the SCNR ..... 127
Choice of Chairman Park Chung Hee ...... 130
Park's Peasant Background and Agricultural Policies ...... 132 Park's Involvement in the Counter- Usury Program ...... 134 Park's Political Choice to Save the Farmers ...... 136
IV. RESOURCE EXCHANGE TWO: THE FIRST FIVE-YEAR ECONOMIC DEVELOPMENT P L A N ...... 140
Legacies of Long-term Economic Plans under the Rhee and Chang Administrations and the First Five-Year Economic Plan ...... 141
The Nathan Plan ...... 143 The Tasca Plan ...... 145 The Three-Year Economic Plan ...... 148
vii The Five-Year Plan ...... 152 The First Five-Year Economic Plan ...... 154
Productivity of the First Five-Year Economic Plan ...... 157
Overall Economic Growth Rate ...... 158 Saving and Investment ...... 160 Government Saving and Inflation ...... 162 Export and Foreign Assistance ...... 165
Stratification of the Sectors ...... 168
Planners of the FFYEP ...... 170 Big Business and Illicit Profiteers ..... 172 Treatments of the Illicit Fortune-makers . 17 6 U.S. Economic Power in Korea ...... 178 U.S. Influence and South Korean Government ...... 181 Return of the Old Powers and Revision of the FFYEP: Big Business ...... 184 Return of the Old Powers and Revision of the FFYEP: the United States ...... 187
Choice of Chairman Park Chung Hee ...... 191
A Planned-Economy or an Economic Plan .... 193 Power Transfer to Civilian Rule in 1963 .. 195 Park's Reconciliation with the U.S...... 199 Park's Hew Choices and Big Business ..... 202
V. RESOURCE EXCHANGE THREE: THE SECOND REFORM OF THE NATIONAL CURRENCY IN 1962 ...... 208
Currency Reform and the Korean Economy ..... 209
The First Currency Reform under the Rhee Government in 1952 ...... 210 The Sluggish Economy in 1962 ...... 213 The Stock Exchange Market Crisis and a Creeping Inflation ..... 216 The Currency Reform under the Junta in 1962 ...... 219
Productivity of the Currency Reform ...... 221
Inconvenience of Exchange ...... 222 Lack of New Currency and Expansion of Emergency Loans ...... 225 Enforced Savings through Freezing
viii Deposits ...... 227 Growing Contradiction and Defreezing Deposits ...... 229
Stratification of Major Sectors ...... 231 A Tradition of Strong Bureaucracy ...... 232 The Military Coup and the Civilian Bureaucracy ...... 238 Rising Organizational Opposition to the Reform ...... 240 Resignation of Gen. Yu Won-Sik and the Failure of the Reform ...... 244
Choice of Chairman Park Chung Hee ...... 247
Preparation of Power Transfer and Park's Choice to Run for E l e c t i o n ...... 248 Park's Direct Control of the State, Cabinet, and the Supreme Council ...... 252 Park's Ambivalent Position toward Reforms and His Conversion to Cope with the Economic Change ...... 255
VI. CONCLUSION: INTERPRETATION OF RESOURCE EXCHANGE AND A PROSPECT OF NEW ECONOMIC POLICIES ...... 258
Resource Exchange and Policy Change ...... 258
Productivity ...... 259 Stratification ...... 263 Statesman's Choice ...... 266
A New Political Economy of Change: Some Hypotheses ...... 270
Hypothesis I...... 270 Hypothesis II...... 274 Hypothesis III ...... 278
The Origin of the Rapid Economic Growth ...... 280
Retreat of the Revolutionary Junta ...... 281 Growing Autonomy of Chairman Park Chung Hee ...... 286 Potential Power Contenders-Students ..... 292 Reinstatement of the Old Powers and the Revision of the FFYEP ...... 296 An Exclusive Model: A Regime of the Establishment ...... 299
ix LIST OF REFERENCES . . i...... 303
In Korean Language ...... 303
In English Language ...... 308
x LIST OF TABLES
TABLE PAGE
1. A Raid Expansion of the Korean Military Forces .. 43
2. Government Revenues and Military Expenditures ... 43
3. National Budget, GNP, and Defense Expenditures .. 44
4. Background of Generals and Lt. Generals ...... 45
5. Father's Occupation of Officers Graduated from the Korean Military Academy, 1955-1962 .... 46
6. Commanders of the Army Chief of Staff ...... 47
7. The Composition of the SCNR ...... 52
8. The Composition of the Cabinet ...... 55
9. The Popularity of the Revolutionary Government, May 16-30, 1961 ...... 60
10. Gross National Products, 1956-1961 ...... 61
11. The Indicies of Major Economic Activities: Industrial Production, Trade, and Foreign Exchange Holdings ...... 61
12. Balance of Payments ...... 62
13. Life-span of Political Parties in Korea, 1948-1981 ...... 64
14. Number of Candidates for the National Assembly .. 65
15. Split of Votes for Chang Myon's Candidacy at the National Assembly, August 19, 1960 ...... 66
16. Non-Political Careers of the Leaders ...... 68
17. Occupational Backgrounds of the Cabinet Ministers of the Three Governments ...... 69
xi 18. Agricultural Loans by Financial Institutions, 1952-1960 ...... 98
19. Ratio of Private Debt to Total Farm Householf Debts ...... 101
20. Agriculture7s Share in GNP and Population ...... 103
21. Growth Rates of the Three Industries ...... 104
22. Farm Household Savings and Their Contribution ... 104
23. Composition of Agricultural Production by Commodity Groups ...... 105
24. Government Price Policy of Rice ...... 106
25. The PL480 in Agricultural Imports ...... 107
26. Owner-Tenant Distribution of Farm Household .... 109
27. Structural Change by Industries ...... 151
28. Composition of Investment by Industries ...... 155
29. Marginal Rates of Investment, Domestic Savings, and Foreign Capital Inflow in the FFYEP ...... 161
30. Planned and Actual Saving and Investment, the FFYEP and the Revised FFYEP ...... 162
31. Government Revenues and Expenditures ...... 164
32. Index of Inflation, 1960-1964 ...... 165
33. Distribution of Exports ...... 168
34. Total Available Resources ...... 173
35. Illicit Fortune-makers and their Subsidiaries ... 175
36. American Aid and Korean Economy ...... 179
37. Value of Exports and Imports by the Destination . 179
38. The Index of Inflation, 1954-1960 ...... 180
39. Top Illicit Fortune-makers and their Fines ..... 205
40. Freezing Rates of the Deposits ...... 229
xii 41. Staffing of the Higher Civil Service ...... 233
42. Level of Education ...... 234
43. College Graduates by School ...... 235
44. Distribution of Authoritarianism...... 236
45. Measurement of Inside Appointments into the Higher Civil Service ...... 238
46. The Advancement of Military Elite in High Government Positions ...... 240
47. Growth Rate of School Enrollment ...... 295
48. School Enrollments as Percentages of Corresponding Age Group ...... 296
xiii LIST OF FIGURES
FIGURES PAGE
1. Organization of the Military Government, July 1961 ...... 50
2. The Stratification of the Political Community in South Korea, June, 1961i A Contradictory Exclusive Model ...... 93
3. Confucian Moral Authority ...... 237 4. Resource Exchange and Policy Change ...... 270
5. Price Elasticity of Resources ...... 272
6. Price Inelasticity of Resources ...... 274
7. Political Inflation and Changes in Supply ...... 277
8. An Exclusive Model: A Regime of the Establishment ...... 303
xiv LIST OF ABBREVIATIONS
BAIR Bureaucratic Authoritarian Industrializing Regime BOK Bank of Korea CEB Combined Economic Board DRP Democratic Republican Party EPB Economic Planning Board FEER Far Eastern Economic Review FFYEP First Five-Year Economic Plan FKI Federation of Korean Industries KCIA Korean Central Intelligence Agency KMA Korean Military Academy KSEA Korean Stock Exchange Agency NACF National Agricultural Cooperative Federation NIC Newly Industrializing Countries PL480 Public Law 480 SCNR Supreme Council for National Reconstruction UNKRA United Nations Korea Reconstruction Agency USAID United States Agency of International Development USOM United States Operation Mission
xv NOTE ON ROMANIZATION
I have relied upon the McCune-Reischauer system to romanize the Korean language. I followed the same stylistic guidelines as the English references and I put their translations next to the romanized Korean. As exceptions of the McCune- Reischauer system, I used familiar names of persons such as Syngman Rhee, Chang Myon, Yun Po-Sun, Park Chung Hee, Chang Do-Young, and Kim Jong-Pil as they were referred in most materials in the English language. Also, if they had indicated their names in English, I tried my best to respect their preference.
xvi CHAPTER X AN OVERTURE OF A NEW POLITICAL ECONOMY
Rssearch Problems
The South Korean military seized power through a coup d'etat on May 16, 1961. During the period of the Military
Government, 1961 through 1963, a new ruling coalition with new political goals had attempted to open a new era distinguished sharply from the previous regimes by initiating a number of new economic policies. On July 23,
1961, as an instance, the junta announced a draft of national economic development plan.1 With this plan, the junta confirmed its strong determination to save its father land demoralized by poverty, corruption, food shortages, and unemployment and to revive its underproductive economy.
Yet, even before the announcement of this long-term economic development plan, the junta had decided to abandon the stabilization, the centerpiece of South Korea's economic policy since 1958, by proclaiming a moratorium for usurious debt incurred by farmers and fishermen.^ Then, the junta
1,1 The First Draft of a Five-Year Economic Plan,” The New York Times. 23 July 1961, p. 16, col. 1. indebtedness of farming communities to private lenders as of September 1960 was estimated at 95,609 million Whan, about a half of the total GNP in 1960.
1 2 began to rapidly increase the amount of investment allocated for primary industries. For instance, in 1962, 19.3 percent of the total investment of the country was allocated for developing primary industries, upscaled from 2.1 percent in I960.3
At the end of May, 1961, with double purposes of eliminating corruption of the past and raising domestic investment sources, the military regime arrested a number of top businessmen with the charge of their presumed illegal profiteering and received their promises to pay back some of their fortunes to the Military Government. As a result, the junta enhanced its control of banking institutions by taking ownership of private banks back, which had been owned by private businessmen since 1955.
On the other hand, the junta put less stress on housing, communication, and transportation and made efforts to reduce its dependence on the U.S. by opening up new non-
American sources of external financing from the Western
European countries and Japan. Furthermore, on June 10, 1962 the Military Government enforced the Currency Reform by replacing Hwan with Won at the rate of 10 to 1 and froze all bank deposits over certain amounts to raise domestic capital needed for a planned economic growth. According to the
3In particular, they attempted to allocate 16.4 percent of the total investment to fisheries which produced less than two percent of GNP all through the fifties and sixties. Summary of the First Five-Year Plan, p. 33. 3
junta's decree, the old currencies were allowed to be exchanged only within the limited time through banks and if they had over a certain amount of cash, they had to deposit the money in banks during a certain period of time until it could be exchanged for Won.
In less than two years, the revolutionary policies designated for a self-reliant economy failed and the
Military Government accepted major structural reforms and policy changes. Expansionary fiscal and monetary policies were replaced by austere stabilization policies. Inward looking orientation was sharply reversed with the introduction of economic liberalization involing policy reforms of the foreign exchange rate, foreign trade and foreign capital inducement, which eventually opened the path to export-led growth in Korea.^ By the end of 1966, the economic reform was almost completed and the more stable and external oriented Second Five-Year Economic Plan was elaborated.®
^They adjusted the foreign exchange rate with a devaluation on May 3, 1964, and raised major bank interest rates by doubling the interest paid on savings on September 30, 1965. They also changed laws to induce more foreign capital on August 3, 1966. Finally, they revised the tax system to raise more domestic resources. 5Economic Planning Board, Kaepal Nv&ntae Qi KvShoche Chtfnqch'aeki Kv5hqche KihoekWffn 20 Nvffn SaT20 Year History of the Economic Planning Board: Economic Policies of the Development](Seoul: Economic Planning Board, 1982), pp. 56- 4
Why did these abrupt policy changes happen? Why did the ambitious economic policies under the Military Government fail in such a relatively short period of time? Considering policy failures coupled with the political and economic crises of the early 1963, the resultant reforms were regarded widely as the origin of the rapid economic growth of the 1960s and 19 70s. When the military seized power in
1961, it had in place good conditions to pursue its economic goals. Its foreign exchange reserves were at the highest level and there was a bumper crop in 1961. More than anything else, the junta possessed exclusive and coercive means to implement its policies including its relative autonomy in politics even from the influence of the United
States. What factors were responsible for the switch of the basic economic policies and for the emergence of economic reforms beginning 1964?
What problems and goals did the Military Government have in mind when they chose those expansionary, inward looking, nationalistic economic policies? Can we say that the adoption of those'policies accounted for the junta's self-proclaimed choice for national reconstruction? Why did the junta continue to follow this 'quasi-revolutionary' direction in defiance of the recommendations of the United
States and how was it possible? What factors determined the formation and implementation of those economic policies under the junta? 5
Despite various researches in economic development of
South Korea, very little attention was given to the dynamics
of economic transition during the period of the Military
Government. This study is designed to explore for a relevant
explanation of this critical transition under crisis,
uncertainty, and contradiction.
Contending Theories
We have a few carefully researched studies dealing with
the Military Government but, to our regret, most of the
analyses remained historical descriptions of the period.**
They examined the transition of policy changes based upon
their understanding of political and economic development
from the perspective of the conventional modernization n theory. They assumed that the period of the junta was just
a beginning preparing for the later development. According
to them, the Military Government succeeded in bringing
social and political stability by making compromise with its
Se-Jin Kim, The Politics of Military Revolution in Korea (Chapel Hill: University of North Carolina Press, 1971); Joungwon A. Kim, Divided Korea: The Politics of Development (Cambridge, Mass.: Harvard University Press, 1975); Hahn- Been Lee, Time. Change and Administration (Honolulu: East- West Center Press, University of Hawaii, 1968); David C. Cole and Princeton N. Lyman, Korean Development: The Interplay of Politics and Economics (Cambridge, Mass.: Harvard University Press, 1971). 7Seong-Jo Hahn, The Korean Wav to Democracy (Seoul: Pommunsa, 1974); Edward R. Wright, ed., Korean Politics in Transition (Seattle: University of Washington Press, 1975). 6 political opponents and thus adopted right economic policies after some turbulence of "trial and error".
Cole and Lyman's Korean development is a thoroughly examined research full of details on the politics and economy of the transition period. The authors had placed an emphasis on the interaction of politics and economic factors which mutually reinforced the common goal of economic development. They assumed a gradual transition from the military to civilian rule and praised the democratic elements which had gained influence against authoritarianism in their power struggle. According to Cole and Lyman, the
South Korean state had gradually widened participation in authority and the decision-making process and, as a consequence, improved economic efficiency and growth.
Namely, Korea had relied upon the speed and efficiency of private investment decisions and private capital inflow, the expansion possibilities of manufactured exports, and the interest elasticity of private savings to overcome barriers to growth. Accordingly, such modernized economic structure and high growth, in return, provided goals around which a new(political economy) consensus would be developed.
History revealed that this was not always true.
Throughout the 1960s and 1970s, South Korea showed a remarkable economic growth while its political situation was rapidly deteriorating toward a repressive dictatorial state.
Basically, they still maintained the liberal, neo-classical 7 economic policies adopted around 1964-1966, but politically it turned out to be an anti-liberal, anti-democratic authoritarian government under one dominant figure,
President Park Chung Hee. This paradox of dictatorial politics and capitalistic economy, particularly coupled with such a rapid economic growth throughout the 1960s, 1970s, and 1980s caused more and more concerns about the dynamics of policy transition from different perspectives.
Neo-classical economistsi Most economists in and out of
Korea interpreted the policy changes and her rapid economic growth thereafter from a purely mainstream economic perspective.® Most of these political pluralists and neoclassical economists assumed that the swift changes in the economic policies and the following successful implementation were just responding to the market call of a certain comparative advantage emerged from the international transaction through trade and free flow of finance although they accepted the important role of the strong leadership of
®Irma Adelman, ed.. Practical Approaches to Development Planning: Korea's Second Five-Year Plan (Baltimore: Johns Hopkins University Press, 1969); Larry E. Westphal and Kwang Suk Kim, "Korea," in Development Strategies in Semi industrial Economies, ed. Bela Balassa (Baltimore: The Johns Hopkins University Press, 1982); Charles R. Frank, Jr., Kwang Suk Kim, and Larry E, Westphal, Foreign Trade Regimes and Economic Development: South Korea (New York: Columbia University Press, 1975). 8
President Park and his efficient bureaucrats for the miraculous economic growth.^
Korea already had a high quality, well organized bureaucracy inherited from the Japanese colonial era and an abundant labor force of good quality. The most critical problem in the early stage of her economic development in
South Korea, according to the neoclassical economists, was the lack of capital caused by the economy of low investment, low saving, and low export. It was anticipated that the growth would be realized once they adopted economic reforms which would bring drastic increases in all areas of investment, saving, and export. The neo-classical economists argued that the leader surrounded by the efficient bureaucrats was well aware of this and he together with the bureaucrats pursued their fortunes,
Radicals; In the late seventies and eighties, however, more critical studies based upon the analyses of the historical and structural contexts emerged. Attempts were made to understand the Korean political economy from fundamentally different perspective of the class
■■■ a ■ — JAnne 0. Krueger, The Developmental Role of the Foreign Sector and Aid (Cambridge, Mass.: Harvard Univ. Press, 1979); Gilbert T. Brown, Korean Pricing Policies and Economic Development in the 1960s (Baltimore: The Johns Hopkins Univ._Press, 1973); David C. Cole and Yung Chul Park, Hankuk ui Kumvuna Palchcftn: 1945-80TFinancial Development in Korea, 1945-80], trans. (Seoul: Korea Development Institute, 1984); Dwight H. Perkins, "Korea's Economy in the Year 2000," an unpublished paper in 1985. 9
relationship within thet society and the dependence and
exploitation between societies. They were partly influenced
by the dependency studies and partly by some indigenous
nationalistic thinkers.1® Contrary to the liberal
* pluralists, radicals assumed that the policy changes were basically initiated to maintain the world capitalistic
system and perpetuate the bourgeois interests in and out of
Korea. According to them, the rapid economic growth and the
following spectacular social changes created an externally dependent economy and, internally, a new class structure.*1
Harold Sunoo claimed that the economic reforms were
initiated by the American policy makers with an understanding of the Japanese policy makers.12 The U.S., according to him, had no intention to develop Korea's basic
industries and just intended to reduce her burden as a protector. On the other hand, the Japanese business and political groups who acknowledged that they had reached their own saturation point in the 1960s in some industries
1®Gavan McCormark and Mark Selden, eds., Korea. North and South: The Deepening Crisis (New York: Monthly Review Press, 1978); Frank Baldwin, ed., Without Parallel: The American- Korean Relationship Since 1945 (New York: Pantheon Books, 1973); Hytfnch'ae Pak, Hankuk Kvonoche ui Ku1o wa NonlifThe Structure and Logic of the Korean Economy] (Seoul: P'ulpich', 1982); Inho Yu, Minchuna KvfcfaqcheronrOn the People's Economy] (Seoul: Pyongminsa, 1982). •^Harold Sunoo, "Economic Development and Foreign Control in South Korea,” Journal of Contemporary Asia, 8 (1978); Don Long, "Repression and Development in the Periphery: South Korea," Bulletin of Concerned Asian Scholars, 9 (1977). 12"Economic Development and Foreign Control in South Korea," Journal of Contemporary Asia. 8 (1978). 10 cooperated with the U.S. plan and actively participated in the Korea's economic development plans.
The export-led policy would lead to increasing trade deficits, and huge foreign commercial loans were unavoidable burdens to Korea. Therefore, while foreign investors were to be benefited a lot, the indigenous industrial development would necessarily be hurt. By the process, many illicit businesses started through the loan development and increasing direct investment by Japan would finally direct the Korean economy into the greater co-prosperity sphere dominated by the Japanese.
Along with the same assumption of the global structure,
Don Long attempted to show that the repression in the periphery represented a historical development and a global 1 ^ phenomenon. J Therefore, he preferred to understand South
Korea's external oriented development reforms as a way of controlling the socio-economic rights of the workers.
According to him, exports to rich nations to achieve rapid growth would inevitably bring a labor intensive industry and import based export industry into the periphery. But to maintain the competitive bidding, there would emerge a certain kind of complementarity between the multinational companies and the leaders in South Korea in the direction of coercive repression of the workers. Therefore, according to
"Repression andDevelopment in the Periphery: South Korea," Bulletin of Concerned Asian Scholars, 9 (1977). 11
Don Long, the externalization by integrating South Korea into the capitalistic system through international division of labor, was nothing but a continuous effort by the metropolitan nations and the puppet state to maintain a social order of national and international class relationships.
Historical Structuralistsi Another major approach which dealt with the dynamic changes of policy may be called historical structuralists. They initiated their research by criticizing the earlier liberal and pluralist approach. In the process, they had revised some arguments of the radicals while they were not satisfied with the Weberian statists as another alternative. Indeed, they were concerned with the importance of structure and the meanings of history in theory building.
Hagen Koo examined the social and political relations shaping the patterns of economic development since the early
1960s.His major hypothesis was that the economic development process which exerted direct influence on the class structure by generating new class forces and by changing the balance of power between classes. This in turn would impinge on the structure of the state as well as on the way the national economy was integrated into the world
1<*"The Political Economy of Industrialization in South Korea and Taiwan," Korea & World Affairs. 10 (Spring 1986). 12 market. In the case of Korea, he said that the integration into the world market through its externalization procedure was far smoother than other developing countries in terms of the world system, the internal class structure and the state. However, in the process of externalization, the state turned to protect the general interest of the capitalist class and therefore maintained only a relative autonomy. As a result, new strong classes emerged and put new impacts on the state and the.world system as well.
While Koo stressed the role of the class in the transition, Bruce Cumings emphasized the whole context. He examined the systemic interaction of each country with others or of a region in the world and explained the historical development of industrialization in terms of the classical product cycle. According to him, industrialization moved from Japan to Korea and Taiwan without disaggregating the industrial pattern of each country.15 This resulted in the emergence of a dual hegemony shared by the U.S. and
Japan and the BAIRs(Bureaucratic Authoritarian
Industrializing Regime) in Korea and Taiwan. Contrary to
Wallerstein's deterministic world system perspective, he was fully aware of the impacts of the different Northeastern
15"The origins and development of the Northeast Asian political economy : industrial sectors, product cycles, and political consequences," International Organization. 38 (Winter 1984). 13
societies on the development of the political economy of the
region.
Along with Cumings and Koo, yet from a somewhat different perspective, Roger Benjamin assessed the role of the state in the transition and the relationship between the
state and society.1^ Based upon his theoretical efforts to clarify definitions like the state more accurately, he analyzed the role of the Korean state in the process of economic liberalization, its externally oriented economic growth and its limited autonomy.^
According to Benjamin, the externalization was one way of inserting a developing country into the world capitalist system following the powerful product cycle mechanism. Then, the newly developing business interests moved to the fore ground to get the guarantee of a supportive climate for business. Thus, a reshaping of the legal and administrative order would be established mostly favorable to the needs of the capitalist class. Benjamin argued that the externalization was not voluntarily adopted by the South
Korean state, but instead, was the only one to choose in a post colonial capitalist system like South Korea. The state provided the necessary environment by keeping domestic order
^"The Political Economy of Korea," Asian Survey. 22 (Nov.
A'See more in his article with Raymond Duvall, "The Capitalist State in Context," in The Democratic State, eds. Roger Benjamin and Stephen L. Elkin (Lawrence, Kansas: Univ. Press of Kansas, 1985). 14 solely by the military to continue economic growth with sufficient inflows of foreign capital.
Institutionalists: Finally in the late eighties, more and more scholars were concerned with the role of the state 1 in the industrializing society. ° This trend was also well reflected in the proportion of the recent dissertations on
Korean politics. Scholars noticed the important role of
^®The Korean Political Science Association, Hvondae Hankuk ChtSnqch'i wa KukkafThe State and Politics of the Modern Korea] (Seoul: PSmmunsa, 1987); Sangchin Han, Hankuk Sahoe wa Kwanlvolok Kwonwiiuui r The Korean Society and the Authoritarian Bureaucracy) (Seoul: Munhak kwa Chisongsa, 1988); Frederic C. Deyo, ed., The Political Economy of the New Asian Industrialism (Ithaca: Cornell Univ. Press, 1987); Robert Wade and Gordon White, eds., Developmental States in East Asia: Capitalist and Socialist (Brighton, UK: Institute of Development Studies, 15, 1984); Stephan Haggard and Chung-in Moon, "Institutions, Policy and Economic Growth: Theory and a Korean Case Study," (Mimeographed). 9Heng Lee, "Bureaucratic authoritarianism: The deviant case of South Korea," Diss. Univ. of Southern California 1988; Byung Kook Kim, "Bringing and managing socioeconomic change: The state in Korea and Mexico," Diss. Harvard University 1987; Min Ho Kuk, "The relationship between government and private companies in the industrial development of South Korea: A study of Korean way of development," Diss. Univ. of Illinois at Urbana-Champaign 1987; Suk Joon Kim, "The role of the state and public policy in the development of the newly industrializing countries: The cases of the neo-mercantile security states in South Korea and Taiwan," Diss. Univ. of California, Los Angeles 1987; Byung-Sun Choi, "Institutionalizing a liberal economic order in Korea: The strategic management of economic change," Diss. Harvard Univ. 1987; Yun-han Chu, "Authoritarian regimes under stress: The political economy of adjustment in the East Asian newly industrializing countries," Diss. Univ. of Minnesota 1987; Taek Kee Kim, "Industrialization and authoritarianism in Republic of Korea, 1963-1983," Diss. Univ. of Missouri-Columbia 1987; Hochul Sonn, "Towards a synthetic approach of Third World political economy: The case of South Korea," Diss. Univ. of Texas at Austin 1987; Myoung Soo Kim, "The making of Korean 15 the state in the transition and its political implications.
They agreed that the state of South Korea had been not only superior to its society but also autonomous from the influential sectors of the society, in particular. Among many others, Chalmers Johnson developed a structural theory of East Asian Newly Industrializing Countries(NICs) by adopting Katzenstein and Comisso's definitions of structure. 90w
Johnson argued that rhere was an open division of labor between reigning and ruling within the East Asian countries.
Namely, political leaders by acting as a safety valve and by providing a constant stability did not allow interest group pressures to undermine the economic growth. Therefore, the meritocratic bureaucrats(technocrats) actually were able to rule with active intervention in the economic performance of private sectors and formulated and executed rational economic policies in the approach used by Fredrich List.
According to Johnson, the process of policy changes accelerated by the declining U.S. aid in the mid 1960s was a result of the state strategy pursued by the efficient society: The role of the state in the Republic of Korea (1948-79)," Diss. Brown Univ. 1987; Eun Mee Kim, "From dominance to symbiosis: State and chaebol in the Korean economy, 1960-1985," Diss. Brown Univ. 1987; Hyo-Chong Park, "Development and state autonomy: South Korea, 1961-1979," Diss. Indiana Univ. 1986; Jeong Woo Kil, "The Development of authoritarian capitalism — A case study of South Korea," Diss. Yale Univ. 1986. ^u"The Nonsocialist NICs: East Asia," International Organization, 40 (Spring 1986). 16
bureaucrats under the peculiar structure and institutions of
the East Asian countries.
Stephan Haggard and Chung-in Moon who shared the same
tradition of the earlier institution-oriented development
theorists like Cole and Lyman attempted to find out
political pre-requisites of the export-led economic
9 1 growth. They concluded that the strong state which was
autonomous by being insulated from any societal pressures
was necessary to bring about the successful shift toward
externalization in Korea. It was not/ however, sufficient to
have such a strong state for a successful transition.
According to them, the state should also possess the
capability to implement those reforms. The South Korean
state had a firm grip on the financial instruments to
control over economic resources. Since the South Korean
state reconciled with the United States over political economic matters, it could achieve a reformist consensus over the externalization. Therefore, Haggard and Moon concluded that the externalization in Korea was indeed a way of strengthening the state rather than putting it under the
influence of the powerful foreign capitalists as most neo-
Marxists claimed.
x"The South Korean State in the International Economy: Liberal, Dependent, or Mercantile?" in The Antinomies of Interdependence. National Welfare and the International Division of Labor, ed. John Gerard Ruggie (New York: Columbia University Press, 1983). 17
Critique of the Literature
It is not a problem to have different perceptions and
assumptions regarding the process of the policy reforms. The
difficulty in their understanding of the transition was that
they did not seriously take into consideration the dynamic
nature of the changes during a certain period of time.
Because of this, they easily fell into the reductionist -ism
of either Marxism or statism.
The advocates of the statism stressed the autonomous
role of the state institutions like bureaucracy. They argued
that the political leadership had provided a shield
protecting his courtmen from any political pressures to maximize their free will for achieving their ends. On the
other hand, Marxists and neo-Marxists exerted themselves to
prove that the alliance between or among the international
and domestic bourgeoisie and the state created and maintained a structure under which they could continuously maximize their profits. In either case, there was no place
for politics as a process in terms of flexible, communicable, and observable exchanges of goods and ideas.
Instead, all groups were trying to explain the political phenomena either by a direct deduction from ideology(not
from facts) or by a conviction of the institutional autonomy. They simply did not pay attention to the basics of 18 the political process of "pulling and hauling" among 0 o individuals as well as various groups. ‘
The groups were not successful in their efforts to improve their own theoretical framework, either. Their lack of enthusiasm for theory building was either because they did not care about theory itself or because they cared too much about it.^ The former were satisfied with their efforts of filing rich descriptions of cases in detail while the latter were just praising their search for the general law and fundamental characteristics of the society no matter how broad and vague they were.
Such lack of enthusiasm for generating a theory was reflected in their neglect of clarifying basic concepts such as the state. Without efforts to define concepts precisely, we could not operationalize our variables and standardize our indicators to compare and generalize our studies. Few had ever tried to define concepts rigorously with a consideration of the generalization. Because of this indifference and neglect, it was very common to interchange the concepts of state, regime, administration, and
*
'‘•‘Gabriel A. Almond rejects the shifting idea of a return to the state from the stand point of the "mainstream" tradition, "The Return to the State," American Political Science Review. 82 (Sept. 1988). ^Jeffry A.Frieden criticizes this lack of theoretical basis among the most institutionalists as the phenomenon of assertion rather than analysis, "Social Science, Institutions, and the Analysis of Third World Experience," a paper presented at the APSA 1989 annual meetings, Atlanta, Georgia. 19 government. Not only this resulted in confusion, but also limited the scope of the research and reduced its heuristic benefits as an alternative approach. Therefore many of the research projects did not transcend the static typological analyses by examining and comparing varying degrees of autonomy and enforcement.2^
Another weakness of the various approaches was that their unit of analysis was also vague and their analysis level was too broad. Frequently they emphasized the role of state, foreign and domestic business, yet they treated them as a whole rather than as a complex mixture of competing groups and individuals. Even those who recognized the historical importance of the presidency and the late
President Park Chung Hee, in particular. They did not pay attention to the behavior of other groups and individuals participating in the political and economic process. Even when they examined the military, the administration, business groups, the United States, political parties, and the general public, they did not go beyond the one-shot reports that would lead us nowhere around the systematic analyses of their dynamic interactions.2^ ■■ ^ A 1 1 1 ■ Examples of this are: Leroy P. Jones and II Sakong, Government. Business and Entrepreneurship in Economic Development: The Korean Case {Cambridge, Hass.: Harvard Univ. Press, 1980); Hyun-Chin Lim, "Dependent Development in the World-System: The Case of South Korea, 1963-1979," Diss. Harvard Univ. 1982. 25In their eclectic approach, Haggard, Moon, and Byong- kook Kim, however, attempted to explain the emergence of the reforms in terms of a successful coalition between domestic 20
Finally, the title of the political economy seemed to
carry a magical flavor in it because both liberals and
radicals chose to call their research a political economy.
However, as Staniland examined quite succinctly in his
research, there are such diverse definitions that it is
impossible to determine what the political economy is really 0 all about. ° Therefore it seems to be easier to say what is not a political economy than vice versa. Political economy is not an effort which simply puts all political and economic matters in a paper without any theoretical connection. It is not an attempt to examine how to remove political obstacles or provide political incentives for better economic performance. Also, it is not an attempt to expect any positive economic change like the GNP growth which brings a simultaneous change in politics. However, only a few who addressed themselves to the political economy on Korean affairs had avoided such misconceptions.
Alternative Analytical Frameworki A Hew Political Economy of Change
In the study of exploring the determinants of the policy transition, I shall make new efforts to overcome such reformers and American officials in Seoul, "The Transition to Export-led Growth in Korea: 1954-1966," 1989 (Mimeographed). “Martin Staniland, What Is Political Economy?: A Study of Social Theory and Underdevelopment (New Haven: Yale Univ. Press, 1985). 21
shortcomings and ambiguity by bringing in a more systematic
and coherent analytical framework elaborated some twenty
years ago by Warren F. Ilchman and Norman Thomas Uphoff.^
Ilchman and Uphoff developed a new political economy in an
attempt to provide solutions to a hypothetical problem that
Colonel Yakubu Gowon of the Nigerian Military Government
faced when he took over government after a coup in his
country. Ilchman and Uphoff proceeded with their theoretical model based upon three key factors: choice, resources, and
stratification.
Choicei At first, Ilchman and Uphoff clarified various choices of both the regime and the various sectors.^®
According to them, the choice to cope with social and economic change means to use scarce resources to ameliorate dislocations and meet the subsequent demands resulting from changes in modes of production, social relations, and styles and places of living while the choice to induce social and economic change stands for using resources to bring about new exchange relationships and to alter the means and volume of production.^ While the choice to cope with or induce -- Ilchman and Uphoff, The Political Economy of Chance (Berkeley: Univ. of California Press, 1971). yBeside the regime's five different choices, Ilchman and Uphoff elaborate three goals of each sector: 1) To maximize their well-being, status, and authority; 2) To increase their productive capacity; 3) To achieve their respective p. 58. jx wiuiuB xu t.waded to cope with change responds to a clear and present need while a choice to induce change is 22
socio-economic change is mostly concerned with socio economic markets, the choice to remain in authority in the
present or future determines the regime's political
survival. If the statesman gives his priority to remain in
authority in the present. he will use his scarce resources
in a more reactive mode; however, he will spend most of his
resources for future objectives if he decides to remain in
authority in the future. Therefore, there is a certain
similarity between the choice to cope with the socio
economic change and the choice to remain in authority in the
present and, between the choice to induce the socio-economic
change and the choice to remain in the the future authority.
Considering the goals sought by each sector, the
statesman may not choose solely in response to his own
political calculation. Demands from the sectors also
influenced his decision and behavior. According to Ilchman
and Uphoff, a choice in response to demands from the sectors
often lead to consume resources. A choice due to the needs
of the statesman frequently stimulates investing resources
for the future.^ Though it is hard to identify the
difference between consumption and investment of resources,
aimed toward a desired future condition. Ilchman and Uphoff, p. 34. 30In addition, Ilchman and Uphoff reveal that the statesmen can choose building political and administrative infrastructure to economize on political resources or risk declining production in the future, p. 35. J1Ilchman and Uphoff, P. 35. 23
understanding statesman's choice is important to examine the political dynamics.
Exchange of Resources! Another key element in their analysis is the exchange of resources between the regime and sectors. According to Ilchman and Uphoff, resources are valued by the regime and the sectors for themselves and for what they make possible.^2 particularly, resources possessed in the hands of a regime are means by which the regime induces or coerces compliance in order to implement its objectives for the polity. The resources flowing from the activities and attitudes of individuals and groups can be consumed or used for future production just like economic factors of production.
The authors distinguished resources into economic, social and political ones. Economic goods and services which are the most tangible resources, are produced and exchanged in the economic market. The factors of production in the economic market are relatively easy to be defined and have been dealt with by the most conventional economists to explain and predict economic matters. In other words, the economic resources are exchanged, saved, or invested according to their supply and demand through the currency of money.
Ilchman and Uphoff, p. 32. 24
On the other hand, status and information exchanged in
the social market and authority or legitimacy and coercion
or violence exchanged in the political market are intangible
resources xn most cases. Socxal status reflected in terms
of the attitude of esteem and behavior of deference accords
different prestige to each individual and sector. Forces and
their threats of use are distinguished between coercive and
violent ones depending upon the legitimacy given to the
regime and different secotrs. Legitimacy and authority are
also regarded as resources in terms of their productivity
and scarcity. They are transacted using the currencies of
allegiance and support from various sectors or accorded to
the sectors through the currency of influence. However, it
is difficult to measure and compare intangible resources
possessed either by the regime or sectors. With the help of
various case examples, Ilchman and Uphoff attempted to put
into operation various resources in terms of how they bring
compliance or increase the stock of resources or their
efficiencies to produce more future resources.^ Then they
expected to compare regimes over time, among different
regions on the basis of the amount and the comparative
efficiency of different combination of resources.
^Ilchman and Uphoff, pp. 32-33. J For instance, appointments to government posts are regarded as allocating certain measures of authority and membership in the governing party iB accepted as conferring status or prestige in some countries. Ilchman and Uphoff, pp. 58-86. 25
Stratification of the Political Community: The
political process was explained in terms of the statesman's
own political environment which consisted of diverse O XL sectors. J Indeed, they not only took into consideration the
typical characteristics of the exchange of political
resources between the regime and sectors but also they
acknowledged the importance of the stratification of diverse
sectors and their political implication in terms of the
influence on the regime.From the theoretical context of
the political stratification, they examined the political behavior of each sector in terms of propensities and parameters, and bargained in terms of resource positions, tactics and strategies.
According to Ilchman and Uphoff, the political community is stratified with roughly five different levels: the core combination, the ideological bias, the stability group, the extra stability group and the unmobilized
* 3 7 sectors. The core combination is a group of sectors which is the most influential on goals and public policies of the regime. Because of its privileged position in the system, it
According to Ilchman and Uphoff, sectors are groups of persons who respond to political issues in a similar fashion, p. 39. “Ilchman and Uphoff stress that the non-reciprocal exchange represented by the use of force either of violence or coercion is also important in understanding the Third World politics, pp. 88-89. J7Ilchman and Uphoff, pp. 39-47. 26 makes every effort to keep the regime's resource position strong.
The ideological bias group which shares the vision of a good society with the ruling coalition provides the regime with relatively few resources. The regime's priorities are seldom altered by the group's demands.
The stability group consists of marginal sectors, not favored by the regime in its policies, but which can disrupt the stability of the regime. The extra-stability group does not often share the vision of a good society with the regime and therefore a fundamental change in the kind of choices made by the regime is necessary to meet the group's demands.
Finally the unmobilized sectors have few resources either to support or to disrupt the regime and therefore they remain unpoliticized unless mobilized by certain political actors(entrepreneurs) to give or withhold resources in political exchange to achieve goals previously not pursued.
Research Framework and Hypotheses
In Ilchman and Uphoff, resources, stratification, and choice are three major components to explain the whole political process, combined together within the exchange mechanism."^® With a hypothetical split of these components,
3 P — ■ - Of the numerous cases in the same tradition with the model, Wayne A. Cornelius examined Lazaro Cardenas' strategy as a new president in Mexico in 1934, "Nation-Building, 27
three different perspectives can be elaborated to look at
the dynamic nature of the junta' s economic policies of the
*3 Q early sixties in Korea. J
Explanation Ii Every economic policy under the junta was basically conceived as a result of its rational choice to maximize its goal of economic reconstruction, given the resources available. The failure of the junta's attempts in economic reconstruction and the transition of economic policies launched by the civilian government beginning from
1964 was thus simply because each of the junta's economic policies did not succeed in producing resources to fulfill
its desired goals. That is, junta's policies should have been changed no matter who had control of the state unless they were productive.
Explanation IIi The formation of the economic policies was just the results of the institutional power struggles
Participation, and Distribution," in Crisis, Choice and Changei Historical Studies of Political Development, eds. Gabriel A. Almond et al. (Boston: Little, Brown and Co., 1973). Also, R. William Liddle examined a plausible connection between politics, policy, and its outcomes in the paradox of economic progress with continuing political repression, "The Relative Autonomy of the Third World Politician: Soeharto and Indonesian Economic Development in Comparative Perspective," a paper delivered at the Sept. 1989 meetings of the American Political Science Association, Atlanta, Georgia. owed the idea of the theoretical split to the path- breaking study by Graham T. Allison, Essence of Decision: Explaining the Cuban Missile Crisis (Boston: Little, Brown and C o .,* 1971).* 28
among competing sectors. The junta's failure and the economic reforms were deliberately driven by the formation • of the powerful new coalition of the bureaucratic institution led by its economic technocrats and the U.S. aid missions in Seoul. Those who opposed or were skeptical about the junta's economic policies increased their resource position vis-a-vis the ruling coalition and launched their reform initiatives once they gained the capability.
Explanation lilt The transition was a result of the
Chairman Park's deliberate political choice based upon his own political calculation. No matter how successful the junta's economic policies were in terms of resource production, or no matter how resourceful the new coaltion vis-a-vis the old one was in terms of its capability in economic policy making, the policy changes could be mostly explained by the chairman's choice, or his varying choices.
Neo-classical economists and early Modernization theorists have used Explanation I in dealing with the policy changes in South Korea. Structuralists and institutionalists have elaborated their arguments based upon Explanation II.
It is our purpose to explain the economic policy changes from the overall perspectives of Explanations I. II. and III with which the whole political process could be explained in 29 terms of the statesman's own political environment including his policies, coalition, and willingness.
In fact, though, the political economy model has several problems to be directly applied to the Korean case during this period.^® The first problem is about the roles of the state and the statesman Park. The Ilchman and
Uphoff's model assumes transformations of different resources in the political market where resources are freely exchanged among different sectors and, therefore, there is a constant variation of the balance of power among sectors.^
In such a revolutionary situation of the Military
Government, where many of the exchanges were directly affected by coercion, resource positions of the sectors might not be seriously considered(at least at the beginning of the junta's rule) in Park's calculation except in the case of exchange of coersive resources themselves. In some extreme cases, therefore, we can observe that a policy seemed to be chosen just because Park wanted it or simply because the policy seemed desirable for a revolution.
^ I n addition, the concept of resource is still confusing, particularly, social and political resources in terms of their quantification. The measurement and transformation of different resources is hard to elaborate, no matter how "ordinal" measures of resources in comparison might be possible. See Norman Thomas Uphoff and Warren F. Ilchman, eds., The Political Economy of Development: Theoretical and Empirical Contributions (Berkeley: Univ. of California Press, 1972). ^ The model does not necessarily exclude coercion as a resource, especially under the condition of non-voluntary exchange. 30
Ilchman and Uphoff did not seem to be strong in explaining
cases like these.
Secondly, if the state, usually represented by the
institutions like the bureaucracy, is strong enough to be autonomous from the influence of the ruling coalition(or powerful sectors) or from competing interests of the society, then the choice and implementation of an economic policy would be determined solely by the merits of each policy. In other wo.rds, if we do not examine the decision making mechanism of Park's choice or of the state institutions, which seems very difficult to prove, if not impossible, our explanation of the policy transition is nothing but a patch of description of the early 1960s.
Thirdly, the model does concern too many variables. The model assumes all the contextual variables or constraints in consideration. Not only do they calculate the resource positions of every sector and the cost and benefit of each policy but also they examine the cause and effect of each sector's behavior in terms of propensity, ideology, and time
A O horizon, ^ If we consider the ideology, and propensity of each sector, then it is difficult to distinguish the influences between the legacy of Confucianism and the ideological conflicts between North and South Korea on the distribution of resources, on the degree of stratification and even on the choice of different sectors as well as the
42Ilchman and Uphoff, pp. 47-48. 31 statesman. Putting everything into an analytical framework will certainly show a better reality of a situation, but it does not necessarily increase the academic capabilities of a theory on the one hand and it seems really hard to collect all the relevant information and process them with a unified scale on the other. These problems should be taken into consideration in dealing with the Korean case.
This study intends to explain the dynamic process of economic policy change throughout the political uncertainty under the Military Government. We assume that Gen. Park
Chung Hee as a politician regarded the process and consequences of each economic policy change as a part of politics. He had to increase his own resources to maintain his power while he should do his best to prevent resources from being flown to his political opponents through his manipulation of economic policies, among others.
In this study, I will assess Gen. Park's goals and analyze their realization through the implementation of three major economic policies under the Military Government; the Counter-Usury Program in rural areas, the First Five-
Year Economic Plan, and the Second Reform of the National
Currency.^ I will also examine the consequences of Gen.
JA11 these policies were initiated under Gen. Park Chung Hee but resulted in fundamental revision or termination before the new quasi-civilian government launched its reforms. 32
Park's political choices in terms of how his choices could{or could not) help him to achieve his goal of maintaining his power by increasing the actual volume and the efficiency of his resources.
In later chapters, the consequences of each of the economic policies will be carefully monitored and certain resources available to both the regime and the sectors in pursuit of economic policies will be uncovered. The dynamics of the stratification within the whole political community as well as within the particular agenda area will be examined. The choices of Chairman Park in response to his
"felt" needs as well as the demands from various sectors for each policy option will be elaborated. At the end of this study, a couple more additional hypotheses will be generated and tested through the careful examinations of the policy changes.
It is our humble wish to build a general boundary for a future research until we are informed of enough details to prove the historical development. In this study, therefore, another emphasis is given to the method of how to express competitive approaches to discover some relevant explanation of the policy change rather than the real determinants of the change.^
^With somewhat different perspectives, Allison proposed similar hypotheses to test how and under what conditions the Vietnam War might be terminated. 33
Methodology and Data
Our research is a case study adopting the comparative
historical research in its explanation of the dynamic nature
of policy changes. As Lijphart demonstrates, the
contribution of this type of case study will be enhanced if
the research is intended to be either a theory confirming or
a hypothesis generating case study.^ With a humble wish to make a small theoretical contribution, our research consists of three parts, and six chapters.
To begin with, it seems worth looking at a couple of methodological strengths of the model, particularly, given the critique of the current literature in comparative political economy.
Dynamic Process of Factor Exchangesi One of the key elements in the political economy model is the idea of political resource exchange between sectors. The concern for this exchage process seemed to be generated as a reaction against the static, typological studies that had neglected developing sophisticated tools to explain political phenomena. It has been known that economists treat all the systems in comparable terms because of their univeral language of factors of economic production: land, labor, and
^Arend Lijphart, "Comparative Politics and the Comparative Method," American Political Science Review. 65 (Sept. 1971); "The Comparable-Cases Strategy in Comparative Research," Comparative Political Studies. 8 (July 1975). 34
capital. It is one of our purposes in this study to deal with the political process with factors of political
production similar to the economists.^
Theoretical Rigori Being rigorous in research begins with the operationalization of precise concepts. From this, variables and indicators are to be defined in measurable terms. We are expecting to compare regimes over time and place on the basis of the comparative efficiency of different combinations of resources.
Ilchman and Uphoff did not operationalize quantitative data in cardinal terms; instead, they limited their research to ordinal comparisons with "more" or "less" relationships.^7 In my own research, different resource positions of each sector and the dynamics of their exchange are measured and compared mostly with these ordinal terms.
Partial Analysist One of the difficulties in dealing with the politics of developing countries is the lack of information or data. Our case is no exception and many of the facts were buried while the official announcements or
J g ■■■ — ' °This approach is very similar to what Hirschman's notion of sequences was really about. His concept of sequences conceived as a reaction to the optimal combination typical in typological schemes allows us to analyze real world with a greater flexibility and realism. Ilchman and Uphoff, pp. 108-9. Their further explanation of this measurement is presented in the last chapter of Uphoff and Ilchman, 1972. 35 unidentified rumors prevailed. Considering the limitations of information and data related to the Third World
countries, in particular, it is quite difficult to explain the overall picture of the structure itself.In this situation, it may not be productive to apply a grand theory to prove its general applicability. Instead, it may be a good strategy to obtain facts or sequences of how each sector behaves given their resources and goals.
With these theoretical caveats in mind, I do carefully examine choices in terms of goals and demands as well as the exchange of resources between the regime and sectors through the policy implementation. The dynamics of sectoral coalition and stratification are examined within the context of the procedural, rigorous, and partial analysis.
Throughout the research, we shall have to find out as many detailed facts about the political process as possible from various source materials. Even a tiny bit of information can be a crucial source to project a whole complexity of the politics and policy mechanism in South
Korea. Therefore, a number of memoirs and biographies are important sources of facts and information in dealing with the dynamics of the politics. In fact, many of them consist
M 'O — A brief comparison between holistic and partial approaches is found in Robert L. Bach, "On the Holism of a World-System Perspective," in World-Svstems Analysis; Theory and Methodology. I, ed. Immanuel Wallerstein (Beverly Hills: Sage Publications, 1982), pp. 165-67. 36 of trivial anecdotes, but there is nothing like these materials to show us the complex figures of how politics works in the real world: Hyung Wook Kim et al.(1982); Tong-
Cho Kim(1986); Yong-Sik Kim(1987); O-gi Kwtfn{1986); Ch'ung-
Mu Son{ 1987); Ch'un-Ho Ye{1987); Ku-Yong Chtfng(1987); Ch’Sng-
T'ae Yi(1983); and Chae-Ch'un Kim(1983). Within the same context, inside stories collected by journalists would contribute a lot to the examination of the dynamic politics buried under the surface: SfcSng-Chae Kang, K'ut'et'a Kwonlvok ui SaenaliTThe Nature of the Power out of the Coup d'etat](1987); Kwang-Sik Son et a l ., Hankuk ui Kvonoche
KwanlvorKorean Bureaucrats.in Economic Ministries](1979);
Sang-U Yi, Pak Chonakwon 18 Nvon: Ku Kwonlvok ui Naemakfl8
Years of Park's Regime: Inside Stories of the Power](1986) and Park Chung Hee SidaefThe Era of Park Chung Hee](1984);
In-Sop Kang, "Pihwa Ch'Shgwadae Pis^sil"[The Staff at the
Blue House] (1983); and Yong-Chung Cho, "Kukka Chaeg'Sn
Ch'oego Hoeui"[The Supreme Council for National
Reconstruction](1983).
In Chapter II, the establishment of the Military
Government and the formation of the stratification by focusing on the regime's goals and demands from the sectors will be carefully examined within the range of their resource positions. A special emphasis will be given to the 37 efforts of uncovering different value of resources possessed by the regime in ordinal terms.
Among the written materials, Park Chung Hee's Our
Nation's Pathfl962K The Country, the Revolution and
X(1962), and Malor Speeches by Korea's Park Chung Hee(19 7 (M are important to show us the basic goals of the junta and
Park's early choices in politics. Se-Jin Kim's The Politics of Military Revolution in Korea(1971^ is also valuable.
In Part Two, Chapters III through V, the resource exchanges between the regime and sectors through the implementation of the three major economic policies are examined. Different explanations are thoroughly examined in this part by identifying resource positions of each sector and their diverse price elasticities of demand and supply.
Territorial disputes among different institutions and sectors in terms of the formation and execution of each policy will be discussed. Park's goal and choice reflected in various sources is about to be presented in an effort to find out its relationship within the political process.
David C. Cole and Princeton N. Lyman, Korean
Development: The Interplay of Politics and Economics(1971),
Hahn-Been Lee, Time. Chance and Administration(1968). Edward
S. Mason et al., The Economic and Social Modernization of the Republic of Koreafl9BQ). and Kaepal Nvtentae ui KvSnache
ChSnach'aek: KvSngche Kihoekwon 20 Nv&n Saf20 Year History 38 of the Economic Planning Board: Economic Policies of the
Development](1982) by the Economic Planning Board, Chaeqye
HoeaorThe Past of the Business in Korea](1981) by the Korea
Times, ChSnkvonqlvffn 20 Nvon SafTwenty Year History of the
FKI](1983) by the Federation of Korean Industries, and Kyu-
Hun Han, Sillok Hankuk UnhaenqTA Documentary: The Bank of
Korea](1986) are well researched studies about the facts and performance of the economic policies. The New York Times, the Far Eastern Economic Review, The Dong-A Ilbo, The
Hankook Ilbo and The Korea Times. and the monthly Shindonqa provide rich sources of what's going on in the real life politics and economy in South Korea. Also the series of
Economic Survey and the Statistical Yearbooks published by either the Economic Planning Board or the Bank of Korea yield statistical data in detail.
In Part Three, the concluding Chapter VI, the consequences of the resource exchanges are explained as a whole with the consideration of different propensity and ideology of each sector. New distribution of resources and the consequent arrangement of political coalition will be discussed in this section as a conclusion. Additional hypotheses will be generated and tested from the analogical context of the political inflation and hyper inflation. A logical connection between the combination of different 39
political choices, resources and sectoral stratification,
and the major policy changes will be attempted.
Significance of the Research
The connection between politics and economy is quite common in South Korea. It has been familiar to Koreans that politicians provided special treatments for their clients in business while big businessmen utilized their patrons in the state to achieve their goal of profit maximization. Some scholars and journalists attempted to describe the connections, but largely from the perspective of the internal conspiracy or corruption.^ Likewise, some radical studies pointed out the mechanism of exploitation by the intimate alliance of political and economic elite.Yet, no systematic examination based upon these cases over a certain period of time has ever been attempted. Our research on the political economy of the policy reforms directly covers both the structure and its dynamic process of the policy changes during such an important period.
4^PvShorvun Fak. Chaebfil kwa ChSngch'ifPolitics and Big Business] (Seoul: Hankuk Yangso, 1982); Sangu Yi, Park Chung Hee Sldae, 2 vols. [The Era of Park Chung Hee] (Seoul: Chungwon Munhwa, 1984); SSngchae Kang, K'ut'et'a Kwonlvok ui SaenqliTThe Mature of the Power out of the Coup d'etat] (Seoul: Dong-A Ilbosa, 1987.). 50Hy5hgyun PyJJn et al., Hankuk Sahoe ui ChaeinsikTOn Second Thoughts about the Korean Society], I (Seoul: Hanul, 1985); HyOnch'ae Pak et al,, Hankuk Chabon Chuui wa Sahoe KuloTThe Capitalism and Social Structure in Korea] (Seoul: Hanul, 1985); Hyonch'ae Pak et al., Haebanq 40 NvSn ui ChaeinsikfOn Second Thoughts of the 40 Years since the Liberation], II (Seoul: Tolpaege, 1986). 40
At the same time, the political explanation of the
transition from three vantagepoints will open a new research
field on the Korean politics. Few political analyses
attempted to explain how idiosyncratic episodes in politics brought changes in the economy or how the performance of economic policies affected the political process.
Our research on the fundamental economic policy shift under the same leadership will widen the scope of the study about the non-democratic, non-pluralistic society. In the society with less developed interest groups, it is hard to know who decides what and how and for what purposes. Through the analysis of the revolutionary reform process in Korea, however, a more thorough explanation of political change in a developing country would be elaborated.
Consequently, the case study of the economic policy changes and the dynamic process of arranging exchanges over resource positions between the regime and various sectors would, hopefully, make a valuable contribution to the general studies of choices, coalitions, and policies. CHAPTER II ESTABLISHMENT OF THE MILITARY GOVERNMENT GOAL, CHOICE, AND STRATIFICATION
A coup is a sudden and unexpected change of the ruling body mostly by a handful of elite members of a society, not necessarily supported by its mass population. The May 16th coup was an open revolt against the Prime Minister Chang
Myon and his ruling Democratic Party as well as an expression of distrust against all the civilian political parties and politicians. The coup planned and operated mostly by junior officers was also a rebellion against the military leadership which consisted of both Korean and
American senior officers.
In this chapter, we will begin our research by briefly examining the military as a sector. Then we will look at the institutional structure of the Military Government itself by focusing on the goals of the regime and its ruling members along with the demands from major sectors. Chairman Park
Chung Hee's choices will be further explained within the context of the emerging stratification.
41 42
Variation of Resource Positions of the Military
The revolutionary forces had completed their initial
task by occupying Seoul, early in the morning of May 16th,
1961.1 In fact, the actual operation was performed with a
small number of active combat forces. As the coup leaders had boasted about their success without bloodshed, there were only a few casualties when the forces attempted to put
aside a platoon of the military police over the Han River
Bridge, the gate of the capital city, in spite of various
explanations of the easy success, it is worth examining the
structural foundation of the military to explain the causes of the coup and its relative success with only minor
resistance.^
Rapid Growth of the Korean Army; As the colonial power
Japan was defeated in 1945, one of the primary tasks of the occupying American Military Government in Korea was to maintain peace and order. To accomplish this purpose, the
Korean armed forceB were initiated with a total of 2,406 men
^The revolutionary forces were comprised of 1,000 marines from the 1st Brigade under the command of Brig. Gen. Kim Yun-Kun and Maj. Gen. Kim Tong-Ha, ret.; 1,000 members of the 30th Division under the command of Lt. Col. Yi Baek-Il; 1,000 members of the Artillery unit in the 6th Corps under Col, Moon Chae-Jun and Lt. Col Shin Yun-Ch'ang. See Se-Jin Kim, The Politics of Military Revolution in Korea, p. 95. There are several explanations of the easy success from different vantagepoints: the inefficiency of Premier Chang Myon; the betrayal of President Yun Po-Sun; Park's Leadership; the tight cooperation of the junior officers; the indecisiveness of the U.S. government and the limitation of U.S. Army in Korea. 43
in January 1946. The Korean War, however, rapidly expanded
the scope and strength of the military(Table 1).
Table 1 A Rapid Expansion of the Korean Military Forces
Year Number of Forces Remarks
Jan. 1946 2,406 (Establishment of the Forces) Dec. 1947 31.000 (3 Brigades and 1 Comprementary Unit) Aug. 1948 50.000 (The First Republic of Korea) Jun. 1950 100,000 (The Korean War) 1952 250.000 1954 650.000 (20 Combat and 10 Reserve Divisions) 1955 600.000 (Maintained throughout 60s, 70s, 80s)
Source: Se-Jin Kim, The Politics of Military Revolution, pp. 38-40.
We had spent nearly 40 to 50 percent of our budget during the war period for military purposes(Table 2). Since
that time, the proportion of the defense expenditures have declined to 20-30 percent, but the military as a sector still consumed quite a lot of resources(Table 3).
Table 2 Government Revenues and Military Expenditures*
Gov't Revenue Gov't Expenditure Non-defense Defense Total
1949 33 64 24 88 1950 ' 59 112 132 244 1951 505 442 330 772 1952 1,332 1,389 946 2,335 1953 2,665 2,420 2,260 5,680
*From Mason et al,, p. 304. 44
Table 3 National Budget, GNP and, Defense Expenditures*
1953 1958 1965 1971 1975
DE/Total Budget 56.0% 37.4% 32.3% 21.6% 24.6% DE/GNP 6.9% 7.4% 4.4% 4.2% 4.5%
*From Mason et a l ., p. 312.
The Korean War made the military a powerful sector within the state. Shortly after the Liberation, the military began direct involvement in civilian affairs due to the incessant subversiveness by the communists within the South.
Frequent proclamations of martial law, throughout the war and thereafter, had provided the military with chances of expanding its political influence vis-a-vis the government and the society as a whole.3
The Status of the Military in the Korean Society;
Traditionally, however, the military had been poor in terms of status and prestige. Under the influence of Confucianism which highly regards education, the military had been accepted as some subordinate elite of the regime compared to its civilian counterpart. In a survey conducted among 500 female college students in Seoul right after the coup, more than 37 percent of the students who responded said that they
3John P. Lovell, "The Military and Politics in Postwar Korea," in Korean Politics in Transition, p. 166. 45
felt no positive impression of the military in spite of its
firm determination for a clean and better society.^
As a result of this minor position within the society,
the military had been recruited from the less privileged
people. For instance, the majority of top military officers
at the end of 1960 came from rural areas by a 4 to 1
ratio(Table 4). Only three generals completed formal
college-level education including graduates of four-year
military academies.
Table 4 Background of Generals and Lt. Generals*
(late 1960)
Geographic Educational Background Origin
Rank Rural Urban Elemen. Middle Some College B.A.
General 3 0 0 2 1 0 L t .Gen. 9 3 2 4 3 3
*From Se-Jin Kim, Politics of the Military Revolution, p . 61.
Also the military officers came from the middle and
lower classes as illustrated in Table 5. Nearly two thirds of the graduates of the Military Academy in the 1950s had
fathers who were engaged in farming and small business.
Considering its rural origin and inferior educational
**The Korea Times. 6 July 1961, p. 2, col. 4-5. 46 experience, it was hard for the military as a group to secure esteem and deference from the other sectors.
Table 5 Father's Occupation of Officers Graduated from the Korean Military Academy, 1955-1962*
Occupation Percent
Farmer 31% Small Business 29 White-Collar Job 20 Professional 6 Military Officer 4 Others 10
Number of Cases = 1,386
*From Jae Souk Sohn, p. 106.
Factional Strife with the Military: Various factions within the military, however, significantly reduced its influence within the society. The Korean military was divided into various factions based upon different geographical and military backgrounds. Officers were born in different parts of the Peninsula and trained in various military institutions. These different backgrounds had affected each officer in his behavior, promotion, and assignment. It is well illustrated in Table 6 presenting different career patterns and promotions of the senior officers by examining the position of the Army Chief of
Staff throughout the 1950s. 47
Table 6 Commanders of the Army Chief of Staff*
Year Commander Geographical Ori.* Mil. Background^
1946 Ryu Dong-Ytfl — RCA 1947 Song 0-Song — KIF 1948 Yi Ung-Jun CS JMA - Ch'ae ByS’ng-D'Sk NW JMA 1949 Shin T'ae-Ytfng CS JMA 1950 Ch'ae BySng-DOk NW JMA - Chtfng Il-KwiJn NE MMI 1951 Yi Chong-Ch'an CS JMA 1953 Paek Stfn-Ydp NW MMI 1954 ChtJng Il-Kwtfn NE MMI 1956 Yi Hydng-Gun CS JMA 1957 Paek SiSn-YOp NW MMI 1959 Song Yo-Ch'an SE NCO 1960 Choe Ky2>ng-Rok SE JOES 1961 Chang Do-Young NW SD
*From Se-Jin Kim, Politics of the Military Revolutionr p. 46.
Note 1) Geographical Origins: Hamkyffngdo{Northeast, NE); Pytfnganto(Northwest, N W ) ? Chungbu(Centural South, CS); and Kydngsangdo(Southeast, SE). 2) Military Backgrounds: The Regular Chinese Army(RCA); the Korean Independent Fighters(KIF); the Manchurian Military Institute(MMI); the Japanese Military Academy(JMA); the Japanese Officers Candidate School(JOCS)? Student Draftees(SD); and Noncommissioned Officers(NCO).
These factional competitions had been deliberately
consumed by the late President Syngman Rhee. As noted in
Table 6, for instance, the NW faction led by Gen. Paek S5n-
Y
The rapid expansion and sudden suspension of the growth along with the factionalism had blocked regular promotions because many of the senior officers were still very young for retirement.6 Furthermore, the Finance Minister of the
Chang administration had indicated that they should have reduced the forces into half and allocated the defense budget for other programs of the government.^ The chances of promotion for the juniors, therefore, seemed hopeless. The discontent among junior officers and the prospect of drastic reduction of the forces were destroying the internal morale of the military.®
The frustration and prospect for its uncertain future which prevailed within the military seemed contradictory to
^Another explanations of the military's inability to challenge the regime was Rhee's extraordinary charisma and his successful deals with the American "friends." Lovell, p. 169. 6In his elaboration of the different ratio of promotion between these two groups, Sohn found that the junior officers who were as old as their seniors in their age group had been far delayed in their promotion. Jae Souk Sohn, p. 109. 'C.I. Eugene Kim, "The South Korean Military Coup of May, 1961: Its Causes and the Social Characteristics of its Leaders," in Armed Forces and Society: Socioloqial Essays, ed. Jacques Van Doorn (The Hague: Mouton & Co., 1968), p. 309. °This seemingly unfair and hopeless structure of the military seems to be one of the leading forces for the purification campaigns by the junior officers against the military leadership on May 8 and September 10, 1960, respectively, and possibly the May 16 coup itself, Se-Jin Kim, Politics of the Military Revolution, pp. 77-86. 49 its potential political influence sustained by its huge physical forces. Even a minor domestic crisis coming out of disorder might have provided the military incentives to intervene by replaceing the already weakening parties and politicians.
Institutional Structure of the Military RRrrimp*
Given the swift and fundamental transformation of the power relations, however, it seems inevitable to see an abrupt change in the resource positions of major sectors.
Once they seized power, the military junta began to consolidate its power and increase its resources rapidly by building institutions(Figure 1).
As revealed in Figure 1, the military regime consisting of the powerful Supreme Council for National
Reconstruction(SCNR) controlled the executive, legislative, and judicial branches. As of June 9, 1961, the junta organized six special bureaus under this umbrella type of institutions National Movement for Reconstruction; Central
Intelligence Agency; Capital Defence Command; Office of
General Affairs; Office of Public Information; and Planning
Committee. Of these, the cabinet, the KCIA and the SCNR were regarded as the most important and powerful institutions within the junta regime. 50
President
SCNR Chairman 6 Advisors
Suprese Council for National Reconstruction (26 Councils, All Active Hilitary Officers)
Standing Cosaittee 7 SubcoBttittees
Premier Chief Justice
Court l1* Ministries Board of Audit
National^ Capital Office Office Movement for Defense of Sen. of Public Recountruction Command Affairs Inforeiatn
Local Chapters Final Review Committee
5 Subcostal ttees
Figure 1 Organization of the Government, July 1961*
*From The Korea Tiroes, 8 July 1961, p. 2, Cols. 2-4. 51
The Supreme Council for National Reconstructions The
revolutionary forces set up a military revolutionary
committee consisting of five councils led by five generals
right after the coup. As the coup succeeded in getting
support by all the major sectors (including the First Field
Army) in two days, the revolutionary committee was replaced
by the Supreme Council for National Reconstruction(SCNR).
This supreme institution consisted of 32 generals and
colonels including all four commanders-in-chief of the armed forces(Table 7).9
At the beginning, Gen. Chang Do-Young, Army Chief of
Staff and Martial Law Commander was named as the chairman of
the SCNR. Practically, however, the SCNR was directed by the
standing committee which was made up with the chairmen of
the seven subcommittees under the leadership of Vice
Chairman Gen. Park Chung Hee. Even though many announcement
and decrees were proclaimed in the name of the Martial Law
Commander Chang, every agenda at the SCNR had been planned
and delivered by the order of Gen. Park Chung Hee.1®
■ Q ■■ ■ ■ ^Given the limited number of the membership and the hasty start of the SCNR, it was not easy to select its members. Indeed, it was a quite controversial among the junior officers of the military. See YSng-Chung Cho, "Kukka Chaegtfn Ch'oego Hoeiii[The Supreme Council for National Reconstruction]," Shindonaa. May 1983. 1“There was no doubt that Gen. Park was the most powerful man within the military government. However, during the early period, at least, he had consulted regularly with Gen. Tong-Ha Kim and Lt. Col. Jong-Pil Kim. Particularly, it was Kim who made specific plans for the SCNR itself and a number of agenda of the revolution thereafter. 52
As of July 3, 1961, Park emerged as the top leader of
the junta by replacing the former chairman Gen. Chang Do-
Young who was not one of the original members of the coup in
May. Under Park's leadership, the SCNR continued to arrange
various plans for national reconstruction and elaborated a
number of revolutionary tasks.
Table 7 The Composition of the SCNR
Portfolio May 27, 1961 Sept. 2, 1961
Chairman Lt.Gen. Chang Do-Young Lt.Gen. Park Chung Hee* Vice-Chair Maj.Gen. Park Chung Hee* Maj.Gen. Yi Chu-Il* Committees Legislation Lt.Col. Yi Sdk-Che(C)* Col. Yi SSk-Che(C)* & Justice Lt.Col. Kil Chae-Ho** Col. Kil Chae-Ho** Home Affrs. Col. 0 Ch'i-SShg(C)** B.Gen. Cho Si-Hyifng(C) Lt.Col. Pak Wtfn-Pin* Col. Pak WBn-Pin* Lt.Col. Kim HySng-Uk** Col. Kim HyWng-Uk** Finance Maj.Gen. Yi Chu-Il(C)* M .Gen. Kim Tong-Ha(C )* & Economy Col. Yu W&n-Sik* B.Gen. Yu W5n-Sik* Lt.Col. 0 Chtfng-Gun* Col, 0 Chong-GEm* B .Gen. Yu ByShg-Hyon B.Gen. Pak T'ae-Jun* Fn Affrs. M.Gen. Yu Yang-Su(C) M.Gen. Yu Yang-Su(C) & Defence Col. Kang Sang-Uk* Transftn. B.Gen. Kim Yun-Gun(C)* B.Gen. Kim Yun-Gun(C)* & Commn. Lt.Col. Ok Ch'ang-Ho** Col. Ok Ch'ang-Ho** Edn.,Health B.Gen. Song Ch'an-Ho(C)* B .G . Son Ch'ang-Gyu(C) & Soc.Affrs Col. Son Ch'ang-Gyu Col. Hong Chong-Ch'ol* Col. Chong Se-Ong* Col. Chong Se-tlng* Steering Ma j.Gen. Kim Tong-Ha(C)* Col. 0 Ch'i-SSng(C)** (C) Chairman of the Committee * Original Members of the May 16 Military Coup ** Seven Lieutenant Colonels of the 8th Class of the Korean Military Academy who actively planned the coup
From Hahn-Been Lee, Time. Change and Administration, p. 166. 53
The Cabinet; As the Chang Myon Administration agreed to give an ex post facto approval of the Martial Law and submitted a cabinet resignation on May 18, the junta set up a new cabinet. On May 20, the new cabinet was filled with the 14 senior military officers in active duty except for the Ministry of Foreign Affairs which was under the direction of a respected retired general, Kim Hong-11. Gen.
Chang Do-Young, Chairman of the SCNR, was also named as the new Prime Minister of the Military Government and remained in the position until he was dismissed on July 3, 1961.
Although President Yun Po-Sun, who was elected as the first President of the Second Republic at the National
Assembly in August, 1960, was expected to lose his presidency at the collapse of the Second Republic, the junta persuaded him to continue his presidency as head of the state. Later, it was revealed that Yun actually helped the junta's consolidation of power by persuading U.S. officials and Korean army field commanders not to resort to any military action against the revolutionary forces.11
Furthermore, his staying as President had provided the regime with the necessary legitimacy in and out of the country. Because he remained as the head of state, the
Military Government which obtained the control of the state
-^Yun's real intention of his historic decision has not yet been fully revealed and what he told to the top military leaders when they visited him on the morning of the coup that "things which deserved to come have finally come to us" has been controversial between Yun and Col. Won-Sik Yu. 54 through an unconstitutional means could avoid facing any diplomatic problems of recognition.12 Even though he said he had no other choice to avoid any bloodshed among brethren soldiers, he continued his presidential duties for about ten
months for the Military Government.1-*
Since Gen. Chang's departure in July, Chairman Park appointed Gen. Song Yo-Ch'an, the former commander-in-chief of ROK Army, as a new premier along with two civilian ministers in charge of economic affairs. Two civilians, Kim
Yu-T'aek and Shin T'ae-Hwan, were named as Minister of
Finance and Minister of Construction respectively for the first time since the coup.
12Yong-Sik Kim, then the deputy-Minister of Foreign Affairs, said he persuaded Park Chung Hee not to approve Yun's resignation when the SCNR was unaware of the diplomatic consequence of Yun's resignation, the only surviving Constitutional institution representing the Republic. Yun attempted to resign when the Chang cabinet were dissolved but he actually resigned his office on March 24, 1962 when the Political Purification Law was proclaimed. 55
Table 8 Composition of the Cabinet*
May 1961 July 1961 - Dec. 1962
Premier Lt.Gen. Chang Do-Young Lt.Gen. Song Yo-Ch'an(R) EPB Mr. Kim Yu-T'aek Foreign Lt.Gen. Kim Hong-Il(R) Lt.Gen. Ch'oe DiJk-Sin(R) Home Maj.Gen. Han Sin Maj.Gen. Han Sin Finance Maj.Gen. Paek Stfn-Chin Mr. Ch'on Py<5ng-Gyu Justice Brig.Gen. Ko WSn-Chung Brig.Gen. Ko Won-Chung Defense Lt.Gen. Chang Do-Young Lt.Gen. Park Pvong-Kwon Education Col. Mun Hi-Sojc Col. Mun Hi-SiSk Agriculture B.Gen.Chang Kyong-Sun* M.Gen. Chang GySng-Sun* Commerce M.Gen. ChSng Nae-Hybk M.Gen. Chtfng Nae-Hy5k Constrn. Col. Pak Ki-S8k* Health & S. B .Gen. Chang D5k-Sung B.Gen. Ch&ng Hi-SSp Transftn. Capt. Kim Kwang-Ok M.Gen. Pak Ch'un-Sik* Communitn. B.Gen. Pae Dffk-Chin B .Gen. Pae Dok-Chin Public Inf. M .Gen. Sim Hung-S^n M r . 0 Chae-Gyong Cabinet Set B.Gen. Kim Py5ng-Sam B.Gen. Kim Pyong-Sam
(R) Retired Generals * Original Members of the May 16 Military Coup
*From Hahn-Been Lee, Korea; Time. Change, and Administration. p. 168.
Compared with the members of the SCNR, the cabinet members were recruited from the non-revolutionary, management-oriented senior officers. In the SCNR, there were ten revolutionary colonels and lieutenant colonels out of 17 active members while,’in the 15 member-cabinet, only two ministers appointed were colonels (Table 8). No seven-core members of the 8th Class had ever participated in the cabinet, but four of them had actively served at the SCNR through the end of 1962.^
^ A t the SCNR, the original coup members had comprised nearly four fifths of the active members, but only two 56
The Korean Intelligence Agency (KCIA 1; Another key
institution of the regime, KCIA, was created by the powerful
junta leader Kim Jong-Pil and his close colleagues.1^ Kim
disclosed his plan for establishing an intelligence agency
at his first briefing to the SCNR members on May 19, 1961.
It seemed, therefore, that the idea had been prepared in
advance by Kim Jong-Pil and his colleagues.
Lt. Col. Kim, Park's nephew-in-law, himself was the
leader of the 8th Class of the Korean Military Academy had
worked as an army intelligence officer throughout his career
in military since 1949. Because of his substantial
experience in the intelligence area and his powerful
position within the junta, Kim could easily organize a
strong para-military intelligence agency by utilizing the
existing Army Counter Intelligence Corps(ACIC).^
Since its approval on June 10, 1961, with the SCNR's
Decree No. 619, the KCIA had recruited a number of elite
intelligence agents including many of Kim's colleagues of
the 8th Class. The KCIA emerged as a very influential and
original coup members had worked in the 15 member cabinet by the end of 1962. 15Three Lt. colonels of the 8th Class, Yi Y^ng-Kun, So J&ng-Sun, and Stfk Chifng-Stfn had worked at the Army Intelligence Bureau since their graduation from the Military Academy in 1949 and maintained close relationships with Kim. 16It was not always without worries and oppositions against Kim's plan from the SCNR because all the core members of the KCIA were not the original coup members while they were regarded as Kim's close colleagues at the Army Intelligence Bureau. Chang Ch'ang-Kuk, no. 154. 57 effective organization within the regime. No other institution could compete with this powerful, pervasive investigatory agency.1^
Although many of the KCIA's tasks and assignments had been done in secrecy, the agency had screened all of the politically important people even the SCNR members themselveB. According to Se-Jin Kira, the KCIA checked over
41,000 political figures and high-ranking government employees and 1,863 people were found guilty.18 It had expanded its latitudinal boundary into the country's major anti-government sectors like the press and progressive intellectuals in order to manage crises encountered by the regime performing revolutionary tasks.
Resources of the Military Government
Coersive Power and Authority; The junta proclaimed
Emergency Martial Law at 9 o'clock in the morning of May 16,
1961, right after the coup and dissolved the National
Assembly and all the local councils. They also banned all political activities while disbanding all political parties and social organizations and restricted exchanges of information and ideas with harsh censorship. Overcoming military threats from the Korean and American forces, partly
17Robert A. Scalapino, "Which Route for Korea?" Asian Survey. 2(Sept. 1962), 7? Cole and Lyman, p. 48; and Hahn- Been Lee, Korea: Time. Change, and Administration, p. 154. 18Se-Jin Kim, The Politics of Military Revolution in Korea. p. 112. 58 due to its unexpected luck, the military junta kept consolidating its legal and administrative structures.1^
On June 6, roughly three weeks after the coup, the SCNR promulgated the Law Concerning Extraordinary Measures for
National Reconstruction. This law gave the SCNR an ultimate authority on all public officials including the President and Cabinet members as well as on virtually all domestic matters. One prominent scholar on East Asia once described such an ultimate authority given to the SCNR that "a relatively small group of men sought to make maximum use of the existing administrative structure while at the same time, controlling it."2®
By decrees of Martial Law and Law Concerning
Extraordinary Measures for National Reconstruction, the SCNR was empowered to implement a series of punitive measures. In a swift move, the Military Government arrested various groups of people like progressive and leftist intellectuals, students, corrupted politicians, illegal profiteers, and
Lt. Gen. Chang Do-Young, the chief of staff of the Korean Army, agreed to join the coup after some twelve hours of indecision. His involvement in the coup as the chairman of the Revolutionary Council and Prime Minister of the cabinet reduced the chance of a possible military movement within the Korean army against the revolutionary forces. The retreat of the former Prime Minister Chang Myon into a Catholic convent at the east side of Seoul for about two days also reduced any chances for the U.S. to resort to its military resources against the junta. Even though the U.S. could mobilize its own troop to take the control back for the civilian government against the revolutionary forces, they could not use any military muscle without a request frgm any of the Korean leaders. 20Scalapino, "Which Route for Korea?", 6. 59 hoodlums. Although only a few of them were eventually executed as symbolic cases, the junta's willingness and potential capability were successfully demonstrated.
Attitudes on the regime and the level of support examined in a couple of surveys had reflected the general atmosphere of voluntary allegiance from various sectors.^ A public opinion survey conducted in Seoul for a total 1,356 citizens between 1 and 3 June, 1961, also showed that a great majority of them had supported the Military Government and its policies since the coup. In the polls, a majority of
Seoul citizens said they supported the Military Government for what they had achieved during the initial period of the revolution, particularly, in their handling of the socio economic corruptions of the past(Table 9).
Industrial Production and Financial Flow: The military regime was not created in the midst of an economic hardship or crisis. As we see in Table 10, Korea had achieved a continuous growth in her gross national products(GNP) from
W180.17 billion in 1956 to W229.30 billion in 1961. In spite of the diminishing annual growth rates from the apex of 7.2% in 1957, the economy resumed its growth after the political turmoil of the April Student Revolution in 1960.
^The Korea Timesexamined attitudes of farmers on June 9; of Seoul citizens on June 14; and of college students on July 6, 1961. 60
Table 9 The Popularity of the Revolutionary Government 16-30 May, 1961
1. The Military Rule Very Good ...... 10.0% Good ...... 37.2% Terrified ...... 9.7% Dislike ...... 8.4%
2. New Government's Excellent ...... 34.2% Revolutionary Policies Good ...... 36.2%
3. Wishful Tasks of the Settlement of New Government Unemployment ...... 42.9% Stabilization of Commodity Prices ..... 19.5% Arrangement of Grain Prices ...... 8.8% Development of Small and Medium Sized Industries ...... 6.3% An Agreement on the Status of American forces in Korea ...... 3.6%
4. Clean-up of Press Excellent ...... 50.0% Good ...... 27.9% Unavoidable ...... 7.8%
5. Measures on Illegal Good ...... 81.8% Fortune Makers Fair ...... 8.4%
6. Punishment on Profiteers Stern Punishment ..... 41.8% Lenient Punishment .... 29.8%
Source: The Korea Times. 14 June 1961, p. 1, p. 4. 61
Table 10 Gross National Products(GNP), 1956-1961 (At 1960 Constant Market Prices)
1956 1957 1958 1959 1960 1961
GNP(billions of Won) 180.67 193.60 205.41 214.90 218.78 229.30
Annual Growth CO
Rate(%) 0.4 7.2 6.1 4.5 1.8 •
Source: EPB, Economic Survey. 1964. p. 102.
Table 11 The Indicies of Major Economic Activities: Industrial Production, Trade, and Foreign Exchange Holdings (1960=100)
1956 1957 1958 1959 1960 1961
Industrial Production 62.9 72.6 80.0 91.8 100.0 105.7 Exports 74.9 67.6 50.1 60.4 100.0 124.5 Imports 112.4 128.7 110.1 88.4 100.0 92.0 Foreign Exchange 62.9 73.5 93.4 93.8 100.0 132.2
Source: EPB, Economic Survey, 1965, p. 111. 62
The industrial production continued to grow and the exports increased faster than the imports. In table 11, we observe a sharp reduction of gap between imports and exports over the years. Partly because of the diminishing gaps and partly because of the smooth inflow of the foreign aid and grants, the overall foreign exchange reserves were the largest since the Korean War.
As a whole, the regime had not inherited a bad economy from its predecessor. Even with a brief comparison of the economy in 1959, 1960 and 1961, we can obtain the finest picture of the economy in terms of its balance of payments in 1961(Table 12).
Table 12 Balance of Payments
(In millions of dollars)
1959 1960 1961
Credit Debt Credit Debt Credit Debt
A. Goods and S e r v i c e s --- 227.5 --- 261.9 --- 198.4 B. Donations2 i 243.9 275.6 --- 231.5 --- C. Net Total(A+B) 16.4 --- 13.7 --- 33.1 ---
Source: EPB, Economic Survev, 1964, p. 118.
Note* Goods and services include non monetary gold movement, foreign travel, transportation and insurance, investment income, receipts from UN forces. 2) Donations are comprised of foreign aid and grants including grants of Won acquired through sales of surplus agricultural commodities under U.S. PL480. 63
Poor Resistance from Political Parties and Politicians:
Since her Liberation from Japan in 1945, conservative parties and politicians had flourished in the 1950s and
1960s, yet pro-communist, progressive parties could not survive in most cases partly because of the horrible experience of the Korean War and partly because ofthe strong anti-communist regimes in Korea.22 This homogeneity of issue and ideology within the major political parties and politicians were well documented in most of the campaign issues and party platforms. According to Sung M. Pae's study, major political parties up through 1960 had attempted to represent all the sectors of the nation and the only difference in the party platforms was the question of whether to choose a parliamentary s y s t e m . 2 ^
One consequence of these identical backgrounds of the politicians in the 1940s and 1950s was a fierce internal power struggle and endless factional strife. Factions, different from formal interest groups or organizations, had been basically organized by close personal ties in pursuit
22Y.C. Han, "Political Parties and Social Development in South Korea," Pacific Affiars, 42{Winter 1969-1970), 447; Gregory Henderson, Korea; The Politics of the Vortex. (Cambridge, Mass.: Harvard Univ. Press, 1968), p. 304; Ki- shik Hahn, "Underlying factors in Political Party Organization and Elections," in Korean Politics in Transition, p. 85. 23Sung M. Pae, Testing Democratic Theories in Korea(Lanham, MD: Univ. Press of America, 1986), p. 178. 64 of the narrow factional interests. This factional strife continued throughout the Rhee and Chang administrations.^
According to Henderson's Politics of Vortex. Korean politicians had not been recruited to realize special interests, but rather to be involved in politics to compete for power, the ultimate central power.^ Throughout the modern history in Korea, nearly 70% of all the political parties had survived less than 4 years(Table 13).
Table 13 Life-span of Political Parties in Korea, 1948-1981*
Number of Years Number of Political Remarks Survived Parties
1 4 (4.3%) 2 23 (24.7%) 3 11 (11.8%) 4 38 (40.9%) 5 1 (1.1%) 6 4 (4.3%) 7 1 (1.1%) 8 5 (5.4%) 10 2 (2.2%) Liberal Party(1951-60) 11 2 (2.2%) Democratic Party(1954-65) 13 1 (1.1%) New Democratic p . (1967-80) 17 1 (1.1%) Dera.Republican P. (1963-80)
Total 93 (100.0%)
♦From Sung M. Pae, p. 164.
^Some conspicuous examples were: the National Youth Corps vs the anti-N.Y.C.; In-House vs Out-of-House factional strife within the Rhee administration; Old vs New Factions of the Chang administration. Details on these, see Sung M. Pae* p. 167. ■^Henderson, pp. 303-11. 65
The loss of many popular political leaders by assassination or accident seemed to make the situation even worse. The moderate but less charismatic leadership of each party could not bring a unified party or appeal directly to the masses. Political leaders in the late 1950s and early
1960s possessed characteristics of opportunistic indecisiveness, lack of self-assurance, and remoteness from the mass population.^® The lack of leadership had consistently alienated political forces from the populace.
The dissociation of the parties and politicians from the masses had, by the result, reduced their overall influence.
Due to the short life-span and the ineffective organizational characteristics of the parties, many ambitious men had sought seats at the National Assembly without affiliation to political parties (Table 14).
Table 14 Number of Candidates for the National Assembly*
Election Year Independent Ruling Party Major Opposition
1948 43.9% 1950 68.'5% 1954 66.0% 20.0% 6.4% 1958 42.4% 28.1% 23.7% 1960 Lower Ch. 64.6% 19.5% 23.2% Upper Ch. 57.2% 29.9% 54.7% *From Sung M. Pae, p. 164.
®Both Chang Myonand Yun Po-Sun were born in wealthy families, studied abroad and led passive non-cooperation with the Japanese colonial regime and were chosen as leaders of each faction for their moderation and dissociation. Sung- joo Han, The Failure of Democracy in South Korea, pp. 36-42. 66
Though these independent candidates became less successful in later years, their presence had reduced the appropriate role of parties in terms of their institutionalization and their commitment for policy-making.
One of the best example of this diminishing party control happened in the July 1960 general election. Most of the candidates who failed to receive official nomination from the Democratic Party council had competed against the official nominees of the same party. Each faction had implicitly supported their own(illegitimate) candidates.^7
Factional strife between the new and old factions within the Democratic Party reached a critical point in
August 1960, when the majority party at the National
Assembly had to select its new Prime Minister(Table 15).
Table 15 Split of Votes for Chang Myon's Candidacy at National Assembly, August 19, 1960*
* Old-faction New-faction Independents Total
For Chang 6 90 21 117 Against 91 0 16 107 Total 97 90 37 224
*Frora Sung-joo Han, The Failure of Democracv in South Korea. d . 123.
'The Old-faction supported 55 of their faction members illegally and 26 candidates from the New-faction ran against the officially nominated candidates. Sung-joo Han, The Failure of Democracy in South Korea, p. 105. 67
From the very beginning, the Second Republic had been troubled by incessant political power struggles within and without factions, and ending in a collapse in 9 months. It may not be appropriate to consider the ceaseless factional fights as the direct cause of the May Military Coup in 1961.
The strife between the rival groups and the emergence of new factions within the Party had reduced its political influence significantly in early 1961. Since the military seized power, all political parties and organizations were dissolved and a number of politicians were suspended from political activity, but there was no systematic resistance until 1963 when the military relaxed its control over political activities.
Socio-political Status and Legitimacy: In spite of the favorable resource positions in general, the regime needed to produce more socio-political resources in terms of status and legitimacy in order to maintain its resource positions and thus remain in authority. The political leaders under the Military Government had been mostly recruited among the military elite. A survey indicated that more than sixty percent of the major political leadership positions and more than 70 percent of the cabinet ministers of the military 68 regime came from a military background (Tables 16, 17).^®
Only 6.1 and 3.5 percent of the political leaders were former military officers in the previous two regimes and, in particular, the military produced no minister at all under the Chang Administration.
Table 16 Non-Political Careers of the Leaders*
Career All Liberal Democratic Military
Civil Servants .... 22.4% 23.6% 25.6% 12. 8% Pol. Entrepreneurs,. 7.9 10.8 8.1 - Education ...... 21.3 22.3 23.3 12.8 Banking ...... 7.0 4.1 5.8 6.4 Journalism ...... 4.4 2.0 8.1 2.1 Lawyer ...... 5.2 7.4 3.5 2.1 Business ...... 6.3 6.8 9.3 — Military ...... 13.9 6.1 3.5 63.8 Prosecutors ...... 4.7 8.1 3.5 — Police ...... 4.4 5.4 5.8 — Others ...... 2.5 3.4 3.5 *
*From Bae-ho Hahn and Kyu-taik Kim, "Korean Political Leaders(1952-1962): Their Social Origins and Skills," Asian Survey. 3(July 1963), 317.
^®The leadership positions comprised cabinet ministers and vice-ministers, congressional or SCNR leaders, higher civil servants of the Ministries of Foreign and Home Affairs, Finance and Justice, Ambassadors to the U.S. and Japan, and service chiefs of armed forces, and totalled up to 484 men. 69
Table 17 Occupational Backgrounds of the Cabinet Ministers of the Three Governments*
Occupations All Liberal Democratic Military
Civil Servant 16.1% 22.7% 2.9% Journalism ...... 3.4 1.6 9.1 2.9 L a w y e r .... . 14.5 13.6 5.9 Businessmen ...... 0.8 1.6 — — Military ...... 9.7 — 70.7 Banking ...... 4.8 9.1 8.8 Police ...... 8.1 4.6 — E d u c a t i o n ...... 27.5 22.7 8.8 Others ...... 16.1 18.2 -
Total ...... 100.0 100.0 100.0 Number .... . 63 22 34
*From Bae-ho Hahn and Kyu-■taik Kim, 321.
Taking into account their lower prestige and status, it
seemed obvious to expect that the members of the Military
Government had attempted to acquire those resources through
and after the coup and used their superior political and
economic clout for maintaining their advantageous positions
while altering the distribution of those socio-political
resources in favor of themselves. These facts are to be
examined in the following chapters.
Political Goals of the Coup Leaders
The May 16 Coup opened a new era in Korean politics and
society. Everything seemed to be eligible for a change,
inside out and upside down. Everything was uncertain and it was a crisis for everyone. The military officers who had 70
seized control of the state institutions and resources had
to do something in the name of a new regime. They had not
hesitated announcing their pledge of revolution no matter
how vague and broad their agenda might happen to be.
Despite the official pledge of the revolution, the
leadership of the coup was exposed to a certain cleavage in
terms of the intended goals of the leaders. In many
respects, it is not easy to get through to the leaders' true
intentions because they had been frequently distorted by the
Military Government through their strict censorship over the
printed materials under martial law. However, different
goals of the leaders had been exposed to outsiders and
should be examined in order to understand the dynamic
process of policy change of the early 1960s.
Pledge of the Military Revoltuons As soon as the junta
seized power, the Military revolutionary committee proclaimed its pledge of revolution. This commitment which was prepared in advance was carried over the radio and
through pamphlets printed overnight. The introduction and the following six pledges were particularly important in terms of its revelation of the coup leaders' intentions and the original goals of the coup. The military revolutionary committee announcedt 71
The military authorities, which have shown forbearance and self-esteem, at last launched an all-out action this dawn, completely occupying all of the administrative, legislative, and judiciary branches of the state and organizing a military revolutionary committee. The military rose up as it determined that the state and fate of the people can no more be entrusted to the corrupt and incompetent present regime and established politicians, and the uprising is aimed at overcoming the national crisis which put the country on the verge of demolition. The military revolutionary committee wills
(1) Lay down anti-communism as the first national policy and recognize and strengthen the anti-communism posture discarding superficial slogans and lip-service on anti-communism henthforth.
(2) Respect and observe the United Nations Charter, faithfully honor international treaties, and strengthen friendly ties with free world countries, including the United States.
(3) Eliminate all kinds of corruption and evil in this country and stir up fresh currents in order to rectify a degraded national morale and spirit.
(4) Solve livelihood for the people now indesperation and starvation and exert all powers to achieve the nation's self-sufficient economy at the earliest possible date.
(5) Exert all efforts to foster strength so as to cope with communism for the long-cherished national unification.
(6) Prepare itself for transfer of the political power to the fresh and conscientious politicians at any time; and when our tasks are fulfilled we will return to our original mission.23
^The appropriate period of military rule was one of the critical difference between Chang and the core members of the coup. Kim Jong-Pil said he himself had intended to return to a civilian after fulfilling revolutionary tasks neither to return to his original mission in the military, nor to involve into the politics. Interview with O-Ki Kwon, Shindonga, Dec. 1986, p. 191. 72
Beloved BrethrenI We hope that the people will entirely trust this military revolutionary committee and keep their offices and business as usual. Our country from this moment is creating a new and powerful history with our hopes. Our country commends us to have patience, courage, and to advice. Long Live Korea. Long Live Uprising Forces. ®
Within this short statement, the junta revealed that the revolutionary committee would maintain a better relationship with the United States. and strengthen its traditional policy of anti-communism. The committee also suggested to eliminate all the corruptions and complete reconstruction for a healthy, independent economy. In the end, a promise to return the government to civilian hands was proclaimed under the condition of its successful completion of the revolutionary mission.
Two days later, the junta reiterated its purposes and goals of the military coup in a letter to President Kennedy in the name of the Chairman of the Military Revolutionary
Committee, Lt.Gen. Chang Do-Young.^1 According to the letter, the coup was not launched against the popular 1960
Student Revolution; instead, the military had to intervene to save the endangered country from the communist threats, which grew out of ill practices and corruption of the Chang
^ The Korea Times. 17 May 1961, p. 2, cols. 3-4. 31The message which carried the same contents of the revolutionary pledges was certainly prepared in response to the unfriendly behaviors of U.S. top officials in Korea at the time of the coup. Department of State Bulletin. 19 June 1961, pp. 962-63. 73
Myon Administration. The junta stressed its commitment to a
return to civilian government and the continuity of the
relations between the two countries.
If we carefully examine the junta's official pledge and
the letter to Kennedy, we will find out easily that the
junta's goals were vague and even contradictory in and of
themselves. Despite their vagueness and contradiction,
however, we could see a glimpse of the original goals and
plans of the revolutionary forces at the beginning of the
Military Government.
Chang Do-Young and Senior Military Officers8 At the
beginning of the coup, Gen. Chang, then the Commander-in-
Chief of the Korean Army, was named to five top positions of
the revolutionary government including the chairmanship of
the ruling SCNR and the Premiership of the military cabinet.
A number of revolutionary decrees and tasks had been
announced in the name of Gen. Chang. Nevertheless, he seemed
to exert no major influence and worked simply as a minor member of the junta. This was the same as was the case of other senior officers who had participated in the Military
Government mostly by the request of the actual coup leaders.
Before he gave up his three positions of Army Chief of
Staff, Defense Minister, and Martial Law Commander on June
3, 1961, however, he had held three interviews. According to them, during this short period of time, at least, he seemed 74
to have certain ideas and plans about the coup and his role
within the Military Government. At the press meetings, Gen.
Chang had unfolded his ideas of the revolution and
officially announced the future goals of the Military Government,
At his first formal press conference on May 19, 1961,
Gen. Chang pointed out the junta's priorities as to establishing a real democratic society based on firm anti communism and the elimination of any corruption within and out of the government. Having maintained closer relationship with the U.S. Command in Korea, he reaffirmed his preference of strengthening the friendly ties with the United States and an early return of the military to its original duty of defending the country.
Gen. Chang had attempted to expose his own desires via the junta's policies. On May 24, 1961, unveiling his plan to see President Kennedy, Chang explained the true aim of the revolution. Chang considered this opportunity as a step forward to develop closer ties between the two countries.^2
A week later, Chang repeated his confirmation of the revolutionary pledge that the junta made efforts to return the government to civilian rule within the shortest possible period.^3
^ The Dona-A Ilbo. 24 May 1961, p. 1. 33The Dong-A Ilbo, 29 May 1961, p. 1. 75
At an interview with the Associated Press, Gen. Chang indicated that much of U.S. aid had been badly wasted under the previous regimes and resulted in poor economic growth during the last ten years. Chang assured the United States by revealing that the Military Government would establish a better policy. Instead, he asked the U.S. government to consider additional aid for boosting certain basic industries like coal, electricity, and fertilizer. He said that he was confident of the continuation of warm support from abroad because many of the friendly governments would soon realize the true aim and goals of the revolution: economic reconstruction without corruptions and democracy with stern anti-communism.34
On June 6, 1961, Gen. Chang was released from all the top military positions of Chief Staff of Army, Defense
Minister and Martial Law Commander while he retained the chairmanship of the SCNR and the Cabinet until July 3, 1961.
Nontheless he seemed to lose most of his influence and was moved out of the decision-making process. Instead, Lt. Col.
Kim Jong-Pil and Maj. Gen. Park Chung Hee who had disagreed with Chang's preference of an early return to the civilian rule continued to strengthen their influence in the inner circle of the military government and dominated the policy making process.
34The Donq-A IlboT 31 May 1961, P. 1. 76
Kim Jong-Pil and the Young Colonels; Lt. Col. Kim Jong-
Pil was the leader of the young military officers of the 8th
Class of the Korean Military Academy.35 Kim disclosed at his first press conference on June 5 that he and his close friends had planned a military takeover even before the 1960
Student Revolution.35 Kim said that he was very much sympathetic to the Student Revolution since he had felt disgust over the corruption of the Rhee Administration and its 1960 election rigging, but he had also worried about the nation's safety from the communist infiltration from North.
Under the new regime since the Student Revolution, Kim in collaboration with certain members of the 8th Class, turned their attention to the internal problems of the military. They initiated a purification campaign in an effort to replace the military leadership that had been supposed to cooperate with the Rhee regime in election frauds and corruptions. The campaign continued until the military leadership decided to arrest the ruling members of the young officers including Kim and forced them to retire.37 Once they failed in a realistic reform through the
35At the Korean Military Academy, Kim was one of the few applicants with college-level educational background and graduated as one of the top ten among 1,263 cadets in 1949, Sang-U Yi, Park Chung Hee Sidae. II. p. 85. 30Kim unveiled that the May coup had been connected to an ill-attempted coup plan in early 1960 designed to overthrow the corrupt and inefficient Rhee Administration, Ch'ang-Kuk Chang, no. 132. 3'Due to his role in the Ha-Kuk-Sang case, Kim was forced to resign and remained on reserve status from Feb. 17, 1961 77 peaceful campaigns, they began to organize a military action.3® It is not yet fully disclosed when they really began to consider military actions like a coup d'etat. But, according to Kim, they decided to overthrow the civilian
Chang Myon government with physical means partly because the
Chang Administration failed in carrying out the ideas of the
Student Revolution by becoming more corrupt and politically tainted, and partly because the military leadership, including its civilian Defense Minister Hyon Sok-Ho, refused to pay serious consideration to their purification campaigns.
Since the successful coup, Lt. Col. Kim Jong-Pil having taken charge of the powerful intelligence bureau within the
SCNR, appeared to be the second most powerful man of the military government only next to Vice-chairman Park Chung
Hee and those young colonels who had led the purification campaigns and the coup emerged as the most powerful group within the Military Government. Kim created a strong intelligence agency, the KCIA, and had exerted a powerful until he was reinstated to his former military status after the May 16 Coup. 3®There were eight lieutenant colonels of the 8th Class who originially participated in the purification campaigns, but two of them could not play active roles in the actual coup because they were moved out of the Army Headquarters in Seoul. Instead, five officers from the same 8th Class joined the campaign and thus the actual core members of the coup from the 8th Class became eleven in total: Kil Chae-HO; Ok Ch'ang-Ho; Sin Yun-Ch'ang; Sok ch'ang-Hi; Kim Hytfng-Uk; Kim Jong-Pil; 0 Ch'i-Song; S8k Chtfng-SiJh; Kim Tong-Hwan; Yi Taek-Kun; Kim Sang-Hun. Ch'ang-Kuk Chang, no. 151. 78
influence on the overall revolutionary tasks until he was
forced to leave the country in February 1963. Kim's purposes for establishing such a powerful institution was not simply
to collect and process relevant information. He revealed his initial ideas of the agency:
"There were several reasons(for creating the KCIA). First, we needed to consolidate the revolution as fast as possible. If we failed in doing it quickly and, as a consequence, if a bad circulation continued with tossing and turning, it seemed quite clear to see a great chaos in the country as well as a failure of the revolution itself. Secondly, it was critical to prevent anti-revolutionary plots. I thought that I had to be responsible for this very important task. And, thirdly, it is information that is mostly demanded in implementing a powerful plan to fulfill the revolution. We needed activities for gathering information. I was appointed to that position(of the director of the KCIA1 since I had worked at the Army Intelligence Bureau." ^9
Kim also established the Planning Committee in an effort to "provide the people with a historic momentum or motivation for making a rich country".40 As Kim revealed, the Committee consisting of five sub-committees was
initiated to elaborate national policies in cooperation with all the able and conscientious experts in every field. A total 62 college professors, journalists, lawyers, and former bureaucratB were named as the committee members under
j~*5anq-U Yi, Park Chuno Hee Sldae. II. p. 89. 40Interview with O-Ki Kwon, Feb.-March 1966, Chtfnach'i ChunaSn (Seoul: Dong-A Ilbosa, 1986), p. 35. 79
the direction of four elite colonels at the Defense College.41
Supported by institutions like these, Kim was believed to be deeply involved in launching a number of national policies. Kim revealed that he had drafted the pledge of the military revolution and other major decrees and tasks of the revolutionary government.4^ According to Kim, he thought his duty would be accomplished by a successful revolution, and, therefore, his intention was simply to perform drastic surgical operations rather than arrange conflicts through politics.4^
Economically, Kim and his colleagues had strongly favored a tightly planned economy. Even if they would adopt a free market economy, they hoped for a mixed formula with government-led planning for a certain period of time.
Politically, on the other hand, Kim intended to support organizing a civilian government "if" he could find certain politicians who (1) had not participated in either the
Liberal Party or the Democratic Party; (2) had not been blamed by the people; (3) who were younger than 45 years of age. As a whole, Kim and his young colleagues wanted a real
4j;The Choonoang Ilbo, Feb. 22, 1982. Lt. Col. Yi S5k-Che revealed that he began collecting information and data about the possible tasks for a revolutionary government from April 1961, one month before the coup. According to him, he collected them mostly from the major monthly journals like the Sasanqkve. Sang-U Yi, Pak Chonqkwyn 18 NvSn. ^Interview with O-Ki KwSn, Ch&nqch'i ChunqSn. p. 35. 80
revolution by means of the coup d'etat bringing reforms and fundamental changes to the whole nation.
Park Chung Hee on the Apex of the Revolutioni As briefly explained in the analysis of the institutional structure of the SCNR, Maj. Gen. Park Chung Hee mastermined the coup and was the actual leader of the revolution. For a while, at the beginning of the regime, it was revealed that
Park had made decisions after consultations with Lt. Col.
Kim Jong-Pil and Maj. Gen. Kim Tong-Ha.^ In fact, however,
Park was a predominant figure and played an autonomous role in deciding which policies should be adopted and how to implement them to achieve a certain goal. In other words, from the perspective of the New Political Economy. Park would be described as a statesman at the apex of the revolution who had to make deliberate efforts to increase his resources of political production and actively reached out his hands for creating a better coalition in support of his goals of the revolution.
Examining his remarks and performance as a top decision-maker and statesman after the successful coup, one could see strong influence of his past experiences in his goals. The economic poverty in his youth and the unhappy experience during his military career have been regarded as the inner-most psychological motivation for Park to lead
^Yong-Chung Cho. 81 such a risky coup attempt. Gen. Park was horn as the youngest of seven children in a small village of the rural
Worth Kyongsang Province in 1917 and had lived a very poor economic life when he was young. Upon his graduation from the Manchukuo Military Institute and the Japanese Imperial
Military Academy in 1943, he began to serve as a Japanese officer at the Kwangtung Army Base in Manchukuo.4®
By the end of World War II, Park returned to Korea and was appointed as Captain of the new Korean Army by a completion of a short course offered at the newly organized
Officers Candidate School.4® Throughout his career in the military/ he had been persecuted by the ill-willed conspiracy of the communists and, therefore, his rise through the military hierarchy was slower than his colleagues.47 Though the Rhee Administration and the U.S.
Command in Korea did not show full confidence in him, Gen.
Park was one of the few seniors in the army respected by a number of younger officers.
It was not until his ascendency to the chairmanship of the SCNR that Park had clearly declared his goals within the
4®Before he joined the Manchukuo Military Institute, he had taught at an elementary school near his hometown for about 3 years. 46The OCS had been upscaled to a better institution, the Korean Military Academy and thus Park became one of the 2nd Class of the KMA. 47In 1948, Park was sentenced to death in connection with the communist-instigated Yosu rebellion. After a while, he was released trom the conspiracy against him and reinstated to his former military position at the Army Intelligence Bureau at the break of the Korean War. 82 revolutionary government. For the first 50 days, Park had consecrated himself to consolidate his power base against various internal challenges and hostile treatment of the
U.S., in particular.**® In efforts to achieve this goal of consolidating his power, Park had actively executed a number of tasks mostly in the name of eliminating dishonesty and corruption by dissolving the National Assembly, suspending political activities, arresting and examining a number of ruling or opposing leaders, and imposing press censorship.
By Chang's departure, Park declared that the initial goal of the revolution was fulfilled.
In a decree issued by holding the chairmanship of the
SCNR, Park remarked that his ruling junta would concentrate all of its muscle and heart to achieve certain goals: bringing a quick end to every single evil of the past; consolidating order of the state; reviving the national morale and spirit; raising the people's socio- and economic living standard; preventing military threats of the communists; establishing a true democratic welfare state.**®
Delivering his message on the revolutionary tasks of the second stage, a couple of days later, Park coaxed his people into cooperating with the government for successful reforms
“*®Gen. Park had been known among U.S. and ROK military hierarchy as the only general who had not played golf with U.S. officers. Furthermore, Park's alleged involvement in a communist instigated revolt in 1947 made U.S. officers even suspicious and worried about Park's leadership. ^®The Donq-A Ilbo. 4 July 1961, p. 1. 83
and vowed to reconstruct the national economy crippled by
the uncertainty during the transition. In particular, Park stressed a strict standard for the self-purification drive. Determined to rout out any dishonesty within the military.
He promised to set up a special monitoring agency under his auspices and reduce the presence of the military officers in administrating the state.^
Once having seized control of the junta government, it seemed that Park was determinded to dedicate himself to revitalize the country's ailing economy and consolidate social justice by rooting out inefficiency and corruption.
Park's Political Choice and Stratification Examining Park's remarks since his successful consolidation of power, it seemed quite clear that Park had chosen a couple of specific choices as a statesman. In his sharp criticism about the former politicians and their responsibilities for the wide-spread disruption, he revealed that he had chosen to remain in authority in the future. At the same time, he seemed to have made his choice of inducing socio-economic changes when he repeated his strong desire for reconstruction with thorough reforms.
Remain in Authority in the Futures For the first time since the coup, Park announced the junta's political
^ The Dona-A Ilbo. 8 July 1961, p. 1. 84
schedule on Aug. 12, 1961. Amid a dispute over the period of
military rule, he promised to hold free elections under a
new Constitution by mid-1963.
He stressed that the junta had decided to have
elections in two years only for consolidating a firm ground to prevent recurrence of dishonesty and corruption.^ Park
delivered a sharp criticism against those who had complained
about the two-year-period military rule. "They are such a
bundle of people who have no faith, nor vision, but pure
greed for power," argued Park, "that are demanding an
immediate return to civilian rule." He reaffirmed that the
brave military-coup officers did not uprise against the
Chang Administration at the risk of their own lives simply
for transferring power to such unconscientious and anti-
nationalistic politicians. According to him, what he had
really worried about was the question of how efficiently the
civilian politicians could forestall disruption caused by
the resurgence of corruption and dishonesty.
Indeed, Park seemed to decide to remain in authority in the future. According to Ilchman and Uphoff, the statesman who wishes to remain in authority in the future, will spend most of his scarce resources for the future objectives, mostly not in a reactive m o d e . Referring to his early remarks on various occasions, Park seemed to willingly
j^T h e Donq-A Ilbo. 15 Aug. 1961, p. 1. 52Ilchman and Uphoff, p. 35. 85
dedicate himself to a certain future objective of how to
return to a normal civilian rule in two years rather than
spend his scarce resources to buy his political supporters. In his early remarks, he repeated his genuine intention
not to run for an elected office after fulfilling the
revolutionary tasks. He promised to keep the revolutionary
pledge, the item number 6, in particular, in its original
duty with a completion of its revolutionary tasks. On the
other hand, he declared in his August 12 announcement that
he would boycott such corrupt and dishonest former
politicians from participating in the new political order
and continued to work for realizing this choice. Namely, the
thirty month-long junta period was initiated by Park's
choice to create a new structural base for future political
exchanges.
Induce Social and E c o n o m ic Changes The economic policies of the Military Government can not be fully understood without a consideration of Park's personal experience of the extreme poverty in his childhood. And also we have to take into consideration the fact that many of the core members of the Military Government were originally from the poor countryside, mostly engaged in farming and fishery.
These personal experiences and desires were reflected in the basic guideline of the economic policies of the Military
Government unveiled for the first time on June 1, 1961. 86
At first, the junta suggested a strict and wide-ranged
government involvement into the free market economy in an
effort to achieve a balanced growth of the national economy.
Guided by government planning, according to the junta, basic
industries managed by the government would support private
industries. The junta revealed its preference of
establishing a reasonable and fair tax system and a banking
institution representing public interests by disrupting
special treatment and monopoly. The Military Government also
proclaimed its efforts to maintain the price of farm
products and the foreign exchange rates. In addition to its
initiative to diversify industries and scatter them
throughout the country, the junta made a promise to develop
agricultural and fishing districts.^ Likewise, it seemed
true that the ruling Military Government originally intended
to launch a revolutionary shift in economic affairs.
Although Park revised a little bit of the initial
guideline, he confirmed its basic spirit in his August 12 announcement. Foretelling a Constitution with Presidential
system and unicameral legislature, Park said that the
Military Government would transfer its power to civilian
rule only after fulfilling certain basic tasks, at the minimum, in order to eliminate all the former evils and create a true democratic order. In addition to his wishes to rout out all the social and political evils and bring in a
^ The Donq-A Ilbo. 1 June 1961, p. 1. 87
noble and impeccable social norm and legal order. Park
committed himself to reform every system and make it
progress up to a certain level. Park also reiterated his desire to reconstruct the civilian economy and forcefully
implement the first part of a long-term economic development plan in an effort to eliminate poverty.
According to the New Political Economy. Park chose to
induce social and economic changes instead of coping with social and economic changes. As would be seen later. Park intended to use his superior resources in economic and physical forces to alter the means and volume of production aimed toward a desired future condition. He wanted to replace the current exchange structure dominated by the private greed of powerful interest groups by a coordinated system supervised under the guidance of the state for the benefit of the public as a whole.^
Park reiterated his choice on economic policies in his autobiography.He insisted in the book that he aimed to establish a nationalistic self-sustaining economy with fair distribution, which sounded feasible only in the revolutionary way of inducing social and economic change.
His intention was to bring to the people a restoration of the economic system which had become the possession of a few
j^The Dono-A IlboT. 12 Aug. 1961, p. 1. ^Chung Hee Park, Our Nation's Path. 55Chung Hee Park, The Country, the Revolution and I. p. 106. 88 of the privileged class. If it worked, Park assumed, a fair economic system would evolve for small farmers, fishermen, laborers, and ordinary citizens.
Arrangement of the Major Sectoral Using its enormous physical forces, the Military Government enforced an arrangement of important sectors. Once the junta seized power, a number of career politicians and civil servants were dismissed from the government and a number of intellectuals were brought in to generate revolutionary tasks. As revealed in the examination of the regime, the chairman of the junta was provided with advice from six professors. The SCNR also organized the Planning Committee composed of over sixty civilians, mostly college professors, and the National Movement for Reconstruction headed by a prominent scholar.
The junta replaced civilian politicians and high ranking bureaucrats by generals and colonels. The military took charge of all the cabinet posts, and all the governors and mayors of major cities were filled with military officers. About 3,000 civil servants were dismissed including the arrests of two former ministers. Only on June
23, 1961, a month later, the first two civilians were appointed as the Ministers of Finance and Construction, respectively. Real progress for Institutionalizing a civilian bureaucracy as a sector began by the establishment 89
of the Economic Planning Board in charge of arranging
economic affairs on July 23 of the same year.
In the early 60s in Korea, farmers and fishermen were
major sectors in terms of the population and their share in the national product. In 1961, total value produced from
agriculture, forestry, and fisheries reached 44 percent of
the Gross National Product and more than two-third of the
whole population lived in the rural area.^7 The Military
Government, most of whose leaders came from such rural
areas, regarded farmers and fishermen as their natural
supporting groups.
It took a few months for business to become involved in
the political process as a sector. On May 28, 1961, the
junta announced basic principles for disposal of illegal wealth and arrested twelve top millionaire businessmen on charges of making illegal and dishonest profits. The junta also nationalized the ownership of private banks to provide funds for its own favored programs. But the leading businessmen made efforts to protect their general interests and strengthen their influence by organizing the Federation of Korean Industries on August 16, 1961 as an umbrella organization for the big industrial and commercial institutions.
^7Bank of Korea. Economic Statistics Yearbook. 1969. ref. Cole and Lyman, p. 258. But according to the Economic Survey 1964 by the Economic Planning Board, the proportion of the primary industry in the GNP was much lower with only 35.3 percent, p. 12. 90
Meanwhile, the U.S. had been deeply involved in Korean politics since Korea's liberation from Japan in 1945. Almost half of the total South Korean budgets came from the United
States in terms of economic and military aid in the 60s.^®
In addition, the United States had tens of thousands of its soldiers in Korea and the U.S. commander controlled both the
U.S. and all South Korean armed forces in the country since the Korean War. Indeed, up until the coup, U.S. political, economic and military agencies exerted enormous influence upon the regimes in Korea and participated deeply in domestic affairs.^®
On the other hand, some sectors lost a number of their members and could not play normal functions. The press and the students, once active and powerful sectors under the former Republic, were banned from participating as leading sectors. The junta arrested some 2,000 communists and their collaborators, most of whom were Btudents and progressive intellectuals and closed down a number of newspapers and news media. All political parties and organizations were dissolved including the former ruling party. Only at the beginning of 1963, 19 monthes later, the ban on political
^®In 1961, 48.4 percent of the total revenue came from the U.S. aid. See Rep. of Korea, Economic Planning Board, Economic Survey. 1962 (Seoul: Economic Planning Board, 1962), p. 97. oaThere were at least four major U.S. institutions in Korea in the sixties: The U.S. Embassy, the CIA branch office, the U.S. Military Command in Korea, and the American aid mission(USOM). 91
activities was lifted, and 2322 career politicians were
allowed to participate in politics.
A Contradictory Exclusive Models It seemed that a statesman can not achieve his goals without forming a coalition regardless of his own resource positions. Because the resources available are limited in most cases, he tends to favor one sector(s) and not the other(s). This coalition building creates unequal distribution of the statesman's attention in terms of the influence on the regime. Ilchman and Uphoff acknowledged the importance of the statesman's political environment(which consisted of diverse sectors) and thus attempted to explain the political process in terms of this change of stratification.
In his choices of remaining in authority in the future
and inducing social and economic change, Park was not able
to avoid conflicts with some powerful sectors during the
transitional period. Particularly, he might not be able to
neglect demands of U.S. agencies in Korea.®® For a while
after the coup, it seemed realistic to expect only U.S.
agencies to raise voices against the Military government.
Ever since the successful coup, however, Park had
collaborated with the Junior Officers led by Col. Kim Jong-
®®The demands from U.S. officials were obviously about an early return to civilian rule and a respect for natural flows of the market mechanism by arranging Korean economy in that direction. 92
Pil to achieve his original goal of bringing a revolutionary
change. As revealed in his remarks on choice and preference,
Park regarded the military including the Junior Officers as
his core combination and intended to take some intellectuals
and farmers and fishermen as the ideological bias group. On
the other hand, Park and his close allies within the
officers groups pushed high-ranking civilian bureaucrats,
big businessmen, the urban middle class, and U.S. officials
deliberately out of this ruling coalition into the stability
group. The press, the students, workers, and the career
politicians were further pushed outward to remain as the
extra stability group(Figure 2). Consequently, the
stratification was completed by excluding most of the major
sectors of the preceding era in an apparent attempt to mobilize supports from the new sectors of intellectuals,
farmers, and fishermen.
In an effort to manage the revolution and enhance their resources, Park and his subordinates were in energetic pursuit of a number of new policies within the boundary of this stratification. In the following chapters in Part Two, the political process of the revolutionary government in terms of economic policies will be discussed from diverse vantagepoints on the changes of resources, choices, and stratifications. 93
10 12
Coro Combination The Military (7)
Ideological Biao Intellectuals (6) Farmers and Fishermen (8)
Stability Group High-ranking Civilian Bureaucrats (5) Big Businessmen (9) U.S. Officials (<») Urban Middle Claaa (10) Small-Medium Sized Businessman-Cll)
Extra-Stability G r o u p Students (3) The Press (12) Career Politicians (2) Workers (1) Urban Lover Claes (13)
Figure 2 The Stratification of the Political Community in South Korea, early June 1961. CHAPTER III RESOURCE EXCHANGE ONE: A COUNTER POLICY ON USURIOUS DEBTS IN RURAL COMMUNITIES
Under the military regime, the junta and its ruling
coalition had initiated a number of new socio-economic policies to increase their resource positions or to prevent
future benefits from being extended to their opponents.
These new policies, in particular, were launched rather blatantly and with haste in the midst of crisis and, as expected, uncertainty emerging after the coup and had resulted mostly in contradictions.
The junta declared a moratorium for usurious debt incurred by farmers and fishermen on May 25, 1961, 10 days after its successful coup. It had been widely held that the rural communities, either in farming or fishing areas, were devastated by the indebtedness aggravated since the Korean
War. The total amount of the indebtedness of farming household to private lenders was estimated at 95,609 million hwan as of September 1960, about a half of the total GNP in
1960. Among other things, in particular, the usurious loans had been regarded as one of the major causal factors for the perpetuation of poverty within the rural communities. The junta, thus, seemed to put the issue as one of the top
94 95 priorities of its urgent tasks and decided to solve this problem with such a swift measure.
In this chapter, we are going to assess the junta's first revolutionary task, the liquidation of usurious debts in fanning and fishing communities. In an attempt to have an explanation of the process and termination of the policy, we need to briefly examine the historical development of the farmers and fishermen. Then, various approaches will be attempted to bring a better explanation of the policy change from three vantagepoints: resource positions, coalition building, and the statesman's choice.
Emergence of the Counter-Usury Policy in Rural Communities
An ordinary farmer's life in 1961 was as miserable as before. In an interview with a leading newspaper, a farmer reluctantly described ordinary farmers' agonies stating that they had been abandoned with no one representing them. "Once we sent someone to Seoul as our representative at the
National Assembly," the farmer said, "he became involved in the so-called 'terrible politics' and thus showed no effort to work for us farmers.”^ He also criticized a number of the bureaucrats who supposedly .should have dedicated themselves for the benefit of the farmers. "What the ordinary farmers dreamed," he continued, "was just to work hard, eat as much
•^The Dong-A Ilbo, 23 Nov. 1961, p. 2. 96 as they want and be able to sleep without being interrupted, but, to our regret, nothing like this could be achieved."
This poor situation was similar in the fisheries. Per capita income in a fishing community was far below the national average and they were constantly pushed to run into debts. In a survey conducted by a college research team, only 10 percent of whole fishing communities had electricity while over 30 percent of the fishing population were illiterate.2 Thus, fishermen did not hesitate to call themselves "orphans abandoned at seashore".
Legacies of the Agricultural Credit Policy under the
Rhee and Chang Regimess As described earlier, the low productivity of the farmland and fisheries and the massive inflow of U.S. agricultural products had brought a permanent poverty to the rural areas. But the prevalence of usurious loans and the indebtedness of the poor farmers and fishermen were mainly due to the shortage of agricultural financing and the absense of specialized banks for farmers.
The Liberation and the Korean War were tragic enough to wipe out all industrial facilities and capacities of the
South, and the financial situation of the rural areas was even worsened by the rising demands for industrial capitals.
During the period of the economic rehabilitation of the
1950s, the focus had thus been changed to reconstruct and
2The Dong-A Ilbo. 14 Dec. 1961, p. 2. 97 develop a rapid industrial production. As a good example of this, the Reconstruction Bank, established to support rapid rehabilitation in 1954, had terminated its service of agricultural loans since 1958.
Only in the late 1950s, the government realized a need to support agriculture, by easing its financial situation.^
As a result, a specialized financial institution, the
Agricultural Bank, Ltd., was established in May 1956. But its purposes and functions were not fully elaborated to solve the agricultural indebtedness and relieve the problem of the permanent rural poverty. After a short while in April
1958, another new Agricultural Bank was launched, this time by the government, to provide more agricultural credits with better terms.
According to the estimates presented in Table 18, the total agricultural loans became stabilized in 1960 at around one third of the total loans available at the organized official financial institutions. In fact, these figures illustrated approximately only half of the actual indebtedness incurred by the rural communities. Despite the favorable trend regarding the ratio of bank loans to total debts of the rural communities, farmers and fishermen were
JIn an attempt to ease the situation in rural communities, the government turned to foreign experts to elaborate a better formula. Both Johnson and Cooper were invited to recommend, but Cooper's report to establish an agricultural bank was adopted by the government in 1956. 98
heavily in debt at the moment of the military coup mostly with usuries estimated at about 9,560 million won.
Table 18 Agricultural Loans by Financial Institutions, 1952-1960*
(million won) Agricultural Bank Total Total Agricultural Total Agricultural Year Loan Loan Loan Loan B/A
A B 1952 79 57 798 188 23.6 1953 151 117 1,800 433 24.1 1954 476 403 2,999 841 28.0 1955 696 544 7,381 1,639 22.2 1956 1,811 1,514 10,667 3,577 33.5 1957 4,982 4,671 20,974 7,286 34.7 1958 8,256 7,830 26,428 7,871 29.8 1959 8,962 8,170 32,391 8,216 25.3 1960 12,842 11,484 39,167 11,536 29.5
*From Ban, Moon, and Perkins, p. 208.
Usurious Debts t It was not clear when such usurious loans began to appear in Korea. But many agreed that those loans were available during the Yi Dynasty and under the
Japanese colonial rule. In particular, such loans prevailed when political situations were deteriorated into chaos with corruptions and inefficiency.^ Whenever political regimes needed resources, farmers and fishermen, traditionally weak and poor, turned out to be an easy target for exploitation.
^The Donq-A Ilbo. 3 Nov. 1961, p. 2. 99
Then, the farmers and fishermen had no other choice but to look for usurious loans to survive their daily lives.
In fact, a number of farmers could have nothing in their hands at the end of the harvest once they paid their debts back. Average household income of the fishing community in 1961, for instance, was about less than 600,000 hwan, but they had to spend more than 800,000 hwan a year just to stay alive. The gap could not be met without external sources like usurious loans. The military junta defined any loans bearing annual interest rates over 20 percent as usurious ones. But in fact many of the usuries were required to pay 5 to 6 percent per month for interest.
In spite of the high interest payment, demands for such loans had never declined throughout the 1950s.
Indeed, it was not true that only the poor looked for usurious loans. Not a few landlords or wealthy fishermen had relied on the usurious loans in order to increase their production by purchasing more chemical fertilizers or installing new motors into their fishing boats. It was reported that one third of all usurious loans in fishing communities were in fact incurred by the demands of these relatively wealthy people.** In these cases, some poor farmers and fishermen happened to be creditors, who lent their money to the relatively rich landlords or owners of fishing boats, instead of putting it into the savings of
5The Dong-A Ilbo, 19 Dec. 1961, p. 2. 100 regular banking institutions, with an expectation of better returns due to its higher interest. In either case, however, the prevalence of usurious loans in the 1950s resulted from the fact that there were no easy credits available in the rural communities, particularly, for the poor farmers and fishermen.
The Counter-Usurv Programr In spite of the trend in favor of the bank loans in the total debt of the farm household as described in Table 19, the military government seemed to be strongly motivated to take an immediate and revolutionary action toward the usurious debts prevalent in rural communities. On June 9, 1961, the SCNR promulgated a law on the usurious debt settlement in an effort to relieve a number of poor farmers and fishermen from the chronic burdens of hardship and poverty by eliminating the longstanding practice of the money lending organized at extremely high interest rates in rural communities.
According to this law consisting of 16 specific articles, the farmers and fishermen who had realistically participated in farming and fishing could be qualified to file their usurious debts for liquidation.** The authorities had defined usury as any debt bearing interest rates over 12 percent per annum and being incurred before the initial
^The Doncr-A Ilbo. 10 June 1961, p. 1. 101 announcement of the program on May 25, 1961.^ Both debtors and creditors were required to report their debts(loans) to each of the usurious debt liquidation committees or supervising committees established in every village(Li or
Tong), county or city within a certain period determined by the Ministry of Agriculture and Forestry.
Table 19 Ratio of Private Debt to Total Farm Household Debt* (in won)
Total debts per farm Private as % Period household Private Debts of total debts
Oct. 1956 3,997 3,273 82% Oct. 1957 4,623 3,592 78 June 1958 5,625 4,433 79 Sept.1959 6,779 4,743 69 Sept.1960 6,693 3,885 58
*From Cole and Lyman, p. 146.
The Law provided that once the committees ruled certain debts legitimate, the Agricultural Bank would compensate the creditors by issusing them bonds bearing the same amount of their loans. The payment would be made over five years after a grace period of two years with interest of 12 percent per annum. On the other hand, the debtors were to repay their debts back to the government-run bank within seven years with the same 12 percent interest unless the debts exceeded
^At the initial announcement of the Counter-Usury Program on May 25, the SCNR intended to define the usury as debts with annual interest rates at 20 percent or above. 102
150,000 hwan per a debtor. If they exceeded this amount, both creditors and debtors should register for the approval at the local police stations. Anyone who made false registration would be subject to harsh punishment. In particular, the SCNR warned that those who failed to file their usury would be regarded as having their loans legally cancelled. Along with the promulgation of the law, the government was reported to have released some 14 billion hwan to ease farmers' urgent financial needs.®
Despite its hasty decision to cure everything in one stroke, the Counter-Usury Program was designed to bring a revolutionary change in the rural areas which comprised two thirds of the whole population by eliminating their major headache which no previous regimes ever attempted to cure.
Announcing the revolutionary decree, bold optimism prevailed within the ruling junta. Prior to explaining the actual execution of the Program, let's have a brief look at the resource position of the rural areas.
Farmers and Fishermen
As illustrated in Table 20, the rural communities had constituted a large portion of GNP and population. They had produced more than a third of GNP and around two thirds of the total population lived in a farm household.
®The Korea Times. 11 June 1961, p. 2. 103
At least in Korea's modern history, however, they had
been wildly abandoned for the benefits of the booming urban
centers. In many instances, it was revealed that they had
been largely neglected and exploited through various means.
Table 20 Agriculture's Share in GNP and Population
Share of Agriculture, Share of Farm forestry and fisheries Population in in GNP(%) (Fisheries) Total Population(%)
1956 34.2 1.11 64.9 1957 34.6 1.1 63.7 1958 35.2 1.1 62.8 1959 33.4 1.0 61.5 1960 32.9 0.9 58.3 1961 35.3 1.0 58.2
Source: EPB, Economic Survey. 1964. pp. 102 and 108.
Lack of Resources within the Rural Communities; The
limited land under cultivation and the high density of farm
population had restricted the prosperity of the agricultural
sector.9 Thereby, farmers earned far less than urban manufacturing production workers in 1 9 6 1 .^ The primary
industry of agriculture, forestry and fishery fluctuated
9The area of cultivated land had been around 20 percent of the total land throughout the 1950s and they possessed the smallest arable land per capita compared to Japan, Thailand, India, and even China. Sung Hwan Ban, Pal Yong Moon, and Dwight H. Perkins, Rural Development (Cambridge, Mass.: Harvard Univ. Press, 1980), p. 17. 10An average urban worker earned 2,610 won a month while a farmer received only 1,978 won. Frank, Kim, and Westphal, p. 224. 104
with a margin and showed rapidly declining rates in both
1959 and 1960(Table 21).
Table 21 Rates of Growth of the Three Industries
1956 1957 1958 1959 1960 1961
Primary Industry -5.8 8.2 7.9 -0.5 0.1 12.7 Secondary 9.9 16.0 6.6 10.6 6.3 2.9 Tertiary 4.1 3.6 4.6 6.2 1.3 0.2 GNP 1.3 7.2 6.1 4.6 1.8 4.8
Source: EPB, Economic Survey. 1964, p. 107.
For 10 years between 1954 and 1965, the agricultural
sector expanded only 3.99 percent per year while the
national economy continued to grow at an annual rate of 6
percent. Furthermore, farm household savings were unstable
and even net income loss had been recorded(Table 22).
Because of the meager savings among the farm household, their contribution to national economy was little or
sometimes reactionary.
Table 22 Farm Household Savings and Their Contribution*
(In Won)
1958 1959 1960 1962
Farm Household Income 42,910 40,198 44,750 59,286 Farm H. Expenditure 45,352 39,643 45,499 55,739 Savings(as % of Income) -5.7 1.4 -1.7 6.0 Savings(as % of GNP) -2.6 0.6 -0.7 2.5
*Frora Ban, Moon, and Perkins, pp. 18 and 20. 105
Farm household's resources are also limited by their
products. By 1964, they did not diversify the range of
agricultural commodities (Table 23). Most of them, instead,
took part in producing food grains and only a tenth of them
chose to raise livestock or plant vegetables, respectively.
The concentration of products among the numerous individual
farmers made them unable to control the prices of their
commodities.
Table 23 Composition of Agricultural Production by Commodity Groups
1955-1957 1962-1964
All Crops 76.32 80.92 Rice 49.46 49.20 Barley 12.83 16.16 Potato 5.37 8.38 Pulses 2.77 2.19 Special Crops 5.02 3.87 Others 0.87 1.12 Fruits 1.84 1.83 Veaetables 9.39 7.21 Livestock & Products 11.77 9.52 Cocoon 0.57 0.36 Nurserv Stock 0.12 0.17
Sources Ban, Moon, and Perkins, p. 50.
Government's Aaricultural Policvs Farmers had been dependent upon the government's price policy. Despite a limited scale, the government had purchased rice below the 106
actual cost of production until 1960 and sold it to urban
dwellers over their purchasing price even though it was
still below the market price(Table 24). That there was no
change in either purchasing or selling price in the 50s
stood for the regime's neglect or lack of concern for the
agricultural sector.11 Considering the continuing increase
of the production cost and market price in this period, it
was the poor resource positions of the farmers which made
them unable to achieve a parallel price increase for their
products in the government decision of the rice purchasing
price.
Table 24 Government Price Policy of Rice*
(Won per 80 Kg)
1956 1957 1958 1959 1960 1961
Purchase Price(A) 1,059 1,059 1,059 1,059 1,059 1,550 Production Cost(B) 1,134 1,384 1,297 1,300 1,313 1,377 Market Price(C) 1,591 1,311 1,157 1,368 1,687 1,768 Selling Price(D) 1,216 1,216 1,216 1,216 1,216 1,792 (A)/(B) % 93.4 76.5 81.6 81.4 80.7 112.6 (A)/(C) % 66.6 80.8 91.5 77.4 62.8 87.7 (D)/ (A) % 114.8 114.8 114.8 114.8 114.8 115.8
*From Ban, Moon, and Perkins, pp. 240 and 247.
11The pressure from U.S. to reduce inflation might maintain the low rice price policy throughout the period. Ban, Moon, and Perkins, p. 235. 107
Table 25 The PL480 Role in Agricultural Imports*
(In thousand U.S. dollars)
1956 1957 1958 1959 1960 1961 Total
Wheat 7,504 1,520 29,941 3,623 18,576 20,162 81,326 Barley 12,419 4,608 14,104 140 - 2,141 33,412 Rice - 26,840 —- — — 26,840 Corn - — 672 575 574 247 2,068 Cotton 8,183 1,807 448 6,986 763 21,492 39,680 Tobaco 4,848 2.126 - — — — 6,974 Other — 8,561 2,731 112 — 884 12,288 Total 32,955 45,522 47,896 11,436 19,913 44,926 602,648
*From Ch'an-il Pak, "Miguk ui Kytfngje Woncho ui Stfngkwa ku Kyongjej'iSk Kwigytfl(U .S . Economic Aid and Its Economic Consequences ],,r in Hankuk Kvffnale ui Chffnqae KwaiffnqfThe Development of Korean Economy], p. 84.
The inferior position of the farmers got even worse by the massive inflow of foreign argicultural products, mostly, through the U.S. PL480(Table 25). The imports of wheat and cotton, in particular, destroyed domestic products by the level of one tenth of the peak e r a . ’*’'* The poverty within the agricultural sector had forced many poor farmers to become tenants or migrants into the urban areas as laborers.
The Land Reforms Along with the unfavorable government policies and U.S. influence through PL480, the Land Reform also affected the relative resource positions of the farmers. The Land Reform initiated in 1950, some 5 years
^Sang-Hwan Chang, "Wigie Ch'lShan Hankuk NSngtfp[Korean Agriculture in Crisis]," in Hankuk Kvynqie ui IhaefAn Understanding of Korean Economy], (Seoul: Pibong Ch'ulp'ansa, 1987), pp. 148-49. 108
after the Liberation, was virtually completed in 1955.*^
The reform intended to return all the land owned by Japanese
and Korean landlords to tenant farmers by paying some
compensations to the Korean landlords.^
It seemed true that the original purpose of fair
distribution of the land was achieved if we look at the high
percentage of full ownership in 1964(Table 26). It was
revealed that the Korean case was a fairly good example of a
successful land reform implying a general collapse of the
former landlords. But it has been assessed that the land
reform policy was a failure from the tenant's viewpoint because tenants had to provide former landlords with appropriate compensation to get their own farm land.
-^More details of the Land Reform, see Pyong-T'ae Kim, "Nongji Kaehy<5k ui P'yongga wa Panstfng[An Evaluation of the Land Reform]," in Hankuk KvSnale ui Chonkae KwalShaTThe Development of Korean Economy]; YBhg-Il Chttng, "Woehyangjtfk KySngje Palchl5h kwa Nong^Jpchbngch' aek[Outward Economic Development and Agricultural policies]," in Hankuk KvSncHe ui Chonkae KwaiSharThe Development of Korean Economy]; and In-Ho Yu, "Haebang hu Nongji KaehySlc ui Chonkae KwajCng kwa SShggwa[The Process and Results of the Land Reform after the Liberation]," in Haebang Chonhusa ui InsikTHistorical Development of the Liberation], eds. Gon-Ho Song et al. (Seoul: Hankilsa, 1980). 14The originally intended purposes of the Reform were elaborated by the original planner, Chin-Kuk Kang. See his "Holttut'kkin Nongji KaehySkpSb Ch'oan[The Original Draft of the Land Reform]," Shindonga, Oct. 1965, pp. 188-97. 109
Table 26 Owner-Tenant Distribution of Farm Household(%)*
1945 1947(end) 1964
Full Owner 13.8 16.5 71.6 Owner-Tenant 16.4 38.3 14.8 Tenant-Owner 18.2 Tenant 48.9 42.1 8.4 Farm Laborer 2.7 3.1 5.2
*From Ban, Moon, and Perkins, p. 286.
But contrary to the hopeful anticipation, the reform failed in bringing an increase in agricultural productivity or farm household's well-being. The Rhee government did not launch new policies like an expansion of credits to farmers necessary to support the fragile new, independent owner- farmers. A strict price control of agricultural products by the government and the imposition of a number of taxes and quasi-taxes had aggrevated hardships to the farmers.15
Since the reform, as a consequence, the majority of small and independent land owner farmers who had the most potential and motivation in increasing farm household's productivity were collapsed by the Reform. Only a handful of big landlords survived and even rapidly accumulated their wealth by collaborating with the elite in the Executive, the
15In addition to some 30 kinds of tax-like duties imposed by the government, farmers had to pay roughly 15 to 28 percent of their annual products as Land Acquisition Tax in the 1950s. Sang-Whan Chang, "Wigi e Ch'ohan Hankuk^, _ Nongop[Korean Agriculture in Crisis],r in Hankuk Kvonoie ui HvSnsilrKorean Economy Today], p. 131. 110
National assembly, and the ruling Liberal Party. ^ They actually did not care about agricultural products or the general well-beings of the ordinary farm household. By 1961, farmers as a sector were largely neglected and deprived of their economic resources and influence.
Productivity of the Counter-Usury Program
The previous regimes failed to execute the Counter-
Usury Program because they could not secure financial resources required to compensate the creditors. But as we examined in the resource position of the farmers, the powerful sectors within the previous stratifications had exploited farmers and prevented those previous regimes from launching a major step to eliminate rural debts. Out of this context, the core members of the ruling SCNR made an un-easy decision which would consume not a small portion of their scarce resources. In chapter I, a proposition was made that every economic policy under the junta was basically conceived as a result.of its rational choice to maximize its goal. We assumed that the success or failure of the junta's attempts would depend on the productivity of each policy.
Then it is our first mission to measure the exchange of resources from the vantage point of the productivity of the
^These landlordsreceived huge loans with their farm- bonds and invested in major industries in urban areas operated by aid imports. PyiJng-T'ae Kim, pp. 49 and 57. Ill
Program and a new distribution of resources through the policy implementation process.
The Junta's Original Calculations The junta announced
in public that the major aim of the revolutionary program was to promote and secure a better economy in the rural
communities by clearing all private debts with high interest. It was, however, not fully exposed how many members of the junta realized that the elimination of usurious debts could bring a better economy to the rural community. It was only a speculation that many coup leaders had revealed sympathy with the poor farmers and fishermen who had suffered by the usury and thus they attempted a quick solution of breaking the vicious circle of practicing money-lending with high interest once they took power.
It seemed that the ruling junta was willing to increase its authority and legitimacy among the populace through the execution of the Program. Their uprising in May was an open revolt against the legitimate constitutional government at a time when only a few were anxious to see the Chang regime overthrown by the military forces. Consequently, the revolutionary forces needed to have something to legitimize their action and they chose to criticize their predecessors' inefficiency, particularly, in their efforts to initiate social reforms. Quite naturally, the junta attempted to 112 describe itself as saviors of the poor farmers and fishermen.
It had been well known that the chronic problem of usurious money-lending caused major troubles among almost half of the total rural household. It was, thus, the junta's calculation that if it succeeded in eliminating the rural usuries through its revolutionary means, its reputation as a moral and able regime would be widely accepted by the majority of the people. As a consequence, the junta which regarded itself as an unselfish revolutionary tending to make judgement on who was right and who was wrong had determined to use its scarce resources for saving the poor from the exploitation by the usuries.
Policy Implementation and Resource Changei The junta asked farmers and fishermen to file any private loans with over 12 percent of interest per annum. According to its original plan, all files on usurious debts, presumably more than 95 billion hwan by an early estimation, should be sent to the local liquidation committees by August 24, 1961. Once the files were completed, the special committees in cooperation with the supervising committees seemed to examine the eligibility of every case reported for the compensation provided by the government.
But, all of a sudden, in the middle of August, the junta as well as the farmers and fishermen had to realize 113
the Program was producing less positive reaction in rural
communities. Both creditors and debtors were simply not enthusiastic about the voluntary registration. In fact, no realistic success would be expected without spending additional resources available to the junta. In August the government and the SCNR repeated their'warning to register any debts or loans with interest over 20 percent per annum.
The top official of the government warned senior officials of the entire local cities or provinces to achieve their assignment. In Ky&ngbuk province, they determined to circulate special pamphlets about usuries three times among all the farmers and fishermen in an effort to instruct them of the benefits of their voluntary registration. In another province Kytfngnam, the Minister announced a harsh warning that any county chief would be fired unless he got enough registrations. ■L1 7
One week before the deadline for the registration, both the government and the SCNR made special announcements to remind farmers and fishermen of filing their debts and to warn those who have resisted or sabotaged registrations. On
August 18, it was revealed that only 2.6 billion hwan, about less than 3 percent of the original estimation was reported.
Three days before its due date, the government unveiled that the total amount of the debts reported were nearly 11.4
17The Donq-A Ilbo, 9 Aug. 1961, p. 3. 114 billion hwan with a total of 236.262 cases. But it was still one tenth of the original plan.
On August 24, 1961, the government reluctantly declared postponement of its due date for one more month with a revision of some articles of the rural usurious debt settlement law. By the revision, the condition for compensation became a bit loosened while the retribution for the act of violating the Program got tightened. As a result of these orchestrating efforts of both the government and the SCNR, the total amount of the usurious debts filed by
Sept. 24 was nearly 50 billion hwan with over one million cases.
Termination of the Policy: By the closure of the registration of usurious debts, a total number of 1,231,851 cases were reported(nearly 25,500 cases by the fishermen) and almost 51,086 million hwan was recorded as the total indebtedness of the rural communities. It was more than half of the total amount of the agricultural usurious debts originally evaluated by the government.1®
At a press conference, Brig. Gen. Chang Kyong-Sun,
Minister of Agriculture and Forestry said proudly that the registration for the rural usurious debts was successful since the total amount reported exceeded the expectation.
1®The original estimation of the government reached 78 billion hwan in October 1960. The Donq-A Ilbo. 29 Sept. 1961, p. 1. 115
According to him, they estimated that the appropriate amount
reported would be somewhere between 45 and 50 billion hwan. ^
But an unexpected problem happened in the final stage
of determining usurious loans eligible for compensation.
Each local liquidation committee was required to send all
the files of usuries legally registered to the National
Agricultural Cooperative Federation(NACP), which was created
through a merge of the Agricultural Bank with the
Agricultural Cooperative Association in August 1961.
According to the Program, the NACF was to issue the
creditors agricultural bonds while each debtor should file a new contract with the NACF bearing two co- signers. In the poor rural communities, it was, however, not easy to find two co-signers who might be forced to pay the debts incurred by their friends, neighbors or relatives in case of the debtors' failure of repayment. In a south-eastern province, for instance, only 692 cases were cleared out of a total
201,512 cases on Oct 28, 1961, less than 20 days left until the legal termination of the liquidation.
Certainly, the usurious debt reported was one thing and the legitimate one ruled by the government was another. The government had distinguished funds for farming from those for private uses. An examination conducted by the government revealed that only 49 percent of registered debts were
-^The Korea Times. 27 Sept. 1961, p. 1. 116
intended to raise funds needed to finance farming and the remaining 51 percent was for such private purposes as
wedding ceremonies, funerals, and miscellaneous expenses
like educational spending for their children.^0 Out of the
reported total, debts ruled to be "usurious" amounted to
29.2 billion hwan and a total sura of 26.6 billion hwan was
covered by the Agricultural Finance Bonds issued by the
NACF.
Assessment of the Program and a New Distribution of
Resources: If the junta succeeded in its first revolutionary
task, its resource position should have been improved,
particularly in the area of political authority and
legitimacy with little spending of its economic resources.
At the beginning of the military rule, the junta, in need of
support and allegiance from the people had expected an
immediate and warm response to its revolutionary tasks among
the poor farmers and fishermen. But as described above, the
Program was a failure. Though the junta did not initiate the
Program to increase its economic revenues, the execution of
the Program enforced the junta to accept its critical loss in financial resources(by issuing bonds without holding legal promises from the debtors) or run the risk of losing its socio-political assets by returning to a policy of retrenchment.
^ The Far Eastern Economic Review. 16 Nov. 1961, p. 329. 117
In fact, there was no significant increase in the
junta's political resources in terms of authority and
legitimacy. First of all, the farmers were not satisfied
with the ways the military government performed the Program.
It was reported that many farmers did not favor the Program
on the grounds that the settlement program destroyed the
traditional custom of mutual cooperation within each rural
community. According to official statements, they found few
cases that could be named as real usurious debts with
outrageous high interest. In WttlslShg Gun, Kytfngsang Bukto,
only 2.5 percent of the total 6,713 creditors registered
were known as the "usurious moneylenders" while more than 80
percent were found to be ordinary farmers who lent rice or
cash ranging from 3,000 to 50,000 hwan to their neighbors or
friends with the spirit of mutual friendship. ^
Secondly, it seemed that the junta initiated the
Program without careful examination of the practice of the
rural private moneylending itself. Therefore, the junta did
not realize how many debtors and creditors were involved in
the so-called rural usurious moneylending business. In
Tongmyon town, Kyongsang Namdo, for example, 386 families
out of a total 930 farming families were listed as usurious
creditors.^ If we consider that this proportion and the
— ■■■ 3 it - ---- Thirdly, the Program caused temporary paralysis of the financial system in the rural communities. It was true that the military government had made efforts to increase the agricultural credit with low interest following the moratorium of private moneylending. In July 1961, the government announced it would provide about 23.2 billion hwan to support the needy farmers. But the government should have created enough agricultural credit for the poor farmers and fishermen because the moratorium on the usuries destroyed the private rural credit system. It was already known that a majority of farmers needed external sources to cover for the deficit owing to the seasonal fluctuation of the grain price and the absolute poverty of the ordinary farm household.23 An expert of the agricultural economy had once estimated that a total of 200 billion hwan should be released as a farming fund to remove the chronic practice of private moneylending out of the rural communities.2^ ^ The Korea Times. Editorial, 27 Oct. 1961, p. 2. 24Interview with Chu Suk-Kyun, president of the Korean Agricultural Research Institute, in The Korea Times, 20 Aug. 1961, p.2. 119 The major portion of the fanning fund had come out of the government's new easy-money policy. As an indication of the new policy, there was a rapid increase in money supply in 1961, as much as 42.5 percent increase in a year. Accordingly, the price index also showed an increase of 18.4 percent over the previous year.^ d u q to the growing inflationary pressure, the government support for agricultural credit had to be limited and, as a consequence, the proportion of private moneylending resumed its climb since 1962. Ratio of the private debt to the total farm household debt had sharply increased from 58 percent in September 1960 to 70 percent in August 1964(Table 3.2).^® As we noted before, there was no significant increase in the junta's political resources of authority and legitimacy. In contrast, there had been an obvious decline in some resources, particularly, in the economic resources for both the government and the rural communities as a whole. From the vantagepoint of the Proposition I, we may conclude that the revolutionary Counter-Usury Program ceased to be further executed by the military government mainly because the Program failed in producing needy resources. ^®It was revealedthat the amounts of money supplied were 219,100 million hwan at the end of 1960 and 312,200 million hwan by the end of 1961, respectively, The Far Eastern Economic Review. 10 May 1962, p. 291. i5Cole and Lyman, p. 148. 120 Stratification of the Sectors In response to Explanation I, could it be possible that such a powerful junta abandoned one of its major revolutionary policies simply because the policy failed to produce resources necessary for establishing authority and legitimacy? How did they lose their revolutionary goal of eliminating rural usurious debts so quickly? In 1961 and 1962, the junta still dominated the state and enjoyed an enormous power and resources. Then, why did the Counter- Usury Program stop being executed and the total amount of the usurious debts begin to increase in 1962? In an attempt to answer these questions and more, now we turn our focus to the second proposition. Our second perspective is to look at the process of policy change from the vantagepoint of the stratification. Basically, we assume that the economic policies were just the outcome of the routine political process of the ruling coalition. From this perspective, we propose that a reform policy in the usurious debts might be driven by a new coalition and, as a consequence, its outcome could be determined by the relative strength of the stratification. 121 The Stratification of Major Sectors and the Counter- Usury Program; As indicated earlier in the land reform, strong supporters of the previous regimes, landlords as well as politicians, had resisted making any realistic agricultural reforms. The Rhee government was imposing excessive tax onto the farmers and maintaining a low price policy for agricultural products throughout the 1950s(Table 24). Because the government failed in executing any reasonable agricultural credit system, usuries with over 50 to 100 percent of interest were commonly available in the rural area. Even the U.S. had an ambivalent interest in the farming and fishing communities. They seemed to prefer a healthy growth in Korean agriculture, but also a responsible for smooth importation of the U.S. agricultural products partly because the U.S. had to finance the vulnerable Korean economy as a whole and continue to support reconstruction, in particular. The excessive agricultural imports from the U.S. had delayed a healthy economic growth of the rural communities and antagonized them from the active supportive groups of the regime. From the beginning, the core members of the coup had shown a very sympathetic mood toward farmers and fishermen.^ It also seemed politically appropriate for the ^ I n his special remarks on the new price policy for agricultural products, Premier Song Yo-Ch'an announced that the government made a decision to raise the rice price even 122 junta which lacked legitimacy and popular support, to make efforts to bring the vast majority of the population into its supportive group for a successful revolution. Intellectuals, on the other hand, who had been regarded as the conscience of the nation had criticized the lack of concerns among the ruling elite under the First and Second Republic.Ever since its establishment, the SCNR had been widely regarded as the most powerful institution of the revolutionary government. Within this institution, the Planning Committee was organized in an effort to make drafts of major national policies. At the beginning, it consisted of five sub-committees headed by all colonels serving at the Defense College and was mostly recruited by college professors and technocrats. Even though they could not be over satisfied with the junta'b bold plan to eliminate the chronic money lending practice in the rural communities, not a few had actually assisted the junta's Counter-Usury Program as advisors and planners. Consequently, we anticipated an emerging stratification of the major sectors. The junta actively launched the though it would bring a burden to the national economy because it should compensate the sacrifice of the farmers. The Donq-A Ilbo, 17 Sept. 1961, p. 1. 2aProf. Pak Hi-bum of Economics had criticized the corruption and ignorance of the First Republic and the lack of success in economic policies of the Second Republic. He argued that there would be no hope for the rural areas without a drastic elimination of the usurious debts. Later, he joined the military government as an influential advisor for the Chairman. Sasanoove. Jan. 1961, pp. 229-30. 123 Counter-Usury Program with the support of some intellectuals in order to mobilize popular support from the farming and fishing communities. In the process, the junta planned to place civilian bureaucrats, especially of the Planning and Finance Departments and the concerned U.S. agencies out of the core coalition of the regime. Establishment of the national Agricultural Cooperative Federation(NACF^: Since the Independence, it had been a hot issue whether the Agricultural Cooperative Association could supply credits to farmers and fishermen among concerned institutions. The Ministry of Agriculture and Forestry and Agricultural Committee at the National Assembly had supported the idea of an integrated institution, but the Ministry of Finance and Economic and Financial Committee at the National Assembly had insisted on a separation of credit service from the general assignments of the Association by the establishment of an independent Agricultural Bank. The conflict could be resolved by the President Rhee's decision to favor the Ministry of Finance and set up a separate credit institution in 1957.^® As expected, the Agricultural Bank had shown a continued growth while the Association, suffering from financial needs and frequent political "" ^ ™ 1 ■ ■— — — — ■ ■ i ^The Financial Association did not succeed in profit- making and had to run deficits over the years, and it was believed that the late President Rhee had a preference of banking institutions to any agricultural organizations. Kyu- Hun Han, p. 240. 124 interventions had remained inefficient and had run severe deficits. On June 17, 1961, the SCNR announced a merge of the Agricultural Bank and the Agricultural Cooperative Association and established a committee for merging the two institutions. Only two months later, August 15, 1961, a new integrated agricultural association, the National Agricultural Cooperative Federation(NACF) was officially launched. The official motive for the merge was to establish a healthy agricultural development by preventing the inefficiency due to frequent political intervention within the former Agricultural Cooperative Association and the profit-oriented management of the former Agricultural Bank. But, the sudden merge after the coup could not help revealing an internal power shift toward those who had special concerns for the agriculture and the Ministry of Agriculture and Forestry vis-a-vis the Ministry of Finance. Based upon this power shift, the government began to exercise its anti usurious debts campaign as was originally planned. The NACF emerged as the key institution for the execution of the Counter-Usury Program by issuing Agricultural bonds to the money lenders and providing credits for the debtors once they finished filing their usurious debts. But the problem was whether the NACF would be operated by the voluntary participation of the farmers and fishermen. Only when the numerous farmers and fishermen 125 could organize themselves through the NACF as a unified institution representing their own interests, would they maintain their stronghold in the new stratification. New Civilian Ministers within the Military Government; The promulgation of the Counter-Usury Program and the merge of the Agricultural Bank and the Agricultural Cooperative Association were clearly reflecting a new stratification in favor of the farmers and fishermen. It was made possible partly by the destruction of the powerful Ministry of Finance and a relative decline of the U.S. influence after the coup. For instance, the committee for the merge was led by the Minister of Agriculture, Brig. Gen. Chang Kytfng-Sun and supported by the civilian Vice-Minister of Finance, Yi Han-Bin. This new order began to be changed by the inflow of new civilian members into the Cabinet. The military government named two civilians as new cabinet members at the posts of the Minister of Finance and the Minister of Construction on June 22, 1961.^® The Chairman of the SCNR, Lt. Gen. Chang To-Yong explained the replacement by the civilians that it would be most effective to combine the speed of the military with the knowledge and experience of the civilian group for realizing a long-term economic development. These two key 30The appointmentof the two civilian economic experts was believed to be strongly affected by the U.S. demand. Newsweek, 3 July 1961, p. 33. 126 Cabinet posts in charge of the national economic affairs had been occupied by civilians throughout the military government and kept the level of strength of the reform- minded civilian bureaucrats. At his first press conference, for instance, the Minister of Finance, Kim Yu-T'aek, announced his plan of to curtail spending and save enough for investments. This announcement clearly represented views against some revolutionary tasks already launched and the Counter-Usury Program, in particular. On July 22, 1961, however, another change within the Cabinet was disclosed. A new Economic Planning Board headed by the Finance Minister, Kim Yu-T'aek was established and another civilian Ch'on PySing-Kyu was named as a new Minister of Finance. The civilian chairman of the Board assumed the stewardship of the Ministries of economic affairs as the Vice-Premier of the entire Cabinet. The Chairman was particularly expected to normalize the sour relationship with the U.S. in economic matters and to establish the first Five-Year Economic Development Plan. These civilians who were in charge of the Planning and Finance departments were not in favor of Buch an exclusive support for farmers and fishermen. Indeed, it was these civilian bureaucrats who were actually to evaluate the efficiency or inefficiency of the Counter-Usury Program, and they were accumulating their resources within the government. 127 A Structural Change within the SCNR; The revolutionary government attempted to collect all the programs prepared by the previous regimes and executed them once they regarded them fit for their revolutionary goal.*^ It was revealed that a counter-usury program was drafted by the former Chang administration under the direction of Kim SChg-Kyu, former administrative Vice-Minister of the Ministry of Agriculture and Forestry in Fall 1960.^ The core members of the military regime, most of whom were the favorite sons of the poor farming or fishing household as described in chapter II, seemed to adopt this counter-usury program. They considered it quite fitting and proper for their revolutionary pledge to solve the livelihood of the people in desperation and starvation and thus achieve an economic self-sufficiency at the earliest possible date. Indeed, Kim SShg-Kyu acknowledged that he gave a brief to officers on the Counter-llsury Program at the request of the Military Government, and worked himself for the execution of the settlement program at the Ministry of Agriculture and Forestry until July 1961.^ ^ K i m Ki-Ch'tfl, former political Vice-Minister of the Ministry of Agriculture and Forestry under the Chang administration said that he actually worried about the sudden adoption of the Counter-Usury Program, kept in the Ministry's desk drawer, by the brusque revolutionary forces, The Hankook Ilbo. 20 Feb. 1982, p. 5. ^ The Choonq-ancr Ilbo, 22 Feb. 1982, p. 5. 3,jThe Choonq-anq Ilbo. 22 Feb. 1982, p. 5. 128 A thorough examination of the SCNR and its activities indicated that most of the important revolutionary tasks had been initiated by a handful of coup leaders headed by Vice- chairman Park Chung Hee and Lt. Col. Kim Jong-Pil. Most often, they had made decisions through consultation with the chairmen of the seven sub-committees of the SCNR. Then Gen. Park would pass out his memos or papers carrying the agenda of predetermined tasks at the daily meetings of the SCNR, Col. Yu WJSn-Sik, supreme member of the Finance and Economics sub-committee revealed that Gen. Park called him one day right after the coup and handed him a draft of the counter usury program.Despite his cautious request to revise certain rough items, Yu recalled that the program was announced as originally written. As Col. Yu indicated, the Counter-Usury Program seemed to be designed and ready for adoption by this powerful inner circle through a consultation with the sub-committee on Education, Health, and Social Affairs. These committees were headed by Brig. Gen. Song Ch'an-Ho and Marine Colonel Chong Se-Ung, Supreme Council members in charge of agriculture, in particular, and then notification was sent to each of the supreme members of the SCNR involved. Even the Planning Committee had a limited voice in drafting this Program because most of the committee members were known to be pessimistic about the chances of its success by saying that the chronic problem of usurious ^ The Chooncr-ancr Ilbo, 22 Feb. 1982, p. 5. 129 debts could not be resolved solely by the law itself and even some professors at the Committee openly criticized the program as a violation of the principle of private ownership. 3^ However, the Planning Committee did not actively participate in drafting the Program. It was this Committee that had assisted the promulgation of the Program with legal and technical advice. The Committee was dissolved in about two months when its chairman, Lt. Gen. Ham Pyong-Son was arrested because of illicit profiteering. Most of the Committee members were recruited by the Policy Research Council of the KCIA, the private brain-trust of Col. Kira Jong-Pil who actually had no real concern about the agricultural issues. Instead, the main concern of the Policy Research Council was to develop ideas and policies for a smooth transition to a civilian rule rather than making policies for national revolutionary tasks.3® It was true that the picture of Korean agriculture had been somewhat brighter because the military regime with its peasant background had paid more attention to farm problems than had any previous Korean government.37 In the internal 3^The Military Government limited the role of the civilian planners and advisors into some technical issues like a legal format of a policy and, therefore, the civilians could not effectively penetrate into the political ideology of the revolutionary forces, Sang-U Yi, Park Chung Hee Sidae. I, p. 20§fi^°Sang-U Yi, Park Chung Hee Sidae. I. p. 202. 37William A. Douglas, 30. 130 structure of the decision-making process under the military government, it seemed clear that once the original planners, Marine Corps Maj. Gen. Kim Tong-Ha and Brig. Gen. Song Ch'an-Ho were purged and removed for political purposes from the positions of Chairmen of Finance and Economic Committee, and of Education, Health, and Social Affairs Committee in charge of Agriculture, it would be hard to find anyone who was eager to pursue such a revolutionary task as the Counter-Usury Program without any institutional support. Choice of Chairman Park Chung Hee We have examined the Counter-Usury Program, the first revolutionary task of the Military Government from the vantagepoints of resources and stratification. But the question is whether the changes in resources or the stratification could get rid of a revolutionary policy presumably being pursued by the will of Gen. Park Chung Hee himself. It was known that most of the revolutionary tasks, long term projects or daily routine performances, were planned and executed directly under the guidance of Gen. Park. The chairman of the acting committee consisted of several sub-committee chairmen. Considering the nature of Korean politics and the military junta, in particular, it might not be possible to think of a major policy change without Chairman Park. 131 According to our Explanation III, the policy change was basically a result of Chairman Park's deliberate political choice. No matter how successful the Counter-Usury Program was in terms of resource production, or no matter how influential the new stratification was in terms of its policy execution, the change was mostly in accordance with Gen. Park's will. In the case of the Counter-Usury Program, it was not so successful in producing resources nor tenacious in maintaining the new stratification. Therefore, it is difficult to imagine how such a policy which was less productive and supported only by a weakening coalition had still remained in operation? It was three days before the deadline for filing the usurious debts that the government decided to postpone it for another month. If the Program was eliminated by the lack of resources, it should have been terminated at this early period right after the closing reports. If the Program could persist due to the relative strength of the new stratification, it is still quite difficult to explain the dualism in the national economic policies: a fiscal retrenchment pursued by the top economic ministries and the efforts to liquidate high-interest debts through an easy-money policy. Now, there must be a political explanation of this contradiction as revealed by focusing on the Chairman's choice. 132 Park's Peasant Background and Agricultural Policies; Considering his position in the military government and his strong personality, it is very hard to think about the policies of the military government by separating them from Park's past experience. As the youngest son among the seven brothers and sisters of a very poor rural family, he had bitter experiences of hunger, poverty, and sadness in his youth. Whenever he looked back upon his early days, he used to tell this story about his feelings on poverty: It was one day before Ch'usl5k(The Autumn Full Moon Day) that we had only morning classes and came home earlier than usual. When we approached the village, it was filled with the sweet and full-flavored smell of cooking and frying. I was deeply disappointed to find no hint of making food at my home. Even now I can never forget the bitterness of that "cold" day. It seemed to me that I came to be such a short person because I could not eat much while I was young.38 Though Park recalled this unhappy memory as an example of his extreme poverty as a youngster, this experience turned out to be one of the powerful motivations for his choosing the military career and the coup itself. All throughout his life he had never forgotten the miserable lives of the rural areas and as a result of that he had made a great effort to deliver them out of the chronic poverty once he was in the power. 38Sanq-U Y l , Pakchtfnakw&i 18 Nv#n r18 Years Under the Park's Regime], p. 15. 133 It was not surprising, therefore, that the junta led by- Gen. Park declared its pro-agricultural policy and adopted a program to liquidate all the rural usurious debts as its first task. Even an American farm expert said of Park's Minister of Agriculture: "He may be a general but he's still a farm boy, and he goes out every weekend inspecting the rural areas. The old-regime boys never did that."3® Park himself was known to pay frequent visits to the Ministry of Agriculture and Forestry and did not hide his real interest in rural problems while expressing his strong desire for improving the living standard of farmers and fishermen.^0 In a message to farmers, Chairman Park gave them his guarantees that they would have enough government credit for farming and fishing, and chemical fertilizer without any usurious d e b t s . ^ In accordance with Gen. Park's strong will, the military government initiated a number of new agricultural policies and many of the older policies were progressively revised to bring better result. 3®Newsweek, 20 Nov. 1961, p. 50. ** Accoring to Kim SBng-Kyu, Vice-Minister of Agriculture and Forestry, Gen. Park stopped at the Ministry many times and used to listen to briefings carefully and say that the military revolutionary government will choose a pro- agricultural policy to rescue farmers." The Joonaang Ilbo. 22 Feb. 1982, p. 5. ffihe Donq-A Ilbo. 6 Nov. 1961, p. 3. 42Beside the liquidation of usurious debts, the SCNR confirmed it would maintain a high price policy for grains and limit the amount of foreign agricultural products. The Donq-A Ilbo. 8 Nov. 1961, p. 1. 134 Park's Involvement in the Counter—Usury Program: it was not revealed exactly how important Gen. Park's role was in the liquidation of usurious debts. One may speculate how he became involved in the Program from two separate directions. Kim SiSng-Kyu, Vice Minister of Agriculture and Forestry in the Chang Administration said he gave a brief instruction about the activities of the Ministry to the revolutionary officers in request of a colonel who was in charge of the Ministry of Agriculture on May 18 or 19, 1961. The colonel, according to Kim, acknowledged him that the liquidation of usurious debts drafted by the Chang government was quite right and suitable for the purposes of the revolutionary government. This was prior to the appointment of the first Military Cabinet on May 20.^ The liquidation of rural usurious debts was also argued by Prof. Pak Hi-Bum in an article of the Sasanqcrve. one of the most popular and influential monthly magazine among intellectuals and college students. This occurred in early 1961 under the Chang Administration. Pak supported the idea of eliminating rural usurious debts for the purpose of dropping the cost of agricultural products. According to him, without liquidating the rural debts, the government might not probably initiate any rational agricultural policy no matter how much money the government would spend on farming. He even asserted that the April Student Revolution ^3The Joonqanq Ilbo. 22 Feb. 1982, p. 5. 135 would be a failure unless the new Democratic government was able to solve the problem of rural usurious debts.44 Later, after the coup, Prof. Pak was invited by the junta to help Gen. Park as one of his six advisors. Prof. Pak was known to be autonomous in his advice and policy recommendations owing to the top decision-maker's personal trust and had knowingly participated in the planning and execution of a number of major revolutionary policies.4^ Considering its swift decision, it seemed that the Counter-Usury Program was picked up by one or two revolutionary officers who took charge of the Ministry of Agriculture and Forestry and received immediate attention from Gen. Park and his close associates. It was also confirmed by Col. Yu W&n-Sik, member of the SCNR committee in charge of Finance and Economy. According to his recall, it was one day shortly after the coup that Gen. Park told him about the need for liquidating rural usurious debts and handed him a draft so he could check the contents of the Counter-Usury Program. Considering his position in the SCNR and his relationship with Gen. Park, he should have been the first officer to be informed if any policy agenda related to economic affairs were to be set up inside the SCNR. As Gen. 44The Sasanqgve, Jan. 1961, p. 230. 45The junta had recruited all the intellectuals whose articles in the areas of politics, economics, and philosophy used to be published at the Sasanggye as advisors of the Military Government. Sang-U Yi, Park Chung Hee Sidae, I. p. 208. 136 Yi revealed he was unaware of the Program in advance and his comment on the draft were ignored. It seemed quite probable that Gen. Park in collaboration with only a few associates decided to adopt the Program. Park's Political Choice to Save the Farmers; Gen. Park was a man of great determination who had made every effort to get what he thought he had to. Born in an extremely poor family in a farming village, he succeeded in entering into the prestigeous Teachers' College in Taegu and later chose to be a military officer of the Japanese Imperial Army. He was one of the top cadets both at the Manchurian Military Academy and the Japanese Imperial Military Academy. Though his strong will and pride about himself were challenged in his military career in the new Korean Army, he still remained as one of the honest and scrupulous generals when he succeeded in his coup attempt. These characteristics of self-rightousness, discipline, scrupulousness, perseverance and tenaciousness were directly reflected in his early leadership style within the military government. Compared to the civilian politician Premier Chang Myon, he was described as a leader who did not like to lose, who held more firmly to his ideas if someone attempted to change them. He did whatever he could do to achieve something that others warned 137 him would be a failure.^® Throughout his rule as the Chairman of the military government and President of the civilian government, there was no big change in his * leadership style. As was mentioned in his involvement in the Counter- Usury Program, Gen. Park knew many problems of the radical attempt to eliminate the chronic problems in rural areas. There were no other persons except Gen. Park who committed himself to deciding the Program because he firmly believed that he was an officer of Revolution destined to bring radical change for the future generations and the future well-being of a poor nation. He did not seem to care about challenges against the Program and continued to induce socio-economic changes partly because he chose to remain in authority for the future and partly because he had enough power not to worry about his present situation. In either case, he had provided every inducement to those individuals and institutions concerned with the usurious debts to execute the Program. He used to compare himself and the revolutionary government to surgeons who had to perform operations to save the lives of sick men. Likewise, Chairman Park firmly believed in his revolutionary role and considered the Program a real success and did not hesitate to reveal his ^6Tong-An Yang, "Chang Myon Ch'ongri wa Pak Chtfng-Hi Taet'ongrybng[Premier Chang Myon and President Park Chung Hee]" The Shindonqa, May 1982, p. 152. 138 determination to repeat second and third measure if it were necessary to eliminate usurious debts. In an interview with the U.S. Mews & World Report, he boasted the success of the Program by saying that the revolutionary government had already stimulated the increase of production by successfully implementing the liquidation of usurious loans, etc.47 He also expressed his real concerns on the Program in his own biography. Our Nation's Path: The cancer of high-interest debts, which were estimated at some 80 billion hwan before the May Revolution, diminished the productive desire of agriculture, hampered production, and reduced the farmers to penury. We must break this monetary chain and relieve peasants from the pressure of usurious debt, so that they can stand on their own feet and go to work. The liquidation of high-interest debts was completed quickly and fairly by the revolutionary government as its first duty. Further efforts should be made by the government, however, to prevent the recurrence of this malicious burden. Should there be any sign of recurrence, drastic emergency measures must be taken.48 The fluctuation of Gen. Park's choice will be examined more in detail in later chapters, but it seemed obvious that Chairman Park had determined to save farmers from their usurious debts as his first mission of inducing social and economic change. Consequently, the Counter-Usury Program, regardless of its productivity and changing institutional structure, could be implemented with every political, financial, and administrative support from both the SCNR and 47The U.S. News & World Report. 20 Nov. 1961, p. 113. 48Chung Hee Park, Our Nation's Path, p. 234. the Cabinet. However, as he changed his goals and choices beginning from the late 1961, the programme lost its needed supports and was destined to be altered and even turned out to be a miserable failure. CHAPTER IV RESOURCE EXCHANGE TWO: THE FIRST FIVE-YEAR ECONOMIC DEVELOPMENT PLAN Once the junta seized control of the state, it initiated a number of ambitious programs in the name of revolutionary decrees in an effort to legitimize its coup and consolidate its political ground. The Counter-Usury Program examined in Chapter III was one of those revolutionary policies prepared and implemented from the socio-political context. The junta promulgated the Law Regarding The Treatment Of The Illicitly Accumulated Wealth on June 14, 1961, and unveiled a draft of the First Five-Year Economic Development Plan on July 22, 1961. Like the Counter-Usury Program, these policies were presented as examples of the junta's reform and were reflected in its revolutionary pledge: purity, self- determination, nationalism, and liberation from poverty. To the degree that these policies were designed in response to the silent demands, of the majority of the population, the junta, at least those of the original coup members, could be called both militant reformers and humble nationalists. The Counter-Usury Program had been prepared under the Rhee government and were not originally conceived by the junta. The Law concerning the illicit fortune-makers had 140 141 already been initiated under the Htf-Chtfng Interim government after the collapse of the Rhee government in 1960 and was enforced in part by the Chang Myon government. Long-term economic plans, which were partly linked to the Law concerning the wealthy entreprenuers, had been attempted by the two previous regimes with the strong support and assistance of the U.S. government and aid agencies since 1953. However, the Military government accepted these policies and added some extra revolutionary flavor to make them look more like real reform acts. In this chapter, we will continue our research of the resource exchange among the major sectors and the Military government in a continuing effort to explain the transformation of these revolutionary policies. Legacies of Long-term Economic Plans under the Rhee and Chang Administrations and the FFTEP Economic plans have been widely regarded as results of complicated political interactions. To understand the political direction of a regime or the political vision or choice of a statesman, one should look at the economic plans. Indeed, an economic plan illustrating how to collect and allocate resources is a part of the overall political plan and could be a political plan in itself.1 Therefore, it According to Ilchman and Uphoff, socio-economic plans are good indicators of the political stratification,too. They said that a polity's stratification system and the political 142 is almost impossible to think of a plan such as economic development in developing countries without consideration of the political stratification of the polity and the statesman's choices. Since the Korean War, three or four different long- range economic plans were elaborated in an effort to bring a quick rehabilitation and stabilize the national economy. The first plan, the so-called Nathan Report, was initiated by Robert R. Nathan and Associates for the United Nations Korean Reconstruction Agency in 1952 and made its final report in 1954. The second plan, the Tasca Report, was actually a report to President Eisenhower for strengthening the Korean economy in 1953. The third comprehensive economic plan, the first Three-Year Economic Plan out of the original Seven-Year Economic Plan, was initiated by the Korean government directed by the newly established Economic Development Council in 1958. The Chang Myon government approved another long-term Five-Year Economic Plan prepared by the Economic Development Council in cooperation with American economic advisors in early 1961. However, it was the First Five-Year Economic Plan(FFYEP) of the Military government that was formally accepted and implemented by the Korean government. ends to which the regime would devote that system are usually implicit in the regime's economic and social plan. Ilchman and Uphoff, p. 46. 143 In order to understand the somewhat revolutionary goals and ambitious targets of the FFYEP, the previous efforts need to be examined. For instance, the original FFYEP prepared to attain a self-sustaining economy in 5 years paid no serious attention to the importance of foreign capital and assistance. But, those preceding plans were basically designed to elaborate the means of procuring foreign capital introduced in the name of foreign aid. The Nathan Plan; The first complete and systematic long-term plan was initiated by Robert R. Nathan and Associates in response to the request of the United Nations Korean Reconstruction Agency(UNKRA). This plan which was designed to assist effective reconstruction efforts and bring a self-supporting economy by the end of the plan period, was conceived in 1952. This was a year before the truce was formally accepted between the United Nations Forces and the North Korean Communist Regime. The draft of the plan, prepared solely by foreign economic experts led by Robert R. Nathan, L.J. Walinsky, and Gerhard Colm, was fisrt reported to the UNKRA on December 15, 1952 and its final version was disclosed after the truce in March 1954.2 The plan expected a restoration of the pre-War consumption levels and a healthy self-sustaining economy 2Sin-Pok Kim, PalchBh KihoekronrDevelopment and Planning](Seoul: Pakyongsa, 1982), p. 245. 144 with the help of the foreign assistance by the end of the plan period. A successful implementation of the plan would bring a rapid growth in national gross product from US $1.9 billion in 1953 to US $2.5 billion in 1958, or roughly 8.6 percent growth per annum. To meet their goals with minimum costs, the planners recommended an overall balanced growth of the national economy, particularly in the fields of production, consumption and investment.5 Given the proposal of attaining a self-supporting economy, the investment funds might have been obtained through domestic savings by 1958 and the imports would then be paid by the exports at the end of the period.4 To satisfy these goals, the planners projected an extensive import substitution policy and stressed an ambitious development policy for the primary industries such as agriculture and mining.5 In fact, they expected that the rapid increase in exports of natural resources would finance the needed imports achieving a trade balance by the year 1958. The Nathan Plan, however, was never formally accepted by the Korean government under the late President Syngman 5Sin-Pok Kim, p. 246. 4David C. Cole and Young Woo Nam, "The Pattern and Significance of Economic Planning in Korea," in Practical Approaches to Development Planning: Korea's Second Five-Year Plan, ed. Irma Adelman (Baltimore: The Johns Hopkins Press, 1969), p. 15. '’Co l e and Nam criticized the Nathan Plan's idea of import substitution policy and export policy based upon the primary products mainly because Korea's comparative advantage was in the area of light manufactured goods, not in the agricultural and mining areas. Cole and Nam, p. 25. 145 Rhee. As far as the actual planners were concerned, the plan was prepared for the foreign assistance agencies by the United Nations Korean Reconstruction Agency for the purpose of an effective use of foreign aid funds. By undertaking the plan without any apparent consultation with the Korean government attributed to President Rhee's rejection of the plan.® The plan conceived mainly by the necessity of the UNKRA and designed to achieve its own objectives could not attract attention and support from the U.S. government. Instead, the U.S. government chose to execute its own reconstruction efforts in Korea based upon its own long-term plan, the Tasca Plan. The Tasca Plans Given the necessity to bring about a quick reconstruction and stabilize Korea's economy in preparation for its self-sufficiency, the Eisenhowever Administration sent Korea a U.S. Presidential mission led by Henry J. Tasca in April 1953. Using the materials and data in the draft of the Nathan Plan, the Tasca team spent some six weeks probing how to strengthen the Korean economy from the vantage point of U.S. security. They also assessed administrative’failures in the aid program and delivered their report to President Eisenhower in June 1953. ®In addition to such an emotional factor, President Rhee, who himself seemed to favor the Republican party, seemed to consider the impact of Robert Nathan's political association with the Democratic party under the Republican government in the United States. Cole and Nam, p. 15. 146 The Tasca team was not concerned with a comprehensive economic plan, only its prospects on Korea's future economy were too optimistic. They expected a quick termination of the major U.S. efforts to strengthen the Korean economy and its defense in the three years from 1954 through 1956. According to the Tasca plan, the U.S. would provide as much as $880 million during the three year period. For the first year, they would concentrate on social infrastructure and primary industry for self-sufficiency. At the second stage, more emphases were placed on the reconstruction of public service and its facilities such as housing, education and sanitation. In the final stage, they hoped to restore the pre-War level of the national economy and thus project their anti-inflationary measures to keep prices stabilized.7 The Tasca Plan like its predecessor, the Nathan Plan, was exclusively prepared by the American experts without participation of the Korean government. Unlike the Nathan Plan, the Tasca Plan was fully accepted by the Eisenhower Administration as a guideline for the U.S. military and economic aid agencies. Considering the role of the U.S. aid in Korea in the 1950s, the plan had left a considerable impact on the direction of Korean economy. Its emphasis on the service-oriented reconstruction such as housing, communication, and education reduced the importance of the overall economic growth. 7Sin-Pok Kim, p. 250. 147 Another impact of the plan was in the institutional structure dealing with the U.S. aid mission in Korea. Recommended by the plan report, the U.S. government established a new aid agency, the Foreign Operations Administration(FOA), and had begun its administration of allocating economic and military aid funds since July 1953.8 The creation of this agency was primarily in reaction to the problems which occurred in the reconstruction efforts through the multilateral aid system led by the UNKRA mission. This plan proposed to replace the former by a bilateral mission between the United States government and the Korean government. Accordingly, they agreed to create a joint committee to deal with the economic affairs for a successful completion of the national rehabilitation and financial stabilization thereafter. Once the U.S. government chose a unilateral channel for its aid mission through the FOA, it strengthened the agency's role vis-a-vis the Korean government as to the terms and amount of aid. It was given the veto power over the use of counterpart funds and the power to decide on the level and composition of aid imports.9 Implicit in this effort was the lack of U.S. confidence in the Korean government policy with respect to inflation and saving. For political purposes, the Korean government had maintained its 8Edward S. Mason, et al., p. 180. 9 Anne 0. Krueger, p. 78. 148 over valued exchange rate and its inflationary revenue structure. Without remedying those domestic economic policies, the advisors in the U.S. agencies concluded that additional U.S. aid was simply making the stagnate economic situation even worse. Consequently, even though the Korean government failed in achieving a self-sustaining economy by the end of the plan period, the Tasca Plan made a contribution to the bilateral economic negotiation between the U.S. and Korean government over the use of aid, inflation, saving, and revenue structure. The Three-Year Economic Plans The year 1957 was a turning point in the Korean economy. Many experts assumed that their goals to reconstruct its industrial and domestic facilities destoryed by the War and restore them to pre-War levels were presumably achieved by that year.1® From that time on, the Korean economy was confronted with a new challenge: stabilization. Basic ideas of stabilization were to increase domestic savings and thus maximize investment for a continuing growth of the national economy. To maximize domestic resources, it was absolutely necessary to obtain domestic economic stability such as JLow inflation. As means for accomplishing this goal, the Korean government in cooperation with the U.S. aid agencies initiated the stabilization program in -^Gilbert T. Brown, p. 36. 149 April 1957. According to the program, they attempted to control the money supply within 20 percent primarily by limiting the budgetary expansion and maximizing government revenues through improved tax administration and the sale of government-owned property.11 With the smooth inflow of huge U.S. aid funds in 1957, the stabilization program was successful. However, the success of the program was possible by the exceptionally high rice harvest and the extraordinary inflow of foreign capitals rather than due to the rapid growth of domestic savings. These were the main reasons for the Korean government to consider its own long-range economic plan for the first time. Because of the previous planning efforts of the Nathan Plan as well as the Tasca Plan, the Korean government, especially under President Rhee, was never enthusiatic about the concept of planning its own national economy. However, the prospect of the declining foreign aid gave the Korean government officials no other choices. The Korean government established the Economic Development Council under the Ministry of Reconstruction in an effort to formulate an effective plan. The Council prepared its first long-term economic plan, the so-called Seven-Year Economic Plan, in March 1958. Out of the original seven year programme, however, the Three-Year Economic Plan, covering the first phase from 1960 to 1962, was initiated by 11Gilbert T. Brown, p. 226. 150 early 1959 and then officially approved by the Rhee government in January 1960. Contrary to the earlier Nathan and Tasca plans, the Three-Year Plan was prepared mostly by Korean experts under the leadership of the Minister of Reconstruction, Song In-Sang with only minor participation of the American advisors. ^ The planners of the Three-Year Economic Plan had focused on the ways and means of overcoming the scarcity of domestic resources and the apparent reduction of foreign aid. Therefore the plan was basically designed to increase productivity and improve its trade balance. To increase its industrial productivity, they proposed to increase the production of capital goods by limiting the growth of the consumer products. With this balanced growth in production, consumption, saving, and investment, they hoped to have a better integrated industrial structure by the end of the target year, 1962(Table 27). ^ A n advisory team from the University of Oregon participated on a very limited scale. Cole and Nam, p. 13. 151 Table 27 Structural Change by Industries* Industry Production (percent) Employment (percent) 1958 1962 1958 1962 Agriculture & Fisheries 40.5 28.3 70.8 67.4 Mining 17.8 22.3 5.9 8.0 Infrastructure & Service 41.7 39.4 23.3 24.6 * From Sin-Pok Kira, p. 254. As the Nathan plan had proposed a rapid export growth of the primary products such as mining and agricultural products to reduce the trade deficits, the Three-Year Plan also presented a sharp increase in exports from US $170 million in 1958 to $636 million in 1962 to achieve a balance of trade in expectation of the reduction of foreign aid. The Three Year Plan recognized the unsuccessful results of previous attempts and chose to prepare a modest annual GNP rate of 5.2 percent, the average over the past five years. Simultaneously, its trade policy was made flexible by allowing the continuing import surplus for a certain period. Guided by the principle of the stabilization program, the Three-Year Plan attempted to achieve a modest growth rate and reform of the national economy toward self-sufficiency in years to come. However, the Plan had no time to prove itself because it was approved only three months before the collapse of the 152 Rhee government. Another misfortune was that the planners were too isolated from the operational or policy-making levels of government. According to Cole and Nam, the plan thus failed in drawing upon the experience or guidance of either level in trying to articulate a meaningful development program.^ The Five-Year Plans The sudden collapse of the Rhee government introduced a new phase to the Korean economy. Under the First Republic, the economy had been distorted by the influence of corrupt politicians and high-ranking bureaucrats and the authoritarian President Syngman Rhee, who, had insisted on an over-valued exchange rate system and ignored any long-term plans requiring formal commitment. Only those reform-minded officials in coordination with U.S. aid agencies attempted to initiate long-term economic plans guided by the stabilization program since 1957. In April, 1960, the Rhee government was toppled by the people's power led by the young students. The long-time opposition Democratic Pary emerged to be the only alternative ruling group in the coming general election in July. Demands for reforms following the Democratic Party victory, such as devaluation of its currency and normalization of interest rates were very intense.^ |^Cole and Nam, p. 33. 14The Democratic government owing much to the street people had to initiate efforts to increase employment 153 In response to such demands of the people, Premier Chang Myon declared the Economic-Development-First-Policy and instructed the Economic Development Council (that had drafted the preceding Three-Year Plan) to prepare a new Five-Year Plan in November, 1960. Based upon the data and materials of the Three-Year Plan, the EDC had begun its planning efforts with the assistance of Dr. Charles Wolf, special advisor for the Ministry of Reconstruction and member of the RAND corporation.1^ Many of the planning personnel, skills, and goals were similar to the Three-Year Plan. Unlike its predecessor, the new Five-Year Plan concentrated its allocation of investment on a few selected major industries. In other words, it favored the unbalanced growth model to resolve the bottle neck phenomenon which appeared in many other developing countries. Accordingly, the plan was to double or triple production capacities in the field of electricity, coal mining, cement, fertilizer, refinery, and some social overhead infrastructure. In consideration of the regime's effort to normalize its currency exchange rate and bank interest rates, it was designed not only to increase its GNP but also to achieve a self-sufficient economy in preparation of the reduction for foreign aid.1** opportunities for the unemployed, students, and intellectuals. r^Sin-Pok Kim, p. 225. 1“There was no doubt that the devaluation measures in both January, and February, 1961 were pushed by the U.S. 154 Nevertheless, the plan had no chance to prove itself since it was completed on May 10, 1961, just a week prior to the military coup.17 It is very hard to imagine what would happened if the draft of the Plan had been completed earlier to satisfy some demands, especially the pressure coming out the unpredictable future. What if the Plan had provided some concrete vision to those common people who had participated in daily street demonstrations until the coup. Finally, it was the Military Government that executed the first long term economic plan and thus gave us a chance to examine its actual procedure. The First Five-Year Rnnnnmic Plans In about eight months after the coup and, approximately six months since its first draft was announced, the SCNR finally unveiled its first major long-range economic plan to the public on January 13, 1962. According to the plan, the Korean economy was to record an annual average economic growth of 7.1 percent during the economic plan period from 1962 to 1966.1® government, but the Democratic Party accepted the reality as a turning point for the economic self-sufficiency. Details in Kyu-Hun Han, pp. 294-314. 17As examined In Chapter Two, the Second Republic was very inefficient in formulating and implementing policies primarily due to the incessant factional strife and political unrest. Frequent replacement of the cabinet and major positions might be responsible for the delay of the Plan. 1“Republic of Korea, Economic Planning Board, Summary of the First Five-Year Economic Plan. 1962-1966 (Seoul: Republic of Korea, 1962), p. 28. 155 A total of 3,214.5 billion hwan would be invested during the whole period: 554.4 billion hwan(with a growth rate at 35.8%) for the primary industry; 1,092.2 billion(with 101.9% growth rate) for the secondary industry; and 1,567.9 billion(with a growth rate at 20.3%) for the tertiary industry(Table 28). This proportion of the investment allocated by industries was a radical departure from the previous experience. Previously only a small fraction of it had been invested in the primary industry while about two- thirds of it was allocated for the tertiary industry. Table 28 Composition of Investment by Industries (Percent) Base Yr First Yr Target Yr Average 1960 1962 1966 1962-1966 Primary 2.1 19.3 16.6 17 .2 Secondary 34.1 30.3 35.1 34.0 Tertiary 63.8 50.4 48.3 48.8 Total 100.0 100.0 100.0 100.0 *From Summary of the First Five-Year Economic Plan, 1962-1966 But as a result of this investment programme, the whole industrial composition was to be newly arranged by 1966: the primary industry, 34.8 percent of the whole national economy; the secondary, 26.1 percent; and 39.1 percent, the tertiary industry. During the planning period, the Gross National Products would be expanded almost 40.8 percent from 156 2,322,7 billion hwan in 1960 to 3,269.1 billion in 1966. Accordingly, per capita income would reach around US $86.1 in 1966, a steady increase out of $72.4 in 1960. The population would be controlled with a modest annual growth rate at 2.7 percent by 1966, a drop of 0.2 percent from 1960, while the nation's employment would continue to be better off with an increase at the rate of 38 percent during the period. As illustrated above in the structure of the plan and the projected composition of the investment by the industry, priorities seemed to be given to the first industry, namely agriculture, and the second industry through increased energy production. The tertiary industry which had shown an exceptionally high growth via foreign aid during the national rehabilitation period was badly criticized by the Military Government primarily because of its role in such wasteful consumers' business and was thus neglected in the FFYEP on purpose. The Military Government presented its intended goals of the FFYEP with an emphasis on its endeavors to build an industrial base: Major emphasis will be laid on electric power, coal, and social overhead capital facilities such as transportation, expansion of key industries such as cement, fertilizer, steel and iron; increased agricultural production; improvement of international balance of payments, advancement of technological and managerial skills, etc. Successful attainment of these 157 objectives will provide a springboard toward long-range development of the national economy. 9 In order to raise the people's living standard within a year or two as promised in its revolutionary pledge, the Military government had to attain high economic growth at the rate of over 7 percent per annum throughout the period. Given the poor situation of domestic savings, demands for such enormous investment could not be properly met without procuring the needed foreign currency, estimated at US $683.6 million. Out of the total needed foreign currency, namely one-fourth of total investment funds, the government would provide only about US $226 million(33 percent) from its holding dollars. The FFYEP projected that the Government would secure long-term foreign loans amounting US $426 million(62 percent) and the rest would be financed from U.S. aid funds. As a consequence, ironically, the future of the national economy was to depend on the smooth inflow of foreign capitals. Productivity of the First Five-Year Econo m i c Plan As seen above, the First Five-Year Economic Plan was officially designed to establish a self-sustaining economy and consolidate a foundation for the nation's industrialization. Underneath this official announcement, 19Summarv of the FFYEP. p. 24. 158 however, the plan was, quite clearly, initiated in order to enhance the legitimacy of the Military government by responding to the general demand of the Korean people in the early 1960s: elimination of poverty. In order to achieve those goals in the planned five years, the junta used vigorous efforts to accomplish several ambitious targets in each field of growth, saving, investment, and foreign assistance. Nevertheless, the Military government realized unexpected economic crises and had to prepare adjustment of the plan from November, 1962. The revised version of the First Five-Year Economic Plan was completed under the new quasi-civilian Third Republic in March, 1964. As presented in Explanation I, the success or failure of a policy depends on its productivity. Accordingly, we assume here that the First Five-Year Economic Plan was basically chosen by the junta to maximize its goals of legitimizing the coup and demonstrating its capability. From this vantagepoint, if we compare planned targets with their actual results, we would have an explanation of the transformation of the1 Military Government and its policies. Overall Economic Growth Rates Through twists and turns, the Military Government proposed an overall economic growth rate at 7.1 percent per annum in January, 1962, a surprisingly high growth rate compared with preceding experiences. It may not be appropriate here to discuss the 159 decision-making process of the 7.1 percent target because it was obvious that those who seized power for revolution were, in fact, inexperienced in planning a civilian economy. They expected to achieve their unrealistic goals with wishful thinking as related to the real world. The truth was that the intended target was never achieved. Though the real growth rates in 1962 and 1963 should be 5.7 percent and 6.4 percent according to the FFYEP, the actual result of the first year remained just at 2.8 percent. The miserable performance of the whole economy continued and resulted in only a modest growth of 4.4 percent in 1962. Many experts acknowledged that poor harvests, a sharp price increase, and the shortage of foreign exchanges affected the economic crisis from the fourth quarter, 1962. Limited data and information, unskilled techniques for planning, unrealistic ways to achieve savings, and investments(domestic as well as foreign), were indications of the plan's early failure. In his evaluation of the Korea's FFYEP, in particular, P.W. Kuznets pointed out a number of defects in the plan itself: 1) the failure to consider the necessity of repaying foreign loans; 2) insufficient attention to the importance of public finance; 3) neglect of intersectoral and interproject relationships; 4) inadequacies of supporting measures and supply-demand schedules.2® Due to the problems within the 20P.W. Kuznets, "Korea's Five-Year Plans," p. 49. 160 plan and the accompanying poor economic performances, the ambitious growth rate had to be scaled down to a modest rate at 5.0 percent, beginning 1964. Saving and Investment; The FFYEP was prepared somewhat hastily without any substantial domestic accumulation of skill and experience. As a consequence, it was criticized, because it was not a genuine long-term plan but merely a list of investment ideas. Because the planners projected a dramatic increase in investment to achieve the goal of high growth rate, domestic savings had become essential to finance the planned investment given the prospect of diminishing foreign aid. As seen in Table 29, the plan projected very high marginal domestic saving and investment rates during the early period. It was estimated that the Korean economy needed a significant amount of foreign capital in the first year, even at a higher rate than what the Nathan Plan had originally presented. During the second year of the five- year period, however, it was known that the net inflow of foreign capital was projected to be diminished. 161 Table 29 Marginal Rates of Investment, Domestic Savings, and Foreign Capital Inflow in the FFYEP* 1961 1962 1963 1964 1965 Investment 1.38 0.66 0.39 0.14 0.16 Domestic Saving 0.89 0.64 0.52 0.33 0.25 Foreign Capital Inflow 0.48 0.04 -0.13 -0.19 -0.09 *From Cole and Lyman, p. 215. In actual performance, domestic savings failed to achieve the ambitious targets. Both domestic and foreign savings accomplished only two-thirds of the original estimates in 1962. Even worse, it could generate only one- fourth of the expected total domestic savings in 1964. Quite obviously, investment targets could not be met; consequently, it was necessary to scale down the original rates of investment, savings, and overall annual growth of the GNP(Table 30). Disappointed with poor availability of domestic and foreign savings in 1962, the Military Government rearranged its planned investment. The Military Government revealed in the FFYEP that its limited resources were to be effectively allocated to such basic industries as electric power, agriculture, social overhead capital. But, the shortage of the needed capital from domestic and foreign sources forced the government to scale down its investment program in order to finance its further industrialization efforts. 162 Table 30 Planned and Actual Saving and Investment, the FFYEP and the Revised FFYEP* (Percent of GNP) 1962 1963 1964 1965 1966 Average The FFYEP Investment 20.1 23.0 24.1 23.3 22.7 22.6 Domestic Saving 3.7 7.3 10.3 12.0 12.9 9.2 Foreign Capital 16.4 15.7 13.7 11.3 9.8 13.4 GNP Growth(%) 5.7 6.4 7.3 7.8 8.3 7.1 Actual Investment 15.5 17.8 Domestic Saving 2.0 1.6 Foreign Capital 13.5 16.2 GNP Growth(%) 2.8 4.4 Revised FFYEP Investment 17.0 16.9 16.9 17.0 Domestic Saving 6.0 7.3 8.2 7.2 Foreign Capital 11.3 9.7 8.7 9.9 GNP Growth(%) 5.0 5.0 5.0 5.0 *From Kaebal Nvondae ui KvoncHe Jonqch'aekrEconomic Policy of the Development Era], p. 38. Government Saving and Inflations Confronting a pessimistic prospect of the future financial situation, the government began to reduce investment in developing mining and electric power. Along with the sudden reduction in investment in such industries, the government attempted to increase its private as well as government savings. The plan proposed that around 56 percent out of a total 3,214.5 billion hwan investment would be financed from government sources during the whole period. It did not 163 succeed in procuring enough savings due to the sharp rise in government spending without an accompanying increase in government revenue(Table 31). An example of this sudden expansion of the expenditures was the 50 percent salary increase for all civil servants(over 100 percent for the military officers) in early 1962. As a consequence, the government had to spend a record-high 12.6 percent of the GNP on its governmental expenses. Given the amount of the budget allocated to defense and investment purposes which had been fixed at higher rates, the government could not help carrying out fiscal deficits without a drastic cutback in such expenditures. 164 Table 31 Government Revenues and Expenditures* (Percent of GNP) 1960 1961 1962 1963 1964 Revenues Tax 8.0 6.0 6.1 5.1 4.2 Custom Duties 2.1 1.8 1.9 1.3 1.2 Monopoly Profit 0.9 0.9 1.2 1.0 0.7 Counterpart Fund 6.8 8.1 8.2 5.4 4.0 Others 1.0 2.4 3.3 2.2 1.4 Total 18.8 19.2 20.8 14.9 11.4 Expenditures General Expenditure 6.8 7.9 12.6 6.5 4.8 National Defense 6.0 5.6 5.9 4.2 3.6 Investment & Loan 4.2 5.7 6.9 4.2 2.4 Others 0.1 0.1 0.0 0.0 0.0 Total 17-0 19.3 25.4 14.9 10.8 a i ■ o o Surplus or Deficit 1.8 0.0 -4.5 . 0.6 1 *From Gilbert T. Brown, p. 56. As seen in Table 31, the government had to execute a sharp reduction in its spending on general and investment purposes in face of its shrinking revenue in 1963 and 1964. This policy change was reflected in the preparation of the revised FFYEP and the actual figures in revenue and investment were re-adjusted at I b s b than two-thirds of the original plan targets.^ The efforts to bring about a i — *) 1 ■■■ According to the FFYEP, the domestic revenue and expenditue were projected to increase at the rates of 32.2 percent and 12.8 percent, respectively, between 1962 and 1964r however, they fell sharply, in reality, to -14.6 percent and -33.3 percent during the period. Gilbert T. Brown, p. 54. 165 balanced budget could not stop the inflationary forces already unleashed from the overall national economy. The shortages of domestic saving and deficit budget performance were serious enough to bring about a financial inflation. Nevertheless, the situation deteriorated further by the slow foreign capital inflow and the rapid draining of the foreign exchange reserves. More foreign intermediate goods were scheduled to be imported in accordance with the self-sustaining industrialization efforts during the plan 00 period. ^ Lack of foreign exchange delayed an early industrialization as well as pushing the price of imported goods upward, thus a spiralling inflation inevitably followed in 1963 and 1964(Table 32). Table 32 Index of Inflation* Year 1960 1961 1962 1963 1964 Percent 9.3 16.1 13.9 30.9 34.5 *From Cole and Lyman, p. 127. Export and Foreign Assistance: As seen in Table 30, the foreign saving was designed to play a very important role ^The FFYEP estimated that the total value of commodity imports in the target year, 1966, would amount to US $492.3 million, increase of 44 percent over that of the base year, 1960. In fact, this modest estimation of imports was based on an approximately $300 million trade deficit every year. Summary of the First Five-Year Economic Plan, 1962-1966, p. 38. 166 during the early years of the plan and a balance between domestic and foreign sources was expected to be achieved in 1965. In fact, the target for foreign capital inflow was met in 1963 despite a slow start in 1962. Considering miserable results of the domestic savings during this period, it was quite encouraging news for the planners. As a consequence, the foreign saving was not given as an important cause of the failure to raise investment levels,^3 instead, it was projected as a vital role in the revised FFYEP. Due to the apparent cutback in U.S. foreign aid in the middle of the 1960s, the outlook of the foreign capital inflow depended upon two alternatives: foreign loans and exports. Indeed, the U.S. aid began to show a sharp decline from 1964. Compared with the base year, 1960, when approximately 83 percent of imports were financed by the aid, only one-third of the imports was supported in 1964 and 1965. Thus, without the apparent availability of long-term loans and exports, the chronic deficit in trade could not be eliminated and the development itself might have been significantly constrained. In the FFYEP, export was regarded as one way of improving the unfavorable balance of payments due to the increased imports during the period. The planners expected a drastic increase in exports reaching US $137.5 million, more than four times larger than that of the base year. At the ^P.W. Kuznets, p. 48. 167 time the plan was issued, the estimates were regarded as too ambitious but, as it turned out, the actual exports in 1966 almost doubled its targets reaching US $247.6 million. The success in export growth gave credits to a number of export incentive measures issued since 1961 and was enough to confirm the planners' belief that the trade balance could be achieved through the export increases. Despite the spectacular growth in exports, it was not what the original FFYEP expected. According to the plan, about two-thirds of the exports would consist of primary products like food, crude materials, minerals, and animal and vegatable oil while less than 20 percent would be composed of industrial and manufactured products.2** In fact, such a prediction was never expected in the beginning. The composition of export products was abruptly shifted in 1963 and seemed to continue in that direction in the ensuing years(Table 33). Contrary to the original goals and targets which were to increase exports by supporting agricultural and mining industries, it became apparent that an unbalanced growth in favor of manufacturing happened to account for over 70 percent of the total exports of the revised FFYEP and thereafter. ^ Summary of the First Five-Year Economic Plan, 1962-1966. pp. 39-40. 168 Table 33 Distribution of Exports* (percent) Sector 1962 1963 1964 1965 Agriculture 21.8 6.4 6.2 5.2 Minerals 22.3 17.5 16.8 13.6 Total Primary 52.9 30.6 27.7 23.6 Manufacturing 47.1 69.4 72.3 76.4 *From Anne 0. Krueger, p. 102. Stratification of the Sectors We have examined the FFYEP from the vantagepoint of its economic rationality. According to this explanation, the original FFYEP might have been modified because of its own internal defects as well as the poor general economic performance during the period. Low inflow of foreign and domestic capital and high inflation rate were unexpectedly pushing planners to scale down the original FFYEP. As it turned out later, the revised FFYEP was also a failure not because of the poor economic performance during the period but because of the plan's erroneous expectations. Since 1964, the Korean economy showed a far better picture in terms of annual GNP growth, private consumption, sectoral investment, and trade balance. Two questions were apparent. First, the structural relationship differences between the plans and the actual performance appeared in the early 1960s. In other words, were there any organic interactions between the planners and 169 the actual performers? Considering the wide gaps between the planned targets and their actual results, either positive or negative, the latter seemed to be less affected by the former. Then, how could we assume that they revised the original FFYEP simply because of the poor economic performance of the first year or so? Secondly, why did the Military Government accept a formal revision of the FFYEP? As it turned out later, the Korean economy continued to grow from 1964 regardless of the pessimistic estimates of the revised plan. Then why did the junta give up so easily and so soon the very essense of its achievement under the Military Government? The next step is to observe the discussion from another perspective in order to have a better explanation of the transformation of the FFYEP. From the vantage point of the institutional structure, we may assume that the revision of the FFYEP had been basically a result of the change of the stratification which formulated the initial efforts of the plan. Accordingly, it is necessary to explain the emergence of a new coaltion and its impact on the original FFYEP. Along with a series of the long-term economic plans, there were significant roles played by the two leading sectors: Big Business and U.S. Aid Agencies. Both Big Business and the U.S. aid agencies had been deeply involved in the formation and development of the Korean national economy from its inception. Throughout the years since 1945, 170 they had succeeded in defending their positions and were able to maintain their power and influence in spite of numerous crises and challenges from other sectors. The Military coup of May, 1961, shattered this status quo. Tearing down the establishment and creating a new order, the Military Government prepared the ambitious First Five-Year Economic Plan. Indeed, the FFYEP was initiated during such a crisis when the former resourceful sectors like Big Business and the U.S. agencies were not yet fully restored to their pre-coup positions. Planners of the FFYEP; When the junta issued a draft of the FFYEP on July 22, 1961, it revealed that the draft was prepared by the Overall Economic Reconstruction Planning Committee under the SCNR. According to its official announcement, the draft was a product of the combined efforts of three major institutions in charge of economic matters* the Economic Development Council, the Bank of Korea, and the SCNR Planning Committee. The new Committee was led by the leadership of Col. Yu W#n-Sik, SCNR member in charge of financial and economic affairs with the assistance of six other members. Among others, Prof. Pak Hr-Bum who had been involved in a number of revolutionary decrees like the Counter-Usury Program also participated in formulating the FFYEP as a regular committee member. 171 It was revealed that the Chairman of the SCNR sent an official letter to the president of the Bank of Korea in early June, 1961. In the letter, the Chairman was ordered to draft a long-term economic development plan in a week. Six researchers in the department of statistics under the bureau of census, took charge of the whole planning and delivered their draft to the SCNR in about two weeks. The draft was examined by the SCNR for about one month and then accepted on July 22, 1961 with only minor adjustments in some numerical figures such as the GNP growth rate from 6 to 6.5 percent per annum. On the same day, the SCNR announced the establishment of the Economic Planning Board which would govern overall economic policies and, particularly, be in charge of planning and executing the FFYEP.25 The draft was evaluated by the EPB for another two months and transferred to a new Central Committee for Economic Affairs composed of representatives of the Overall Economic Reconstruction Planning Committee,’the SCNR Planning Committee, the Bank of Korea, Academic circles, the EPB and some technical assistants. After being assessed by this Committee, the draft was delivered to the cabinet in the middle of October, With another minor adjustment through the cabinet meetings, 25The EPB was composed of the central economic commission, the office of national construction and bureaus in charge of statistics, planning, budget, which were transferred from other ministries. As a consequence, the EPB became the most powerful and important ministries in the cabinet. 172 it was finally handed over to the SCNR in November, 1962. At the final stage of arrangements, the single most important figure of the draft, the annual GNP growth rate, had been modified to 7.1 percent, approximately 0.6 percent higher than the original draft. As the decision-making process of the FFYEP illustrated, the two institutions which would have played significant roles in the actual implementation of the plan were obviously kept out of the planning procedure. In many occasions, the Military Government revealed its intentions of inviting these sectors into the policy formation process, but, as it turned out, the FFYEP was basically created without direct participation of Big Business and the U.S. Agencies. Big Business which could have been actively involved were in fact accused of their illegal business activities and thus were under investigation until the end of 1961. Big Business and Illicit Profiteers; In the 1950s, the principal actor of the national economy, was private enterprise in terms of gross consumption and investment.26 As illustrated in Table 34, private sectors had prevailed ■■ ■ p - ^°This does not mean that the government adopted a policy of laissez-faire in the economy. Indeed, the government possessed a large discretionary power in economic affairs and maintained its control over some critical areas like the distribution of scarce foreign exchanges or counter funds created by U.S. aid. X73 all through the 1950s in spite of a rapid growth of the investments by the government. Table 34 Total Available Resources* (In billions of Won) Consumption Gross Investment Private Government Private Government 1955 100.3 10.1 11.5 2.3 1956 140.6 13.9 11.2 3.2 1957 165.5 21.4 22.2 8.1 1958 170.8 26.2 19.5 7.3 1959 181.5 30.9 15.6 8.2 1960 207.3 35.5 18.6 8.2 1961 245.4 40.1 25.8 13.0 *From Cole and Lyman, p. 260. The Korean economy, as a whole, had been exposed to crisis as well as opportunity through incidents like the Liberation from Japanese colonial rule in 1945 and the Korean War in 1 9 5 0 . At first, the properties left by the departing Japanese were major sources of production and accumulation of wealth in the late 1940s and early 1950s but, the massive inflow of U.S. aid for rehabilitation became a new locomotive to the booming Korean economy in the 1950s. Through exclusive connections with politicians and bureaucrats, the entrepreneurs had contributed political thorough historical examination of the big business, although not based on a solid academic research, was done by Pyong-Yun Pak, Chaebol kwa chonachirPolltics and the Big Business] (Seoul: Hankuk Yangso, 1982). 174 funds in exchange for economic favors. As a consequence, the entrepreneurs could accumulate their wealth via various illicit acts such as speculation, price fixing, large scale tax evasion, preferential rent, and disguised subsidies in loans, disguised protected tariffs, and preferential contracts for construction.^® After the Rhee government collapsed due to the students' uprising, most of the top entrepreneurs in the 1950s were accused of their illicit profiteering and put under close investigation by both the interim Ho-Chong and the Chang Myon administrations. As shown in Table 35, twenty three top entrepreneurs were found guilty of tax evasion and illegal political contributions to the ruling Liberal Party, which committed massive election frauds. The Chang Myon Administration which succeeded the interim Ho-Chong government through a general election in July 1960, passed a law regarding the treatment of illicitly accumulated wealth by which convicted profiteers were supposed to pay a certain amount of fines. ^®Among the numerous political factors in formation of the connections in the 50s, see Kyong-dong Kim, "Political Factors in the Formation of the Entrepreneurial Elite in South Korea," Asian Survey. 16(May 1976). 175 Table 35 Illicit Profiteers and their Subsidiaries* En trepreneurs Their Subsidiaries Guilty of Crime Yi Bytfng-Ch'tfl Samsung Trade Co. Cheil Sugar Co. Cheil Wool Textile Co. Kunlo Trade Co. Hyos^Sng Trade Co. Ankuk Fire & Marine Insurance Co. Tongyang Sugar Co. CWShg Chae-Ho Samho Trade Co. * Samho Textile Co. ChosSh Textile Co. TaejTSn Textile Co. Cheil Fire Insurance Co. Yi Ch&ng-Rim Taehan Cement Co. Hoyang Industrial Co. Kaep'ung Trade Co. Taehan Mining Co. SlS! Kybng-Dong Taehan Industrial Co. Taehan Electric Co. Taehan Textile Co. Taehan Sugar Co. Yi Yong-Bum Taedong Machines Co. Kuktong Energy Co. Yi Yang-Gu Tongyang Cement Co. Tongyang Confectionery Co. Nam Kung-Ryon Kuktong Shipping Co. Hankuk Hum-Pipe Co. Ku In-Hoe Nakhui Chemical Co. Panto Trade Co. Paek Nam-II T'aech'ang Textile Co. T'aech'ang Trade Co. Ch'oe T'ae-Si5p Tonghwa Industrial Co. Hankuk Glass Co. Hyon Su-Dok Tongsin Chemical Co. Unsong Industrial Co. Tan Sa-Ch'5n Hankuk Wool & Textile Co. Haestfng Industrial Co. Kim Wbft-Chtoh KoryfcT Paper C o . Yi KyShg-Y&fig TalsiJhg Paper Co. Ch'oe Jae-HhySng Muhak Brewing Co. Chfcfhg Ju-Ybhg Hyfctfidae Construction Co. Cho Chtfng-Gu Sambu Domestic Materials Co. Kim YfcJhg-San Ktiktong Construction Co. Yang Ch'an-sZJn Hunga Machines & Tools Co. Yi Stfk-Ku Taerim Industrial Co. Ham Ch/ang-Hui Tongrim Industrial Co. Cho Song-Ch'5l Chungang Industrial Co. 176 Table 35 Illicit Profiteers and their Subsidiaries* Song Yong-Su Chtfnchu Textile Co. Kim SJJng-Gon Kumsong Textile Co. Source: Myo-Min Yim, "CKtinkyShgryWh ui NaemakfStruggle of the Jaebol: Inside the FKI], Shindonga. March 1984, pp. 339-40. Treatment of the Illicit Profiteers: The entrepreneurs threatened by the enactment of the law began to set up an organization to defend their interests with their combined efforts. A total of 78 top Korean businessmen established Hankuk KySngje Hyc5puihoe[The Council for Korean Economy] on January 14, 1 9 6 1 . Their immediate concerns were to establish a stable and close relationship with the ruling elite and to abolish the law regarding the treatment of profiteers which had been passed by the Lower Chamber of the National Assembly. They made a public denouncement of the law and attempted to persuade the Chang government to hold a public hearing about the law. They also provided political funds to both the old and new factions of the ruling Democratic Party.^0 As a result of their successful lobbying 2^Businessmen hadorganized their interests through various associations in the 50s like The Korean Chamber of Commerce & Industry, The Korean Trade Association, The Korean Textile Association, The Korean Grain Association, The Business Friendship Association, yet the Council for Korean Economy was an exclusive organization solely for big business. Myo-Min Yim, pp. 340-41. J0Chin-Hydh Kim, "Puchtfngch'ukche Ch'tfri ChtfnmalsV[A to Z of the treatment of the illegally accumulated wealth]," Shindonga, Dec. 1964, pp. 168-69. I 177 efforts, the Upper Chamber imposed a much "softer" punishment for illicit profit-makers. The law was finally passed by the Lower Chamber again on April 10, 1961.31 The Military Government, however, set up a special committee to reconsider the case of the illicit profiteers. The SCNR was committed to helping the starvation and the desperate living conditions of the lower income population. Its aim was to establish national economic self-sufficiency and to prosecute the illegal profiteers as a first step forward restructuring the corrupt and stagnate economy. Without hesitation, the Committee announced the arrest and prosecution of all fifteen top-class businessmen who had controlled most of the private sector in Korea. On June 14, 1961, the SCNR formally promulgated a much tougher law concerning illicit profiteers covering a wider segment of the business for investigation and providing severe punishment ranging from 3 to 5 years imprisonment.33 — i ^ m ■■■■■ , — ■ i JXNot only they were given lesser fines but also were allowed to Invest in certain industries and then return some of their assets to the government instead of the cash fines. ■“Those fifteen businessmen arei Yi ChCng-Rim, Stfl Kytthg- Dong, Ch&ng Chae-Ho, Nam Kung-RySh, Yi Yong-Bum, Cho S?>ng- Ch'ol, StTng Ch'ang-Hui, Ch'oe T'ae-ScSp, Pak Hung-Sik, Yi By5ng-Ch'i51, Paek Nam-Il, Yi Sang-Gu, Kim S#hg-Gon, Kim Chi- T'ae, Yi Han-Hang. Donq-a Ilbo. 28 May 1961, p. 1. ■“Through the law of the Chang Administration, they anticipated indictment of the nine top businessmen who "voluntarily" donate more than 100 million won to the former ruling Liberal Party. However, it was revealed that the Committee of the Military Government would confiscate all illegally amassed fortunes and execute some of the individual profiteer as a symbolic demonstration of the military revolution. 178 This punishment would be imposed upon those who illegally amassed fortunes from July 1, 1953 through May 15, 1961. Under this law, they investigated more than 120 persons including 30 to 50 business companies and ordered them to pay back some 80 billion hwan. Some hard-liners within the SCNR insisted on executing some of the top entrepreneurs to demonstrate its revolutionary determination. Under such circumstances, no private sector was allowed to participate in drawing a draft of the FFYEP. U.S. Economic Power in Korea: Another powerful sector in the Korean economy, the United States, had been deeply involved since the Liberation because the Allied Powers decided on a military rule by the U.S. Army in Korea. By the time of the Korean War, the United States was involved even more deeply into the Korean affairs and consequently its influence in the Korean government had rapidly increased. Economically, the United States had provided enormous amounts of economic and military aid to Korea. Almost half of the total South Korean budgets and more than 70% of the defence spending came from the U.S. throughout the 1950s(Table 36). 179 Table 36 American Aid and Korean Economy (In million U.S. dollars) 1956 1957 1958 1959 1960 1961 AID 271.1 323.3 265.6 208.3 225.2 154.3 PL480 33.0 45.5 47.9 11.4 19.9 44.9 UNKRA 22.4 14.1 7.7 2.5 0.2 — Total Aid 326.7 382.9 321.3 222.2 245.4 199.2 GNP 1,459 1,672 1,897 .1,980 1,996 2,104 Total Aid/GNP(%) 22.4% 22.9% 16.9% 11.2% 12.3% 9.5% Sources EPB, Economic Survey. 1964. p. 119. Along with the massive inflow of aid to Korea, almost half of Korea's imports in the 1950s and even early 1960s were from the U.S. During this particular period, however, Korea exported only a small fraction of its products to the U.S. market(Table 37). Table 37 Value of Exports and Imports by the Destination (In thousand U.S. dollars) Exports Imports Total U.S.A. Japan Total U.S.A. Japan 1959 19,162 2,133 12,180 291,709 147,561 32,372 1960 31,832 3,647 20,145 329,115 133,746 70,400 1961 38,646 6,821 19,397 299,956 143,380 69,212 Source: EPB, Economic Survey. 1962. p. 202. In the 1950s, the Combined Economic Board(CEB) established under the agreement of economic coordination 180 between Korea and the United States, and its finance sub committee, the CEBFIN, had the jurisdiction over the fiscal and financial policies and programs. In particular, the CEBFIN which played a major role against inflation by insisting on sound fiscal and monetary policies, succeeded in implementing its stabilization programs in 1957 and 1958. By forcing the Korean government to reduce spending and limit bank-based credits, they achieved a significant reduction of the chronic inflation in Korea(Table 38).34 Table 38 The Index of Inflation* 1954 1955 1956 1957 1958 1959 1960 Inflation Rate(%) 32.8 67.4 30.1 20.9 -0.7 2.3 9.3 *From Cole and Lyman, p. 127. Despite continuing controversies over certain provisions, a comprehensive agreement regarding U.S. economic and military aid to Korea was put into force on March 1, 1960. The agreement enabled the U.S. government to continue observation and review all the U.S. aid programs -”The U.S. pushed its recommendation of economic stabilization as a condition for continued aid, which financed nearly 70% of Korea's total imports and comprised almost 8% of GNP. See United Nations Command Office of The Economic Coordinator for Korea, Stabilization and Program Progress. FY 1958. Korea (San Francisco: APO 301, 1958), p. 52. 181 and retain unlimited access to informations regarding them.^ According to the agreement, the U.S. Embassy in Seoul and the U.S. Operations Mission were expected to enhance their responsibility and authority(influence), already powerful in Korea's economic policy. U.S. Influence and South Korean Government; Meanwhile, continuing threats from the North Korean communists since the truce in 1953 made it advisable for the United States not only to assist Korea's rehabilitation efforts but also to behave as a strong defender of freedom and democracy. Accordingly, the United States criticized the undemocratic and illegitimate performances of the Rhee government. Its influence on the Rhee administration was well reflected in what the U.S. State Department and the U.S. Ambassador to Korea did on April 19, 1960, when students held a massive uprising against the corrupted dictatorial Rhee government. In the afternoon of April 19, the State Department publicly denounced the Rhee government for its harsh crackdown of the peaceful democratic movement and urged a restoration of public confidence by accepting its election riggings. Similarly, the U.S. Ambassador, Walter P. McConaughy, paid a short visit to the Korean Presidential Mansion on the night ^ The Korea Times. 1 March 1960, P. 1, cols. 4-5. 182 of April 19 and forced President Rhee to realize the real demands of the Korean people.3** The influence and prestige of the United States were even enhanced under the Chang administration. It was believed that virtually every piece of American advice had been accepted by the Korean counterpart. Among other things, the Chang administration agreed to establish a realistic foreign exchange structure with a devaluation that the U.S. aid agencies had strongly recommended throughout the 1950s. The Chang regime also prepared a reduction of the armed forces in accordance with the American request and reversed its commitment to purge the high-ranking military officers, also in response to the demands of the American commanders. 1 Throughout the Rhee and the Chang administrations, the U.S. continued to play the role of "big brother" in terms of political, economic, military, and socio-cultural exchanges. The abundance of socio-economic and political resources enjoyed by the United States was to be banished by the military coup in May, 1961. The United States had tens of thousands of its soldiers in Korea and the United Nations Commander(a U.S. general) had the command of both U.N. and Korean armed forces according to the 1950 Taejon Agreement. 3**For more details of the U.S. actions, see John Kie- chiang Oh, "Role of the United States in South Korea's Democratization," Pacific Affairs, 43(Summer 1969), 168-69. 3 Joungwon A. Kim, pp. 225-26. 183 Technically, therefore, the Korean military in 1961 was to be controlled by the United Nations Commander, General Carter M. Magruder of the United States Army. Consequently, the military coup d'etat was an obvious rebellion against the Korean government and also an insurrection apparently in defiance of the authority of the American Commander. But Gen. Magruder and the U.S. Charge d'Affaires, Marshall Green attempted an immediate restoration of the democratic government by demanding the coup members to return back to their own duties. They even seriously considered a military counter-attack by mobilizing their own 40,000 troops in Korea. However, they failed to persuade responsible high ranking officials to issue a formal request for any U.S. military operation. Prime Minister Chang Myon was not able to be reached because he had hidden himself in a Catholic monastry for about two days. President Yun Po-Sun, Gen. Chang Do-Young, Commander of the Korean Army, and Lt. Gen. Yi Han-Lim, Commander of the Korean First Army refused to use force against the'coup members. In two days, the Americans had little choice but to accept the best of situation. They could not help recognizing the fait accompli ^Minister Green and General Magruder announced their separate warning statements toward the coup leaders without any notice from Washington on the morning of May 16. See John Kie-chiang Oh, "Role of the United States in South Korea's Democratization," Pacific Affairs, 43(Summer 1969), 170. 184 and sought for a peaceful resolution of the crisis through negotiations with the coup members. Return of the Old Powers and Revision of the FFYEP. Big Business: After a while, the top entrepreneurs who were accused of illicitly accumulating wealth and thus placed under arrest were released and allowed to resume their business activities. At the same time, the U.S. government and its agencies in Korea, which had been quite embarrassed with the emergence of the Military Government and the junta's bold rejection of the stabilization policy, were also successful in reconciliation efforts with the junta. Even if these two sectors were not invited to create the FFYEP, they were beginning to have an influence on its direction and were reinstated into the former positions within the ruling stratification. To begin with, it seems hard to determine when the junta decided to accept big business into its inner coalition, or as the core combination in terms of the new political economy. When the SCNR promulgated a law dealing with the illicit profiteers in June 14, 1961, it aimed at -^There were four major U.S. institutions in Korea in the sixties: U.S. Embassy, CIA Branch, U.S. Military Command in Korea, U.S. Operations Mission. Of the four agencies, the CIA Branch Chief Peer de Silva showed a somewhat different reaction to the coup. He tried to build a connection with the coup leaders instead of restoring the status quo ante. See Peer de Silva, Sub Rosa: The CIA and the Uses of Intelligence (Mew York: NYT Times Books, 1978), pp. 175-77. 185 imposing stern criminal charges on those who accumulated wealth through illegal means in business or politics. As was indicated in the articles, the core members of the SCNR intended to impose severe punishment ranging from three to five years in prison and the confiscation of their wealth which had been illicitly accumulated. Even prior to the official promulgation of the law, a number of top businessmen were indicted for their previous political contributions and illicit business activities and pledged to give up all their property and donate it to the state. A few days after the enactment of the law, Yi PytShg-Ch' ?!>1 known as the richest and the most influential businessman in Korea announced in Japan that he would fully cooperate with the Military government by contributing all his property for the national reconstruction. It was later known that all the top businessmen indicted earlier except those who refused to giving up their property were released. Consequently, the SCNR whose priority was to control the financial institutions could thus swiftly nationalize all the domestic banks privately owned by the businessmen. However, such stringent measures of the SCNR were beginning to change in two months. According to Gen. Yi Chu- II, Chairman of the Financial Committee, the SCNR would not accept the offer made by the businessmen that they could bestow all their property to the state due to the 186 accusations about their illicit business activities. Instead, Yi revealed that a just and decent settlement would be imposed on every illicit profiteer within the legal boundary of the newly enacted Illicit Fortune Law. A couple of days later on August 13, the SCNR announced that a total of 48 billion hwan in fines would be levied against 23 businessmen. This was only a half of what they were originally assigned to pay. In the mean time, as explained previously, the businessmen succeeded in organizing a unified business association, especially initiated and led by those who had been indicted by the Illicit Fortune Law. Affected by the successful lobbying effort of the businessmen, they were permitted to pay the fines in three years, instead of paying their fines in cash within four months, by bestowing appropriate portions of the shares of the new factories that they would build with the assistance of the government under the overall guidance of the FFYEP. Such an issuance of the special Article 18-2 in the revision of the Law, by which the original severity of the revolutionary policy was significantly watered down, indicated that the relationship between the SCNR and Business or the position of the Big Business within the ruling stratification was beginning to change. 40The Dona-A Ilbo. 9 Aug. 1961, p. 1. 187 In addition to the issuance of the Article 18-2, the SCNR revised the Law again on November 20. It showed that the main purpose of the revision was to adjust the fines allocated to each businessman were somewhat distorted by the corrupt investigation officers. Accordingly, the businessmen were allowed to submit petitions overruling the decisions made by the SCNR in terms of the amounts of fines.^1 After the completion of the petitions in December 20, the SCNR closed its purification campaign against the businessmen accused of their illicit business activities. Instead, the businessmen were sent abroad to search and persuade foreign investment capital and (they were) officially invited to join the historic ground-breaking of the Ulsan Kongup Senter, the first industrial complex ever built in Korea, on February 3, 1962. By joining this major industrial buildup projected under the FFYEP, Big Business was finally accepted as a minor member of the ruling coalition which would determine the future of the FFYEP. Return of the Old Powers and Revision of the FFYEP. the United States: Like Korean big business, the U.S. could exert only a limited influence on the formation of the FFYEP “^As a consequence, the burdens of some businessmen like Yi BySng-Ch'Sl, Chfcmg Chae-Ho, and Kim Chi-T'ae were reduced while those of the others like SSl Kytrfig-Dong, Yi Yang-Gu, Yi Chttng-Rim were increased in the final allocation of levies on December 30, 1961. The Dono-A Ilbo. 31 Dec. 1961, p. 1. 188 in spite of its enormous economic aid and the large presence of its military forces in Korea. As the U.S. commanders had chosen to accept less power vis-a-vis the South Korean Military government, the American economic experts conceded that "they have lost a great deal of their power to tell the South Korean Government what to do and how to behave in conducting its affairs.But the real dilemma or contradiction that the U.S. faced was that it had practically no option but to help the Korean Military Government through military as well as economic assistance. It could not accept the idea of the North Korean communists controlling South Korea. Since the coup the U.S. had not stopped supporting the South Korean Military Government militarily and economically and soon resumed talks with the Military Government for the future direction of the U.S. aid and mutual cooperation despite its continuing frustrations with the junta. Economic experts of the Korean government and the U.S. agencies met for the first time since the coup on August 8, 1961, and agreed to reduce the power of authority of the CEB by abolishing all standing committees. Also, according to the agreement, the two sides would discuss only problems related to policy making, programming and operations.^ Since the CEB had dealt with the programming and operations ^ The U.S. News & World Report. 19 June 1961, p. 49. 43The Korea Times, 9 August 1961, p. 1. 189 of the U.S. aid at regular sessions, the new agreement meant that the Korean government was prepared to lead its own economic destiny. The Military Government announced that it had notified American officials on July 23, 1961, that the draft of the FFYEP had been formulated based upon nationalism and self-sufficient government. Disagreement and disappointment felt by the U.S. side against the junta's FFYEP were expressed succinctly by Raymond T. Moyer, director of the United States Operations Mission in his final news conference in Korea on August 23, 1961 that "too much haste without adequate consideration of all the factors in the program, may lead to disappointment."^ Thereafter, the U.S. kept warning that the FFYEP was too ambitious and prepared in too much haste and recommended the Military Government adjust the whole program. Chairman Park Chung Hee's visit to Washington was a turning point in the relationship between the two countries. For the American side, it was an official acceptance of the Military Government with a first-hand opportunity to see the Chairman himself and listen to hiB plans on the transfer of power and the FFYEP. For the Korean side, it was a good opportunity to request more U.S. aid for a successful implementation of the FFYEP. As was expected, the summit between Chairman Park and President Kennedy proved successful as Kennedy praised the progress achieved by the ^ The Korea Times. 24 August 1961, p. 1. 190 junta and promised to assist the Military government with all possible economic aid.^ Encouraged by the support from the Kennedy administration, Chairman Park reaffirmed that the FFYEP would be implemented as scheduled from 1962. At his news conference in Washington, however, Park disclosed for the first time that parts of the plan were eligible for revision if they were found inappropriate through close studies by both the Korean and American experts even after the initiation of the plan.^® His remarks on the possibility of revision by Korean and American experts were significant in terms of its implication for the change in the present stratification. After the official announcement of the FFYEP in January, 1962, the two sides began a series of high-level economic talks between the chairman of the EPB and the director of the USOM. Even if Kim Yu-T'aek, chairman of the EPB denied any possibility of the revision of the FFYEP by referring to the principle and spirit of the plan, the American side was ready to resume its active role in the Korean economy by emphasizing its preference of dealing with individual projects rather than the overall FFYEP.^ Then, a month later, the U.S. officials began to discuss the feasibility of the direct adjustment of the plan itself with ^*?The New York Times. 15 Nov. 1961, p. 1, p. 22. ^ The Korea Times. 18 Nov. 1961, p. 1. ^'The Korea Times. 15 Feb. 1962, p. 1. 191 Korean officials. In response to the Korea's request for special aid amounting to $1.1 billion over the plan period, the U.S. agreed to support the plan, in principle, but, only- after its own preparation and further studies of the plan. At the same time, the USAID officials acknowledged their contract with the Arthur D. Little Co. of Boston to work with Korean officials on a refinement of the plan.^® As we briefly examined in the changing relationship between the two sides, the U.S. had insisted on a revision of the plan prior to making any long-range commitment. Considering the increasing number of high-level contacts between the EPB and the USOM, the original stratification created by the junta seemed to be deteriorating and the two sides agreed to accept each other as close partners for common goals. Along with the reinstatement of domestic big business, this emerging coalition between the two sectors was enough to bring a new stratification. As a consequence of the structural change, the direction of the plan might be modified in terms of its overall targets and priorities of individual projects. Choice of Chairman Park Chung Hee The Military government officially acknowledged the need to revise the FFYEP on November, 1962. According to Explanation I, the revision of the plan was inevitable due ^ The Korea Times. 10 March 1962, p. 1. 192 to the high inflation and low domestic savings. The government had to reduce its expenditures and targets of the plan. Our second explanation did not deny the economic troubles which occurred in the implementation process of the FFYEP, but its emphasis was placed upon the structural problems raised by the contending institutional interests. The reinstatement of the old powers, big business and the U.S. aid missions, which had consistently recommended a revision of the plan should be responsible for the adjustment of the plan. The problem at this time was that the revised plan also failed. It failed not because it could not achieve its new targets but because the targets were accomplished too much and too soon. The even bigger problem was that the FFYEP itself, either the original or the revised one, was lost in the actual implementation. Why did it happen? How can we explain such a contradiction like this? Neither productivity nor stratification could provide any comprehensive explanation. According to Explanation III, the revision of the FFYEP was the result of Chairman Park'B deliberate political choice. As described earlier in Chapters II and III, Park chose to remain in authority in the future and induce socio economic change under the Military Government. Because he chose to remain in authority in the future, he made several commitments to separate himself from the current power 193 holders by creating a new political order under a new stratification. His decision to induce socio-economic change was by facilitating several revolutionary policies such as the Counter-Usury Programme and the draft of the FFYEP. Thus, any change within the revolutionary policies like the revision of the FFYEP should not be fully and appropriately explained without taking a close examination of the actual conversion of Park's choices. A Planned-Economv or an Economic Plans The junta, which had committed to liberate the people from the chronic poverty, launched a series of revolutionary economic tasks. In less than a week or two, it declared the anti-usury program in rural areas and arrested a number of top businessmen in charge of their illicit profiteering. More than anything else, the junta revealed its determination in a comprehensive economic guideline disclosed on May 31, 1961, to create a mixed economy sustained by private initiatives with strong governmental intervention. Accordingly, it planned to construct basic industries, facilitate development in rural and fishing areas, and stabilize both grain price and exchange rate. The necessity of the planned-economy was confirmed by Lt. Col. Kim Jong-Pil, the second most powerful man of the junta. At his first official press meeting on June 5, 1961, Lt. Col. Kim who was known to be the core member of the coup 194 and who had masterminded a series of revolutionary policies right after the coup, revealed that he originally intended to establish a comprehensive planned-economy instead of the mixed one officially adopted by the junta. Even if he had accepted the so-called "mixed economy," he said that he and the original coup members still supported the idea of a completely planned-economy at least for a certain period until the Korean economy was ready for the mixed economy.^ Since Kim had worked with Park very closely even before the conception of the coup, it was understood that there would be no sizeable difference between the two in terms of the solution of economic problems. In fact, Park set the economic recovery as the primary goal at the second stage of the revolution and repeated the necessity of a planned- economy exactly in Kim's terms on various occasions. In a news conference held in Taegu, his hometown, Chairman Park stressed that a firmly planned-economy was desperately needed to attain a quick economic growth and correct the bizarre domestic industrial structure.^ He condemned big business for its monopolistic business activities and limited business activities only for those who would not abuse public interests. Indeed, the draft of the FFYEP was prepared under the spirit of planned-economy that Park and most other core ^ T h e Donq-A Ilbo, 6 June 1961, p. 1. 50The Dona-A Ilbo, 26 July 1961, p. 1. 195 members of the coup supported. Therefore, it seemed quite true that Park approved such a radical draft of the FFYEP to attain a quick deliverance of the people from poverty and deprivation. As he indicated on various occasions, he regarded the five-year economic plan as a way of leading the country toward a genuine planned-economy by inducing socio economic change and replacing the powerful sectors such as big business and U.S. aid missions with a new alliance of the academic groups and the rural areas. However, his vision and choice were changed since he had to take into consideration of his own political future. Ever since he became the chairman of the SCNR, he had been hardpressed hard to disclose his political blue-print on how, when, and where the junta would end its military rule. In the process of making his decision on the proper power transfer, his dream of a planned-economy had been converted into a mere economic plan of which the main concern was to maximize productivity of the national economy. Power Transfer to Civilian Rule in 1963: In the Revolutionary Pledge Article Six, the junta declared that it would prepare for the power transfer to the new and conscientious politicians at any time and promised to return to its original mission when its tasks were fulfilled. In other words, the officers would not transfer power unless they found "ethical and conscientious" politicians or they 196 would remain in power until they thought their revolutionary missions were fulfilled. According to the junta's white paper(a study on the nature of a civilian government that would emerge after the power transfer) disclosed oh July 5, 1961, the Military Government was willing to eliminate any corruption and inefficiency of the government and establish economic stability providing full employment, adequate returns for farmers and fishermen and reasonable profits to entrepreneurs.^1 Therefore, no matter how often the junta repeated its commitment of power transfer to civilian rule through free elections, the actual transfer was to be determined by the junta and, quite naturally, by the will of Chairman Park. Since the coup, Park did not seem to pay much attention to what the people thought about him because he knew that his power came from the military forces under his control rather than from the popular support. Therefore he tried to avoid mentioning the exact time schedule of the military rule. In opposition to the former Chairman Chang Do-Young's preference of an early return to civilian rule, approximately in three to six months, Park favored a much longer period, at least three to five years of military rule.52 Even if Park wished a long-term military rule, it 51The Korea Times. 6 July 1961, pp. 1-2. 52Chang said that one day in June he met Park privately. At the meeting, Park blatantly rejected his final suggestion of two-year long military rule. Several days later, Chang 197 did not necessarily mean that he would stay in power as head of the Military Government as long as possible. It seemed that he just needed time to accomplish his revolutionary tasks successfully before his return to his original mission, back to the military, as he promised. His ambition to create a sound ground for the rapid economic growth under the military rule in five years(the five-year economic plan, for instance) was an example of this choice. Or, otherwise, Park and his close associates needed time to maximize their opportunities for their participation in the coming elections as military-turn-civilians. In any case, Park never intended to transfer power without securing his authority in the future polity. On August 12, 1961, Chairman Park revealed his political schedule for the first time since the coup that a new civilian government would be established through free elections in two years. Despite the fact that his announcement was apparently influenced by the United States, his choice of the two-year period might not satisfy the U.S. and some opposition leaders who had recommended an early return to civilian rule from the beginning of the military rule. Acknowledging that there were some who were not satisfied with his time-table, Park criticized those who were disappointed because they were just greedy for was removed from his positions and arrested by the revolutionary forces. 198 political power. Since his declaration of the time-table, regardless of whether he wanted to become a candidate in the next free election, it seemed that he would concentrate on two things: 1)creating an infrastructure disallowing the former corrupt and inefficient politicians to retain control of the government and 2)accelerating economic growth guided by the FFYEP as a pre-condition for the power transfer to civilian government. It has been a controversial issue whether Park took into consideration running in the coming presidential election as a civilian candidate when he announced the overall time-table for the power transfer in August. After research, it seemed he did not consider himself as a candidate for president at least at this time. If he had, he might not have initiated such bold new projects as the FFYEP which were in need of lots of resources and, which would have been in opposition to the influential sectors like the U.S. aid missions and big business. On the other hand, if he had intended to become a presidential candidate in the coming election, he would have soon realized that he could not antagonize nor eliminate the powerful sectors from his pursuit of economic development. Therefore, it seemed reasonable to assume that Park wanted to remain a revolutionary leader when he launched efforts for economic development basically in the direction of the FFYEP. However, he changed his mind and became an eligible 199 candidate in 1963, and had to accept a revision of the FFYEP in favor of his new alliance. His visit to Washington in November provided a momentum for changes in his choices. Park's Reconciliation with the United States! Park's visit to Washington in November, 1961, had two great symbolic meanings in addition to its factual values for the two sides. First, President Kennedy wanted to see Chairman Park in person and get his confirmation of power transfer to civilian government by 1963. Because the U.S. had suspected his past, his alleged involvement in a communist rebellion before the Korean War and his nationalism, it could not support his continuing power even if he stressed anti communism and pro-American policy in his revolutionary pledge. Park's visit to Washington was possible only when the U.S. trusted his anti-communism and was ready to cooperate with him in other important regional problems such as the Korea-Japanese Normalization talks. Secondly, Park needed to improve relationship with the U.S. as he realized the significant role that the U.S. might play in Korean economic development efforts during the next five years. When he approved the draft of the FFYEP, he thought that his ambitious plan would be accomplished if he were able to mobilize every possible resource, domestic and foreign, without extra aid from the U.S. What he really wished, was that he could create a better atmosphere for 200 democracy and economic development before he returned to his original(military) mission. In four to five months since his acceptance of the draft of the FFYEP/ he changed his mind and decided to come to the United States to explain the FFYEP and ask more U.S. aid. He perhaps changed his mind because he realized that the plan could not be achieved without further aid from the U.S. But what he really intended to get from his visit was to examine U.S. reactions to his new political choice of becoming an eligible candidate for the presidency. At first, Park reiterated that he and his military colleagues would return to their original mission in the military when they completed their revolutionary duties by the summer of 1963. He confirmed this by saying that he would never extend the military rule because he and his colleagues knew that the Korean people did not like a military government just as the Americans did not. At the same time, he added that the Korean people wanted the most honest, sincere, and dedicated civilians to lead the country.5^ In an effort to improve his puritanical image in the U.S., he swore that any further American aid would be used for the benefit of the whole Korean people and not a penny of its aid would be wasted on behalf of a few corrupt officials and businessmen. 53Park gave a speech at a National Press Club luncheon in Washington D.C. on November 16, 1961. The Donq-A Ilbo. 17 Nov. 1961, p. 1. 201 In his exclusive interview with Korean news correspondents, held right after his luncheon meeting at the National Press Club, Park told a somewhat different story about the power transfer. Contrary to his repeated confirmation of power transfer to sincere and dedicated civilians, he disclosed for the first time that the power transfer meant a shift of the type of government rather than a shift of an individual official. From the same context, he did not deny the eligibility of the military officers to become participants of the new civilian government Given the slight yet no less significant difference between his statements at the two separate news conferences, it seemed that his remarks were in fact products of a carefully designed calculation. If he were really considering running in the coming election in just one and half years, he should change his choices and rearrange the current stratification to produce different resources. Encouraged by the warm support of the Kennedy administration and Kennedy's promise to provide all possible economic aid regardless of the involvement of the former military officers in the coming civilian government, Park seemed to reveal his calculated conversion of choice to the public. Along with Park's new philosophy, the relationship between the junta and big business began to be altered. Although he repeated his promise to implement the FFYEP as was ^ The Korea Times. 18 Nov. 1961, p. 1. 202 originally planned, he decided to invite American aid officials and economic experts to work with his government and evaluate the performance of the Korean economy.55 Park's Hew Choices and Big Business! When he began his military rule, Park known as a stubborn reformer was regarded as a staunch anti-American and anti-business nationalist. According to the structural, institutional perspective applied in our second explanation, the revision of the ambitious and domestic oriented FFYEP was initiated by the reinstatement of powerful business and the U.S. aid missions. In fact, however, after studying Park's deliberate manipulation of the relationship with the U.S., it was revealed that he attempted to strengthen his own supporting groups within the business as he shifted his goals. Though it is left to speculation to know exactly when he changed his choice from inducing social and economic change to coping with the change. It is our best knowledge that he began to stop altering exchange relationships in early August as he made his decision to transfer power to civilians by the summer of 1963. Such a conversion of choice was reaffirmed in his visit to Washington in November. The shift in his socio-economic choice was well reflected in the treatment of the top businessmen accused for their illicit profiteering. The process of lessening the 55The New York Times. 18 Nov. 1961, p. 8. 203 fines and penalties imposed upon the illicit businessmen was partly examined in the other section from the vantagepoint of the institutional struggles. But, contrary to the harsh treatment imposed by the ruling group within the junta, Park himself seemed to be somewhat flexible in dealing with the businessmen. According to Yi Byfcfng-Ch'Si, who was ranked as the top businessman and the number one illicit profiteer, he was escorted directly to a hotel when he arrived from Tokyo, Japan to be investigated by the military government for his misdeeds and illicit business activities under the former regimes. At this hotel he met Park for the first time. Yi said: At the hotel room there were about ten generals including Park. They asked me to know why the social unrests continued. I told them that unless we were able to eliminate poverty, we would not solve our social problems. Then they asked me about how to treat those eleven businessmen in prison. I was very reluctant to answer since I was accused even as the number one illicit profiteer. Then Gen. Park asked me to say anything that I had in mind. So, I told him not to punish them because they could benefit the national economy. Instead, I recommended they use those businessmen help the economy. The meeting which was expected to be short lasted more than three and half hours. Park seemed to agree with me and many of my recommendations were accepted later.56 . Soon the businessmen were released from prison but, they were obligated to contribute their wealth to the national economic development. On August 13, the Military 56Myo-Min Yim, pp. 344-45. 204 Government notified the businessmen of the revised sum of fines and penalties. But neither Park nor Yi recognized the implication of their meeting for the destiny of the economic development in the future. A power struggle within the junta began to be intensified as Park disclosed the time-table of the power transfer. As illustrated in Chapter 2, the factional strife within the military were chronic problems. The junta had been dominated by the Northeasterners and those who had military background and were from that region since the Northwesterners, led by the former chairman Chang Do-Young were eliminated from the center of power. However, the two most powerful men of the junta, Park Chung Hee and Kim Jong- Pil and a number of junior members of the junta were not from the Northeastern region. In fact, divided by North and South since the Liberation and consolidated by the War, the balance between Northerners and Southerners was beginning to be tilted in favor of the Southerners, particularly, the Southeasterners who were practically except from the massacre and devastation of the War. Within the business sector, there had been no such systematic and organized factional strife as seen within the military or political parties. However, as the investigation of the illicit profiteers went on, factions seemed to emerge according to their birth places. Gen Yi Chu-Il, vice chairman of the SCNR and the chairman of the Special 205 Committee for dealing with the illicit profiteers was leading the Northeastern faction and named investigators of the Committee mostly from the officers from his region. Of the top businessmen, the Southeasterners, Yi By^ng-Ch'TS! and Clrtfng Chae-Ho, Paek Nam-Il, and Kim Stfng-Gon were imposed heavy fines even in the second evaluation given on August 13 while the Northerners, Yi Chffng-Rim, S51 Kytfng-Dong, Nam Kung-Rytfn, and Yi Yang-Gu were treated with greater favor(Table 39). From this context, it was an irony of history that both Park Chung Hee and Yi By5ng-Ch/51 were from the same Southeastern region. Table 39 Top Illicit Profiteers and Their Fines* (million hwan) 1st Notice 2nd Notice 3rd Notice Yi Byffng-Ch'tfl 2,400 1,030 800 ChESng Chae-Ho 1,000 490 361 Yi Chtfng-Rim 550 288 387** SSl KyJSng-Dong 330 148 481** Paek Nam-11 380 352 356 Nam Kung-Ry5n 250 40 128** Yi Yang-Gu 170 83 316** Kim S5ng-Gon 240 192 143 *From Chin-HyBn Kim, p. 172 **Businessmen from the Northeastern region Meanwhile, the Southerners, led by Kim Jong-Pil and Yu Won-Sik within the junta, raised the issue and reported to Park the results of their own investigation of the 206 corruption and scandal committed by the Committee investigators. At last, the internal power game was over by the victory of Southerners at the completion of the investigation. The Korean Central Intelligence Agency(KCIA) directed by Kim Jong-Pil announced the arrest of seven officers including the chief investigator and two top businessmen, SiSl KyShg-Dong and Yi Yang-Gu on September 25, 1961. When the re-investigation and re-evaluation were over, one could see contrasting results depending upon their birth places, North and South. As illustrated in the Table 39, southern businessmen like Yi ByShg-Ch'ol, ChiJhg Chae-Ho, and Kim Sbng-Gon were to pay lesser fines at the final notification on December 3, 1961, while all the northern businessmen such as Yi Chong-Rim, Stfl KyBng-Dong, Nam Kung- RySn, and Yi Yang-Gu were imposed heavier fines. It was revealed later that it was Park who accepted what Kim and Yu recommended and ordered the investigation of the former investigators of the Committee and the reevaluation of the amount of fines. Later, in early 1962, he accepted Yi BySng-Ch'ol and other businessmen's recommendation to create an industrial complex in the southeastern region, Ulsan. There was no doubt that the rapid industrial development in the region, guided by the FFYEP contributions to the emergence of new entrepreneurs, from the region, and an unequal income growth pattern between this region and the rest of the country. However, it 207 was not until the mid-1960s that Park concentrated on organizing the Southeasterners as his principal allies. It was revealed that it was also Park who limited the investigation of the corrupt investigations..and stopped further examination of the senior members of the junta like vice chairman Yi Chu-Il.^7 Thus we may conclude that Park was considering not only the reinstatement of big business but also the balanced arrangement of business itself. At this time what really concerned him was to reinstate big business as his important ally in order to achieve his changing goals. As a consequence, the original FFYEP might have to have a considerable revision with active involvement of big business as well as the U.S. aid missions. ®7Chin-Hytfn Kim, p. 172. CHAPTER V RESOURCE EXCHANGE THREE: THE SECOND REFORM OF THE NATIONAL CURRENCY IN 1962 During the first year of the revolution, the junta undertook a number of economic reforms. As noted in Chapters III and IV, it had executed the Counter-Usury Program in rural areas and the Treatment of Illicit Profiteers. From the beginning of 1962, an ambitious FFYEP was also launched in order to bring a quick economic growth through a huge investment in some selected industries. On June 9, 1962, the junta disclosed another revolutionary measure to reform the national currency. According to its announcement, the reform consisted of two important measures. First, the unit of currency was changed from hwan to won at the rate of ten hwan to one won. Secondly, all the hwan currency, checks and other payment certificates should be deposited in the banks or other authorized financial institutions in order to be exchanged with the new currency, won. Except for a few amounts of money for daily living expenses, 500 won per person were assigned. However, the deposits were not allowed to be withdrawn. The frozen funds were to be managed by the would- 208 209 be established Industrial Development Agency for financing industrial investment. Like many of the junta's economic measures of the past, the Currency Reform also ended as a failure.1 But unlike a number of the reform acts that lasted over a couple of months or years prior to being judged as inefficient or counter productive to a long-term economic development, the Currency Reform was repudiated just within weeks. Why did it happen? How did the junta's revolutionary act in which most of the influential figures of the junta including Chairman Park Chung Hee were involved have to be turned into a disaster in just a few weeks? What were the immediate results of the repudiation and its long-range impacts on the power transfer and the future economic development? In this chapter, we continue our efforts to provide a better explanation of this transformation of the major revolutionary economic policy undertaken by the junta from different vantagepointB. Currency Reform and the Korean Economy It is curious to observe that major financial reforms were performed every ten years ever since the Korean War, -^Despite some of good intensions of the reform, evaluations of the currency reform were unanimously negative. Cole and Lyman, p. 39, Edward S. Mason, et al., p. 96, pp. 329-30. 210 forty years ago. The most recent one was ignited by a curb- market scandal under the Chon Administration in 1983. In 1972, the Park Administration attempted to decapitalize the powerful curb-market in order to revive the economy by relieving big business from its burden of heavy debts. This chapter, however, will cover only a brief review of the first currency reform executed in February, 1953, in an effort to provide an analytical basis for our topic, the second currency reform under the junta in 1962. Before undertaking a systematic explanation of the second currency reform and its effects, it is also helpful to examine the general economic situation and the panic crisis in the stock exchange market of May, 1962 which was allegedly connected with the currency reform in June, 1962. It is logically difficult to connect the general economic crises to the currency reform since the reform was conceived much earlier than any of the economic crises in 1962. However, as illustrated it later, it would be almost impossible to explain the execution of currency reform without a parallel examination of the stock market crisis. The First Currency Reform under the Rhea Government in 1952: As noted in the preceding chapters, the Korean economy was extremely devastated by the Korean War. Millions of civilians as well as those in the military were lost and the major infrastructure and industrial facilities and 211 capabilities were nearly destroyed. Even though most of the fixed capital was damaged within the few months since the War had started, the War continued until a military truce was achieved in July, 1953. As a result of the continuation of the War, the Korean government procured finances for the ever growing military expenses through deficit financing despite the enormous inflows of U.S. military and economic aid. Thus it was impossible to bring down the high rate of domestic inflation. During the three years from June, 1950 to February, 1953, the total amount of currency circulation had increased about twenty times. As inflation accelerated from 1952, and the whole economy seemed to be plunged into a chaotic crisis, the (Syngraan) Rhee Administration concluded that there was nothing but a radical measure, a currency reform, as a solution. In spring, 1952, Finance Minister Paek Tu-Jin and President of the Bank of Korea Kim Yu-T'aek began to find a realistic approach to control the galloping inflation. Later, Kim Yu-T'aek recalled: "...the pressure of the inflation continued to grow in spite of the multilateral monetary and financial policies of the government and the Bank of Korea{BOK). Because of the extremely high inflation, they had to carry out cartfuls of cash to make deals in markets. Now a fundamental treatment was required just only for physical convenience. Therefore, Minister Paek and I made a conclusion that the currency reform was the only solution in order to prevent further inflation accumulated by the War and to procure funds for reconstruction and industrial recovery. Both of us agreed that the BOK would take charge of planning and 212 implementing the actual currency reform by collecting data and material."2 While the government would assist in the task, the most important thing was to keep the whole process in secrecy. The task for currency reform was planned and prepared mainly by Kim Chtfng-RycSm, Chief at the BOK Research Section with the assistance of Pae Su-Gon, Acting Chief of the same research section. When the draft of the reform was completed in October, 1952, only eight people including Kim and Pae knew about the preparation of the currency reforms President Syngman Rhee; Finance Minister Paek Tu-Jin; President of the BOK Kim Yu-T'aek; Vice President of the BOK Song In-Sang; Director of the BOK Research Division Yi Sang-D^k; Chief of the BOK Research Bureau Kim Pytfng-Ok.3 On February 15, 1953, the government announced the currency reform. According to the emergency measures, the currency unit was changed from won to hwan at the rate of 100 won per hwan. All the won currency, bank checks and other payment certificates had to be deposited in the authorized financial agencies. It was determined to allow only 500 hwan per person for daily living expenses and the rest would be frozen for an uncertain period of time. The first stage of the reform was completed in 10 days. It was such a success that as much as 97 percent of the old 2Kyu-Hun Han, pp. 167-68. 3Kyu-Hun Han, p. 176. 213 currency had been exchanged to the new currency hwan. It was revealed that they could attain only a quarter of the original goal in freezing funds because the National Assembly sharply reduced the rate of freezing these assets. Nevertheless, in the long-term, the reform seemed to succeed in holding the speed of currency expansion and arranging the volume of the currency circulation since they unfroze the bank deposits step by step over a period of one year.^ The Sluqjish Economy in 1962: Several months had passed since the ambitious FFYEP was launched with confidence and pride. Even though the junta had attempted to save the people from poverty through a number of revolutionary measures designed by its "economy first" guideline, the economy did not seem to recover until mid-1962. All economic figures indicated that the national economy was deteriorating rather than accelerating in spite of the government's emergency measures. The total volume of industrial production declined and the gross national products was stagnate. Even though the price level was maintained within bounds, there was always danger of inflation. No one denied that the Korean economy had not fully recovered from the economic recession since the military coup. ^Kyu-Hun Han, p. 189. 214 As noted in Chapter II, it was not surprising to see a low annual GNP growth rate in 1961 because we had even a lower growth rate in the preceding year. According to the Bank of Korea Annual Report. 1961. the GNP grew only by 2 .8 percent in 1961 and by 2.1 percent in I960.® Considering the annual population growth at a pace of 2.8 percent, the slow growth in both 1960 and 1961 implied deterioration of the living standard of the general public. But the real problem was the continuing recession in spite of the expansionary financial policies of the Military Government, which could erupt at any time as hyper inflation. According to the same Annual Report, the total fixed capital investments in secondary industries were down 28.5 percent from 1960. It was evident that the relative stability of price viewed against the background of an enormous expansion in money supply, indicated a drastic decline in demand. The reduction of the effective demand led to a sharp decline in private industrial investments. The report continued that the hwan supply, newly created after the military coup, eased stringent conditions obtained prior to the coup before it could produce an additional effective demand. It also said that the public tended to keep larger hoards of cash because of temporary psychological depression following on close heels of the revolution.® ^Far Eastern Economic Review, 10 May 1962, p. 289. 6FEER. 10 May 1962, p. 289. 215 Another cause of the recession under the expansionary policy of the Military Government was the unexpected consequences of the revolutionary policies of the Military Government. We observed that the Counter-U3ury Program had resulted in a contradiction because it paralized the rural economy. Even if the Program were confined within the rural areas, the impact of the anti-usuries mood froze the whole private lending activities for a short-period. Reduction of the private lending activities along with the slow turn-over of deposits within the organized financial agencies brought about the financial recession of slow currency circulation. The junta's treatment of illicit profiteers produced another negative side-effect for the whole national economy. As noted in Chapter IV, most of the illicit profiteers received much better treatment at the final stage but, as a consequence of the harsh treatment at the beginning and broad application of the concept of "illicit business activities," motivation for active business was in a stalemate. Confronted with the unexpected recession, the Military Government continued to expand its monetary supply. Again, the Annual Report indicated that the money supply increased at the rate of 42.5 percent in one year from 219,100 million hwan at the end of 1960 to 312,200 million hwan by the end of 1961.7 Such a sharp increase of the money supply was a 7FEER. 10 Mav 1962. p. 291. 216 crystal clear sign of an exploding inflationary economy in future years unless the Military Government elaborated policies of soaking up the excessive currencies. The Stock Exchange Market Crisis and a Creeping Inflations The economic chaos created by the currency reform was preceded by the stock exchange market crisis in May, 1962. Since the currency reform was, in fact, conceived and prepared far earlier than the sudden drop in the stock market, the reform itself would not be regarded as an outcome of the stock market crisis. However, as will be explained later in this chapter, it seemed difficult to separate those two crises because a number of key members had been involved in both cases. The stock exchange market in Korea was very small and limited to early 1961. Shares of a few public corporations and the government bonds had been traded in the market. As the government possessed most of the shares of the public corporations, shares of the Korean Stock Exchange Agency were the only targets for dealers to deal with in the market.® Even the KSEA was a relatively small agency founded with less than 600 million hwan by issuing 1.2 billion shares at the face value of 50 chon, a half hwan. Yun Ung-Sang, a stock market dealer and founder of T'ong-Il and II-Hung Stock Agencies, began to buy stocks of 0Kyu-Hun Han, p. 342. 217 the KSEA at 1.17 hwan per share from January, 1962. His goal was to buy half of the KSEA shares and control the stock exchange market managed by the KSEA. The price of a KSEA share was going up rapidly day by day, almost at the rate of one hwan per day. Considering its face value of half a hwan, the speed of the price hike was almost astronomical. By April, Yun could buy up to 70 percent of the whole shares at 35 hwan per share and earned nearly 30 billion hwan in just 4 months. The whole economy fluctuated by the extra-ordinary boom in the stock market. A total worth of 118.8 billion hwan out of the 171.8 billion hwan in currency circulation was traded in the stock market alone at the end of April, 1962.9 How could Yun continue to buy shares? It was revealed later at the investigation of the stock market crisis that Yun requested some core members of the junta to support him financially and politically. Yun said that he approached Maj. Cho Kyu-Ho and Maj. Kang Stfn-wSn both of whom worked at the KCIA under the directorship of Kim Jong-Pil. Because Kim and his colleagues in the KCIA were secretly organizing a political party at that time, he had to be supported financially from private sources, also. Yun suggested to them that he could make a huge sume of money through the perfectly legal investment at the stock market and would contribute at least 10 billion hwan if they gave him 500 to 9The Hankook Ilbo, 22 Feb. 1982, p. 5. 21B 700 million hwan. From then on, Yun received special favors from the government and, in particular, from Finance Minister Ch'on Pyong-Gyu. When a sudden panic occured at the stock market in May, 1961, Yun and his colleagues controlled nearly 70 percent of the deals. Thus, they had to pay the difference of the exchange rate at the end of the month, if there were differences, because most of the shares had been traded without cash. In May they had to pay nearly 20 billion hwan to maintain the market. Yun requested Finance Minister Ch'on to give him special loans from the banks controlled by the government. Despite oppositition to the special loans from the BOK and other financial experts, the loans were approved by the pressure of the two most powerful figures In charge of the national economy: Gen. Yu WBh-Sik, SCNR member of the Finance-Economy Committee and Finance Minister Ch'on. Through the special loans, the immediate stock market crisis was extinguished but, no one was sure about what would happen the next month. The Currency Reform In June stopped all such deals at the stock market for a certain period of time. But that was not a solution for the fundamental problem of the market crisis. Kyu-Hun Han, pp. 219 The Currency Reform under the Junta in 1962; In the contradictory mixture of the low industrial investment and the excessive currency speculation in the stock exchange market, the Military Government undertook a currency reform as of June 10, 1962. It was noted in the preceding sections that the Reform was in fact a second currency reform since the Korean War. Chairman Park Chung Hee said in a special statement that the money reform was decided to prevent a possible vicious inflation and to stimulate private investments for the industrial projects under the government's economic development plan by enticing illicitly accumulated capital and surplus purchasing power to participate in the market. At first glance, this currency reform seemed to be very much like the first one except for some minor differences found at the rate of exchange under a new unit. In the new currency reform, however, the junta stressed mobilization of domestic capital to achieve a quick, self-reliant industrialization. Therefore, it tightened the rate of exchange and initiated a freeze in all the funds deposited in banks for a longer period of time. It waB revealed that Gen. Yu w5n-Sik, then a SCNR member in charge of Commerce and Industry, recommended that Chairman Park change the national currency in order to mobilize domestic sources for industrial investment right The Korea Times. 10 June 1961, p. 1. 220 after the disclosure of the draft of the FFYEP in July, 1961. By accepting Yu's reform idea, Chairman Park asked his chief economic advisor Prof. Pak Hui-Bom to study a currency reform. At the same time, Chairman Park moved Gen. Yu to the Finance and Economy Committee to concentrate on the preparation of the Currency Reform. A month later, Gen, Yu, Finance Minister Ch'ffn, and Prime Minister Song Yo-Ch'an gathered in Chairman Park's office to listen Prof. Pak's plan on the Currency Reform. However, disappointed with his simple and unrealistic approach, Chairman Park insisted on Finance Minister Ch'tfn creating a more sophisticated and realistic reform plan in complete secrecy without notice even to Vice Chairman of the SCNR Yi Chu-Il, Chairman of the Finance and Economy Committee Kim Tong-Ha, Chairman of the Economic Planning Board Kim Yu-T'aek, and President of the Bank of Korea Yu Ch'ang-Sun.12 Finance Minister Ch'on called Kim Chtfng-RySm who had masterminded the first currency reform in 1953. In February, 1962, Pae Su-Gon, another planner of the first reform, joined Kira to prepare the new currency reform. Until Gen. Yu disclosed the Currency Reform at 10 p.m., June 9, 1961, only two more middle-level officials from the BOK joined the planning team. As announced later, the Currency Reform was prepared in complete isolation from the other ^The currency reform plan was notified to Kim Jong-Pil by Gen. Yu Wtfn-Sik during Park's visit to Washington in November 1961. 221 major economic institutions like the Bank of Korea, the EPB, the SCNR, and the U.S. aid mission. Productivity of the Currency Reform There is every reason to compare the Currency Reform in 1962 with the first one in 1953. But the most critical difference between them seems to be the degree of compulsiveness or sacrifice of the principle of the property rights. While the first one attempted to freeze some kinds of deposits through the exchange for a certain period of time, the junta chose a radical step to let the people deposit all their wealth in authorized financial institutions and then freeze them for an unidentified period of time. Not being allowed to withdraw their deposits in cash, they would be compensated with the interest returns from their deposits, guaranteed at the rate of minimum 15 percent per year by the government, which would be invested in the would-be Industrial Development Corporation. Such a harsh enforcement measure was adopted in expectation of the effectiveness and boldness of the Military Government. The civilian planners who had experienced a failure in their previous effort to freeze deposits should have been encouraged this time by the firmness of the ruling junta. Nevertheless, the Reform turned out to be another miserable failure. In Explanation I, we assumed that 222 policies are changed because they fail in producing further resources. As noted in his special statement, what Park and his colleagues intended through the Currency Reform was to convert as much hoarded currency for developmental purposes and as a consequence reduce the inflationary pressure. The result was a chaotic crisis immediately followed and the Military Government had to supply emergency loans and defreeze the blocked fund step by step mainly because they could not stem the tide of growing inconveniences of the general public and there was not as much hoarded currency as they expected. It seemed rational to defreeze the blocked fund once they found that there was far less hoarded money worth being permanently’frozen. Inconvenience of Exchanges According to the Law Concerning Emergency Measures for Currency, Koreans in charge of households, firms, or any organizations were required to register with their local administrative offices the amount of currency, bank checks, and other payment certificates they possessed by June 12, 1962.^ Then they had to deposit the registered amount in banks or other banking agencies in a week by June 17, 1962, and were permitted to withdraw 500 won per person as living expenses until June 17. ^The registration period was in fact even tighter for the citizens of major cities including Seoul had to register in just one day. The Korea Times. 10 June 1962, p. 1. 223 Consequently, for a short-run, the Reform measures gave the general public a great deal of inconvenience and concerns. Even though all the banking agencies were open from 8 a.m. to 10 p.m. to change currency, it was reported that long queues of people were seen at every bank door from 4 a.m. just after the curfew hour because almost all Korean households wanted to come to deposit their old currency and obtain new currency up to 500 won per person. Because only a limited amount of new currency was available due to a sudden change of currency rates and tight regulation, the whole economy was slowing down. The government took emergency measures to help the needy by releasing state-owned rice while students were given free bus ride. Even the police repeated severe warnings to shop owners not to hoard goods or raise the level of prices. According to the police, a total of 60 persons were arrested only in the Seoul district in violation of the Emergency Currency Control Law.^ In other words, even though the planners seemed to anticipate long queues of people in banks, they did not expect such a far-reaching impact of the Reform on the daily life of the general public. The emergency measures were applied to most foreigners and foreign organizations. Although there would be no restrictions for the foreign travellers and foreign personnel belonging to United Nations organizations and 14The Korea Times. 12 June 1962, p. 1. 224 foreign diplomatic missions in their exchange for new currency, they were also required to register all their Korean currency, checks and other payment certificates to the banks by the persons in charge of the organizations or the missions by June 17, 1962. On the other hand, the U.N. military personnel and foreign civilians employed by U.N. forces had to register and deposit their Korean currency in order to get new currency. According to the emergency measures, the amount that they could withdraw would be determined by an agreement between the Korean Finance Minister and the UNC commander. However, they did not pay any special considerations to the Chinese residents in Korea, most of whom engaged in restaurant business and believed to hoard a lot of currency. In fact, it was later revealed that they brought bushels of currency to the banks for exchange. Given all these inconveniences and mistakes which were part of the revolutionary measures coupled with inadequate preparation, there should have been some urgent measures from the government to prevent the growing disappointment from exploding among the general public. Lack of New Currency and Expansion of Emergency Iioansi As indicated in the reform measures, the planners had anticipated an immediate stand-still of businesss accompanied by hoarding goods by shop owners for a short 225 period of time. But they were not fully prepared for the impact of frozen deposits and limiting loans within the level of one-hundredth of the deposits registered in the whole business community. In Korea, most businessmen had borrowed in one way or another for their operation fund from the underground curb-market from the time the reform was enacted, so they could not procure funds for purchasing raw materials and paying wages to their employees through either curb-market or authorized banks. The situation got even worse in some cases because many of the commercial deals in Korea had been done with cash transactions rather than on a credit basis. Lack of new currency was not confined to the business circles. The emergency measures limited the amount of money that the general public could withdraw from their bank deposits for their daily living expenses. Because the poor low income earners managed their daily lives from their daily earnings, most of them could not afford savings in the bank accounts. Freezing portions of their daily income as bank deposits was cutting their daily living expenses for rice and soup. It was not enough for the government to supply emergency relief grains to the needy populace. In acknowledgment of these problems, the government began to adjust some of the Emergency Measures for Currency Reform. On June 12, 1962, Chairman Park Chung Hee ordered the cabinet to permit the low income earners to draw from 226 their bank deposits immediately to enable them to meet daily needs without difficulty. Similarly, he gave instruction to provide special treatment in dealing with the deposits of the farmers and fishermen. Following Park's instruction, the cabinet decided on June 13 to grant loans to all individuals, firms, and other entrepreneurs up to half of their deposits registered in their bank accounts.^ Accordingly, businessmen could resume their normal operations by being relieved from financial difficulties due to the tightened rule of frozen assets. However, this action could not be a solution simply because people were forced to get loans while their own money remained deposited in bank accounts, If they were to provide cheap loans to the needy "up to half of their deposits," there would be no reason to freeze their deposits at the banks. Enforced Savings through Freezing Depositsa Amid the uncertainty and contradiction of the Emergency Measures, the junta had to decide how to freeze the deposits registered by the ordinary people, firms, and organizations. By June 17, 1962, a total of 187.3 billion hwan were deposited at banks, 158.2 billion hwan in old currency(84.4 percent) and 29.1 billion in bank checks and payment certificates(15.6 percent). Since 165.3 billion hwan had been circulated by ^ The Korea Times, 14 June 1962, p. 1. 227 June 9, the actual exchange rates between old and new currencies reached nearly 95.7 percent. Out of the total amounts, deposits of the individuals and firms constituted roughly 85.2 percent(159.8 billion hwan); the government and municipal offices, 6.3 percent(11.8 billion); banking agencies, 5.3 percent(9.9 billion); insurance companies, state-run corporations, and enterprises established under the FFYEP, 0.7 percent(1.3 billion); and special individuals like foreign military personnel, foreigners, and diplomatic missions, 2.5 percent(4.6 billion). According to the Emergency Measures, only the deposits registered by the general public and firms were to be frozen. Therefore, about 160 billion hwan were supposed to be deposited permanently for financing the FFYEP. They planned to invest all those funds to the would-be established Industrial Development Corporation. Nevertheless, as noted earlier, they could not freeze all the funds deposited by the general public and firms. Even before special measures on bank deposits were fixed, the Chairman instructed banks to unfreeze some of the blocked funds deposited by low income earners, farmers and fishermen, small- and medium-sized businessmen to alleviate their financial hardship. Following Park's special order, those who had deposited less than 100,000 hwan(10,000 won) at banks or banking agencies were allowed to withdraw their money without restrictions from June 15. However, the SCNR 228 enacted a special Law Concerning Emergency Monetary Measures on June 16. By the law, any person who had deposits of less than 30,000 won(300,000 hwan) could take out his money while those who had more than 30,000 won in their accounts would be subject to the enforcement of freezing ranging from 20 to 100 percent in accordance with their total amount of deposits as illustrated in Table 40. As of June 23, 1962, a total amount of 9.8 billion won was become frozen permanently. In fact, they blocked only 1.1 billion won(13.3 percent) out of the total deposits created by old currencies, bank checks, and payment certificates and 8.7 billion won(19.3 percent) out of the total accounts of savings and time deposits. In other words, it was revealed that only 1.1 billion won worth of funds were newly created by the currency reform for industrial investment purposes. The rest, 8.7 billion won, was already in banking accounts as either savings or time-fixed deposits. 229 Table 40 Freezing Rates of the Deposits* (10,000 won = US $77) Currency and Savings Time-Fixed Deposits Amount(Won) Freezing Rate(%) Period of Freezing Maturity(Months) Rate(%) less than 30,000 none over one year none 30,001 50,000 20% 6-12 months 35% 50,001 100,000 30 3 - 6 40 100,001 500,000 50 less than 3 months 45 500,001 - 1,000,000 65 1 ,000,001 - 5,000,000 85 5,000,001 -10,000,000 95 over 10,000,000 100 *From Kyu-Hun Han, p. 438. Growing Contradiction and Defreezing of the Blocked Funds In the process of freezing funds, it was disclosed that most of the deposits registered in accordance with the emergency measures consisted of small amounts of money. Nearly 97 percent of the post-reform deposits, in a number of cases, were not blocked because their total amounts were less than the minimum 30,000 won.^® And more than 90 percent of the post-reform deposits, in total amounts, consisted of cases of less than 100,000 won of which as much as 30 percent were to be frozen. There were only 7 cases of deposits over 10 million won as a total amount of 120 million won which would be blocked by one hundred percent. ^ Furthermore, the cabinet decided to increase emergency loans ^ F E E R . 30 Aug. 1962. p. 399. 17Kyu-Hun Han, pp. 437-38. 230 to small- and medium-sized business up to 100 percent of their deposits at banks. It also authorized 100 percent loans for relief organizations and 75 percent for mining enterprises. Farmers and fishermen were also enabled to obtain extended loans for production. The problem had been changed from a consideration of how to block funds for industrial investment purposes to a consideration of how to equitably defreeze funds. Therefore, the adjustment of the ceiling of loans was acceptable in terms of its given priorities. It seemed unreasonable and unfair that only the currencies and general savings accounts should be blocked permanently. Although they confiscated currency or bank deposits for development purposes in violation of the principle of property rights, they did not attempt to take other properties possessed by individuals and firms in terms of precious metals, foreign currencies, or real estate. Since they experienced destruction of the normal economic transactions during the War and the following inflation, most rich people saved their wealth by purchasing those goods rather than keeping currency or deposits at banks. Particularly, as noted in comparison of deposits between currency and bank accounts, those who had kept their money at banks, regardless of the kinds of accounts, were losing badly. Considering the fact that they had to maintain the credibility of banks and banking agencies in order to 231 keep mobilizing domestic resources, the unfair treatment of savings and time-fixed deposits could block the future source of investment. In order to save the credibility of banks, the Military Government once again unfroze all general savings deposits of all accounts worth of 2.2 billion won on June 30, 1962. Two weeks later on July 13, the new Prime Minister kim HytSh- Ch'ol announced another special decree on Currency Reform. Accordingly, all the remaining deposits were to be unfrozen. The plan to convert deposits to a would-be established Industrial Development Corporation was cancelled and the loans given to the needy were also offset with their own deposit accounts. In 34 days, the revolutionary reform acts ended in a miserable failure. Prime Minister Kim explained quite succinctly why the Reform acts failed. He said that the Reform failed because there were not so much hoarded currency as the planners expected.1® Stratification of Major Sectors The Reform efforts ended as a miserable failure. They failed in preventing inflation and also in creating funds for industrial investment purposes. From the vantagepoint of productivity, one might conclude that the revolutionary policy could not achieve its goals simply because there were no resources to be converted into enforced savings. Another 1®Kyu-Hun Han, p . 441, 232 conclusion might be that the Reform Measures failed because they could not produce resources necessary for the general public and firms to sacrifice their own property rights for a certain period of time. However, we should not overlook the organizational aspects of the reform. When the planners of the Reform prepared the Currency Reform, they were instructed to work in complete secrecy, not to even mention it to the major economic institutions such as the Bank of Korea, the Economic Planning Board, the Supreme Council Committee in charge of Finance and Economy, and the U.S. aid missions. Why? And what kinds of impacts did it have on the fate of the Reform itself? Because we are dealing with the struggle between individuals and sectors for controlling policy making and implementation of the Currency Reform, we shall begin our second explanation by briefly examining the resource positions of the most important sector in the future direction of the Korean economy, the bureaucracy, and its relationship to the military elite. A Tradition of Strong Bureaucracy: The bureaucracy is the center of a modern state and is thereby hardly considered to be separate from the regime itself. If we narrow our focus to a certain portion of it, it can surely be regarded as a sector competing with others for scarce resources. In Korea, a small number of higher civil servants 233 of Grade III-B and above had comprised a powerful sector distinguished from the rest of ordinary civil servants.*^ The best way to join this powerful sector would be to pass the tough "higher civil service" examination. Because of the power and reputation accorded to these positions, only 344 passed the examination out of a total of 12,819 qualified applicants throughout the 1950s.^ indeed, those who passed the examination were small in their numbers, yet they comprised the core of the higher civil service(Table 41). Table 41 Staffing of the Higher Civil Service* Grade III-B Grade III-A Grade II(A & B) Those who passed the Examination 4.6% 1.9% 1.3% Those who didn't 95.4% 98.1% 98.7% *From Hahn-Been Lee, Korea: Time. Change, and Administration. p. 104. -^Of the 240,000 government employees, school teachers and policemen were outnumbered by over 150,000 while only 300 public prosecutors and 500 judges took charge of the whole judiciary system of the country. In 1962, a total of 1,700 staffed the higher civil service. Chang-Hyun Cho, "Bureaucracy and Local Government in South Korea," in Government and Politics of Korea, eds. Se-Jin Kim and Chang- Hyun Cho (Silver Spring, MD: The Research Institute on Korean Affairs, 1972), p. 93. As in many other agrarian countries in Asia, the central government provided the best, secure income sources because the government owned virtually all of the land, which was the sole source of income. Therefore, civil service, especially, higher offices, had been the most sought after vocation for learned young people. Chang-Hyun Cho, p. 91. 234 In addition, the higher level officials in Korea have been respected for their high academic background. The Table 42 illustrates more than 90% of the high level civil servants were college graduates or above. Table 42 Level of Education* High Sc or below College M.A. Ph.D Unknown Total Minister N o . 20 202 23 20 3 268 % 7.5 75.3 8.6 7.5 1.1 100 Vice No. 13 149 10 17 4 193 Minister % 6.7 77.6 4.9 8.8 2.0 100 Director No. 41 381 90 26 6 544 % 7.5 70.2 16.6 4.6 1.1 100 *From Dong-suh Bark, "Study on Qualifications of Korean Administrative Executives," Koreana Quarterly. 11(Summer 1969), 26. Moreover, most of the college graduates among the high ranking bureaucrats came exclusively from the most prestigious academic institutions in Seoul: Seoul National University, Yonsei University, and Korea University. Many of the officials who studied abroad were in fact graduates of those three universities(Table 43). 235 Table 43 College Graduates by School* Seoul Yonsei Korea Foreign others Total Nat' 1 Univ. Univ. Schools Univ. Minister No. 43 11 16 139 36 245 % 18.3% 4.7% 6 .8% 59 .1% 15.3% 100% Vice No. 45 13 14 79 25 176 Minister % 25.6 7.4 8.0 . 44.9 14.2 100 Director No. 183 28 20 179 87 497 % 36.8 5.6 4.0 36 .0 17.5 100 Total NO. 271 52 50 397 148 908 % 29.9 5.7 5.5 43.7 16.3 100 *From Dong-suh Bark, "Study on Qualifications of Korean Administrative Executives," 28. On the other hand, the traditional values and esteem given to the higher officials do not seem to be weakened in the modern era in Korea. The higher educational careers of the officials combined with the psychological perspective of Confucianism provide a great deal of influence, information, esteem and deference from the populace. Bun Woong Kim, among others, observed that the submission to authority and the subservience of the individual to the state were the core values of the Korean people, influenced by Confucianism.21 Thereby, this 'Hierarchical Subordination' or 'Confucian Moral Authority' made it possible for higher officials to enjoy powerful positions vis-a-vis other sectors. The 21Bun Woong Kim, "The Korean Political Psyche and Administration," in Korean Public Bureaucracy, eds. Bun Woong Kim and Wha Joon Rho (Seoul* Kyobo Publishing Co., Inc., 1982), p. 133. 236 relationship between learned officials and the ordinary people is illustrated in Figure 3. The continuation of the Confucian morality and the authoritarian characteristics of the people were also confirmed in Woo Kon Yoon's 1972 study on the authoritarianism of the Korean people. As revealed in Table 44, more than half of the Korean people possessed highly authoritarian personality, and this is a far higher rates than the Americans or the British citizens. Table 44 Distribution of Authoritarianism Korea U.S.A. U.K. High Authoritarianism 56% 32% 33,5% Intermediate 25% Low Authoritarianism 19% Source: Woo Kon Yoon, "Korean Bureaucrats' Behavior: The Effect of Personality on Behavior," in Korean Public Bureaucracy, p. 96. 237 Yang Mandate of Heaven King Superior The Elder, Men, Officials, Scholars Authority Monolithic Order Li Duty Form Passivity Rite Non-confrontation Inferior— Women, Young, Ordinary, Unlearned Men Submission Subject Ying Figure 3 Confucian Moral Authority* *From Bun Woong Kim, "Confucianism and Administrative Development Interventionism," in Korean Public Bureaucracy p. 125. 238 The Military C o u p and the Civilian Bureaucracy; Because of the top qualification and its selectiveness, the high level officials developed a strong organizational structure and a unique characteristic which bound them tightly together. The hierarchical norm and personalism provided strong informal ties to protect and advance the particular interests of each official.22 As a result, the Korean bureaucracy maintained high rates of inside appointments regardless of their positions(Table 45). Table 45 Measurement of Inside Appointments into the Higher Civil Service* Grade III-B Grade III-A Grade II 80.6% 79.6% 78.9% *From Hahn-Been Lee, Korea: Time. Change, and Administration. p. 105. Note: At Grade III-A, 20.4% were recruited originally and 21.1% were originally recruited to the posts of Grade II. It is a common trend for the bureaucracy to be involved in the policy-making process in addition to its original role of policy implementation. In modern times, however, both political and economic factors peculiar to Korea have 22Suk-choon Cho, "The Bureaucracy," in Korean Politics in Transition, pp. 74-77. Similar factors binding the Korean bureaucracy were elaborated by Woo Kon Yoon. See also Wanki Paik, "Modernization of Korean Bureaucracy," diss. Florida State Univ., 1972. 239 allowed the bureaucracy powerful roles. According to Dong- suh Bark, Korean bureaucrats are extra ordinarily influential in formulating policies compared to politicians because of the unfaithfulness and sloppiness of the latter. In addition, both the land reform, which brought a major restructuring of the country's economic foundation and the heavy dependence on foreign aid in the 1950s, forced the bureaucracy to exert comprehensive control in most economic activities.2** The military coup brought an end to this tradition by replacing many of senior bureaucrats by generals and colonels{Table 46). A further examination of the relationship will explain the changing stratification between the civilian and military officials. Four years later in 1965, ex-military men occupied 52 percent of the high civil service positions for the 36-40 age group and they filled a total 14 percent of the higher government positions for 10 years since 1961.24 Such a rapid involvement of the military personnel into the once exclusive bureaucracy was clearly illustrated in Table 46. More than half of the top government positions were occupied by the military and this was quite extraordinary compared to the previous history in Korea. 2^"An Ecological Analysis of Korean Administration," Koreana Quarterly. 9 (Winter 1967), 56-59. 24Chang-Hyun Cho, p. 98 and Suk-choon Cho, p. 73. 240 Table 46 The Advancement of Military Elite in High Government Positions* High Government Pre-military Rule Military Rule Positions 1948-1961 1961-1963 Total Military % of Total Military % of Personnel Personnel Mill. Personnel Personnel Mili. President 4 0 % 2 1 50.0% Premier 7 1 14.3% 3 2 66.7% Cabinet M. 152 11 7.2% 49 27 55.1% Provincial Governor 110 0 % 17 11 64.7% *From C .I . Eugene Kim, "The Value Congruity Between ROK Civilian and Former Military Party Elites." Asian Survey. 18(A u g . 1978), 841. Rising Organizational Opposition to the Reforma Compared to the first currency reform, the second reform was planned and implemented completely out of the hands of career economic officials. Indeed, the whole process was designed by Gen. Yu and by Finance Minister Ch'Un and only two civilian experts had participated. Although they insisted that the reform had to be prepared in complete secrecy to achieve its revolutionary purposes, many believed that the planners intended to avoid criticism from the major economic sectors while preparing the Currency Reform because it might lead to the annihilation of the plan itself. At first, the Bank of Korea was totally eliminated in the reform efforts as an institution. President of the BOK Min Pyong-Su was informed of the Currency Reform for the 241 first time at the emergency meeting held just two hours before the announcement of the Reform at 8 p.m. on June 9. He said: I had a bad feeling. Not just a bad feeling, I was really upset. I called on Minister Ch'Sh and gave him a strong argument. I said to him, "What is this anyway? As long as I am the president of the BOK, I should be responsible to all the consequences of the Currency Reform. Although every public announcement of the Reform will be declared in my name, I was not advised about the Currency Reform in advance. Do you think I am just a puppet at the BOK?" Minister Ch'Sh seemed to be surprised with my strong reaction because he had never seen me so angry and upset. Soon he tried to appease me. According to him, the Reform had been prepared far earlier than my inauguration as the president. Although he thought of informing me, he said he decided to keep it a secret because he believed that it would give me nothing but worry and anxiety."25 As BOK President Min said, the actual execution of the reform was carried out mostly by the BOK. However, the BOK officials were not given the power to solve problems resulting from the execution of the reform and thus, the morale of the officials was deteriorated just like their president. The ambition and arrogance of the planners failed to utilize the knowledge and experience of the experts of the top financial institution necessary for its effective implementation. Another strong opposition to the reform was raised by the U.S. About a week after the disclosure of the reform, 25Kyu-Hun Han, p . 435. 242 U.S. Ambassador Samuel D. Berger gave an ultimatum to Gen. Yu Won-Sik and the other cabinet and Supreme Council members in charge of economic affairs gathered at the USOM director's office. Ambassador Berger gave them an ultimatum to choose in two hours either to cooperate with the U.S. or be cut-off from U.S. aid. He gave them notice of an immidiate halt of all diplomatic relations between the two countries unless they would come up with a satisfactory plan. In reaction to such an intimidation from the U.S., Gen. Yu stood high ground firmly by revealing his willingness to recall the Korean diplomatic mission in the U.S.^® There was no immediate resolution but the tension between the two sectors continued as the U.S. did not retreat from its demands of defreezing all the deposits registered by force. Finance Minister Ch'on was one of the key members of the reform from its inception. As a close associate of Gen. Yu, Ch'Un be supported the preparation of the reform via all available administrative means. It was Ch'tfn who selected Kim ChSng-RySm to take charge of the actual planning and arranged the printing of the new currency in Great Britain. He was also in close collaboration with Yu in making emergency plans to control the administrative apparatus for its successful implementation. ^ The Hankook Ilbo. 21 Feb. 1982, p. 3. 243 Minister Ch'Sn was dismissed from his cabinet post as of June 16. In fact, his dismissal was expected from June 7 when Chairman Park criticized Ch'Gn for his lack of knowledge and experience about the stock market and his apparent failure to prevent the stock market crisis. He appointed Prime Minister Song to resolve the stock market crisis.^7 It was evident that Ch'Sn defied Song's repeated instructions to settle the stock market crisis without extending additional loans from commercial banks. Instead, Ch'Sn influenced the Monetary Board with the help of Gen. Yu to approve special loans to save the market. Informed of the stock market crisis and the disputes between the two cabinet members, Chairman Park decided to dismiss Ch'£fn. However, Song's continuous demands for a thorough investigation of the crisis and strong punishment against those involved in the stock exchange turmoil led Chairman Park to accept his resignation, too. On June 19, Chairman Park formed a new cabinet, appointing Kim Hyun-Ch'Sl as Director of the EPB and Kim Se- Rytfn as Finance Minister. Both Kims were civilian experts of economic problems(or crisis) and showed no enthusiasm for the revolutionary Currency Reform which waB devised to confiscate private properties by force. As a result of the resignation of two of the most important participants in the ^7The Korea Times. 8 June 1962, p. 1. 244 reform attempt, Brig. Gen. Yu became the only remaining active force of the reform. Resignation of Gen. Yu Wtfn-Sik and the Failure of the Reformi It was revealed that the Currency Reform was first suggested by Brig. Gen. Yu WBn-Sik, then a Supreme Council member of Commerce and industry Committee. He recommended that Chairman Park change the national currency in order to mobilize domestic resources in support of the FFYEP and attain a real economic revolution. Since his transfer to the Finance and Economy Committee in early September, he began to concentrate on preparing the Currency Reform. Although details of the Reform were initiated, at the beginning, by Prof. Pak Hui-Bom and elaborated further by Kim Chtfng-Ry?5m, the outline of the Reform was set up by Gen. Yu. It was revealed that Brig. Gen. Yu undertook the Currency Reform because he believed that the Chinese residents in Korea owned almost one third of the total currency and a number of illicit profiteers hid their hoarded money as currency.2® Namely, it was his idea to confiscate the "undesirable" money for such a noble cause as the self-sufficient industrial development plan. Gen. Yu persuaded the Finance Minister Ch'Sn Pyifng-Gyu to join the project in September, 1961. Minister Ch'Sn had worked at the BOK prior to becoming a minister and, 2SThe Hankook Ilbo. 20 Feb. 1982, p. 3. 245 therefore, had no private connection with the rest of the bureaucracy, civilians as well as military officers. As noted in Chapter IV, Brig. Gen. Yu had worked closely with Kim Jong-Pil, the KCIA director, in the treatment of the illicit profiteers. Although Chairman Park called Prof. Pak and Prime Minister Song Yo-Ch'an to prepare for the Currency Reform, Yu continued to lead the preparation under the full confidence of Chairman Park. His collaboration with Kim Jong-Pil and Ch'Sh Pyc5hg-Gyu was revealed at the stock exchange market crisis. As we examined, the stock market crisis was initiated by the massive purchasing of shares from shareholders by a stock trading company managed by Yun Ung-Sang. While promising political contributions as much as 10 billion hwan, Yun borrowed a huge sum of money from the two senior members of the KCIA who were preparing a political party under the direction of Director Kim Jong- Pil. In the market crisis in May, 1962, it was Ch'on and Yu who forced the Monetary Board to approve special loans for the stock market managed by Yun. Ch'Sn and Yu boasted that they have been given the full confidence of Chairman Park to handle the crisis, thus, persuaded the committee members who opposed special loans to agree to their plan. In fact, Brig. Gen. Yu even said that he was in full charge of all the economic affairs in Korea. 246 It was also Gen. Yu who was in charge of the Currency Reform process. He was named director of the Currency Reform Center that was to examine the whole process of currency exchange and outlined a guidline for freezing the deposits. Chairman Park received reports on the daily progress of the Reform from Brig. Gen. Yu, director of the Currency Reform Center. However, Park also instructed the SCNR to establish the Emergency Currency Countermeasure Committee to review the Currency Reform and other emergency measures on June 11. The Committee was formed by 11 members including some Supreme Council members headed by Maj. Gen. Marine Kim Tong- Ha, chairman of the Supreme Council Finance and Economy Committee, who was never informed of the Reform prior to the official announcement by Gen. Yu on June 9, 1962. Competition and struggle between the two institutions erupted over the decision of the maximum amounts of deposits for free withdrawal. Brig. Gen. Yu reluctantly announced the defreezing of deposits on June 15. Although the defreezing was ordered by the Chairman, it was strictly limited to the deposits amounting to less than 100,000 hwan. However, one day later, a special law concerning emergency monetary measures was enacted by the SCNR which was apparently being informed by the newly formed Emergency Currency Countermeasure Committee headed by Maj. Gen. Marine Kim Tong-Ha. This law replaced the strict enforcement by a vague 247 one which allowed free withdrawal of deposits up to 300,000 hwan. Ever since the enactment of this special law, the blocked funds began to be released step by step. The struggle over the Reform ended by the victory of the rising alliance of anti-revolutionary reform sectors. When all kinds of deposits were finally allowed to be removed without restrictions in July, Gen. Yu was dismissed from the SCNR. Choice of Chairman Park Chung Hee The Currency Reform was another example of how the Military Government enacted a revolutionary policy. Once it concluded that a certain policy was necessary for revolutionary purposes, it mostly accepted and executed it swiftly and, in many cases, beyond its means. In the case of the Currency Reform, Supreme Council member Yu Won-Sik recommended Chairman Park consider a currency reform for mobilizing industrial investment purposes. With Park's agreement, the idea was elaborated on by a few economic experts led by Finance Minister Ch'Sn. Until its disclosure on June 9, the whole process had been carried out in complete secrecy and isolation. Having examined the process and failure of the Reform from different aspects, it is still difficult to understand why Chairman Park allowed the emergence of competing sectors, which only resulted in failure. It is thus 248 necessary to accept another explanation of the failure in terms of Park's choice, assuming that the Reform failed because Park chose a new alliance which had supported non revolutionary means for development. In other words, we shall assume that the revolutionary Reform resulted in miserable failure because Park made a deliberate choice not to side with the revolutionary camp. Preparation of Power Transfer and Park's Choice to Run for Electioni Since he seized power. Park repeated that he had no political ambition and would return to his original military mission when his military goals were achieved. In his special announcement in August, 1961, he promised to complete the power transfer to civilians in two years, by mid-1963. But as noted in Chapter IV, he changed his mind. Although a special committee under the SCNR was established to prepare the power transfer, some junior members of the junta working at the KClA(led by the Director Kim Jong-Pil) concentrated on organizing a new political party. ^ They were determined to form a fresh new party, which would separate itself sharply from the ordinary parties of the past. In comparison to the old structures tainted by corruption and inefficiency due to incessant ^ T h e party was conceived by Ma j. Kang Sl5ng-Wtfn in mid August, 1961, right after Park's announcement of power transfer. The plan for the party was intensivedly prepared by a research council of the KCIA formed by top scholars, bureaucrats, and journalists. 249 factional strife among party members, they planned to create a party organized by dual structures, one led by the National Assemblymen, the other by the party bureaucrats. Particularly they stressed the important role of the Central Administrative Bureau which was to be controlled by the founders, the junior officers of the junta when they retired and became civilians. In complete secrecy, they began to organize branches of the party and recruit staff members from January, 1962. While they accelerated their tasks of creating a party in March, the government promulgated a law banning political activities by former politicians for the next six years. Along with the passage of the political activities purification law, the SCNR established a committee designed to screen those subject to the law. A total of 4,000 politicians, senior officials, and staff members of state- run enterprises who had served in past regimes were to be screened by the special committee. But the preparation team of the new party continued their tasks by extending intensive training of the future staff members at tightly secured places in complete isolation and secrecy. Since the training was given through shaded windows in small rooms of the houses, the participants could not see each other and did not know who the instructors were, either. They were not even allowed to tell their wives about the party and their training. 250 Then, when was Chairman Park informed of the new party organized by hiB most dependable man, Kim Jong-Pil? And if he got a notice of it, when did he receive this knowledge and what was its implication upon the currency reform? Up to this time, there were three critical pieces of evidence that Chairman Park was informed of the action in advance. First, around October, 1961, the planning team of the Research Council completed the so-called "8.15 Kaehoekstf[The August 15th Planning Paper]", which was a comprehensive collection of the plans of the new party structure, organization, and principles. It was revealed that the paper was accepted by the Chairman by having his own signature on top of its front p a g e . ^ Secondly, at the end of June, 1962, Kim Chae-Ch'un, commander of the Army Counter-Intelligence Corps(CIC) and director of the Combined Surveillance Corps reported to Park about information and the rumors of the political party being organized by the KCIA and junior officers of the junta and requested his approval to investigate the rumor. Kim Chae-Ch'un, known as one of leaders of the anti-Kim Jong-Pil faction, said in his memoir: One day in June, 1962, I visited Park's office with a collection of accusations against Kim Jong-Pil and his team, and, I explained how he could prevent their unconstitutional and unethical attempts to create their JUIt later disappeared, probably set on fire, during the factional struggle between Kim Jong-Pil and his rivals. The Choson Ilbo. 14 Feb. 1982. 251 own political party using the state power and organization. To my repeated requests to punish their illegal and unethical behavior and their attempt to organize a party, Park just listened, and responded in a cool voice, "I seel"151 Thirdly, the most critical evidence of Park's knowledge of the existence of the party was that Park himself paid a short visit to the secret training house(located in Seoul) with Kim Jong-Pil one evening on August, 1962. There, Park was briefed on the progress of the staff recruitment training, organization, and the time-table of the party activities. He was present over an hour in the presence of 40 to 50 senior staff members.32 It was quite a contradiction that the top leader who knew of the formation of a political party that would nominate him as the presidential candidate, repeated his original pledge to return to his military post. If he really intended not to run for election for the presidency, he should have stopped the creation of a party that was conceived to let him continue his control of the government under civilian rule. Therefore if it were true that Park agreed with the so-called "August 15th Planning Paper" by giving it his own signature, he probably had begun to calculate his candidacy around October whether or not he sought it actively or not. Also, as reaffirmed in Kim Chae- 3*Kim Chae-Ch'un, p. 13. 32The Hankook Ilbo. 16 Feb. 1982. 252 Ch'un's memoir and other witnesses, it seemed clear that Park was informed of the party being organized around June, 1962, even though he did not know the financial sources of the party, such as contributions from the stock market maneuvers. In preparation for power transfer, along with his own political future, Park seemed to change his original goal of remaining authority in the future. On June 4, 1962, Lee Hu-Rak, SCNR spokesman said Chairman Park might run for the presidency next year if the majority of the people wanted him to become the President. He mentioned that a number of people had already demanded his candidacy by letters and calls asking Park to run for the presidency.^ When the currency reform was disclosed on June 10, 1962, it seemed that he probably had chosen to remain in authority for the present since the election would be held in less than a year. Park's Direct Control of the State. Cabinet, and the Supreme Council: In July 3, 1961, Park was named as the chairman of the Supreme Council and Gen. Song Yo-Ch'an was appointed as the Prime Minister by replacing Gen. Chang Do- Young who had held both posts. Although the Chairman of the SCNR was, in fact, the most powerful man in the nation, President Yun Po-Sun continued to serve as a head of state, and Prime Minister Song controlled the administrative ^ The Korea Times, 5 June 1962, p. 1. 253 institutions. Therefore, Park as the Chairman of the SCNR concentrated on the major tasks of the SCNR, in the promulgation of revolutionary laws and decrees and implementation of revolutionary policies. As Chairman of the SCNR, he carried out the Counter-Usury Program, the treatment of illicit profiteers, the First Five-Year Economic Plan, and the purification campaign against former politicians. Chairman Park became acting President when Yun Po-Sun resigned on March 24, 1962,. in protest of the promulgation of the law banning political activities by former politicians. According to the Extraordinary Measures Concerning the National Reconstruction, the Military Government's basic law, the Chairman could serve as the head of state until the transfer of power to civilian control.^ The resignation of Premier Song Yo-Ch'an was accepted by the top ruling body of the SCNR on June 16, 1962. It was already revealed that he had submitted his resignation due to open disputes with the Finance Minister over government measures in normalizing the Stock Market Crisis which had been the result of the excessive speculation.^ Chairman Park assumed the Premiership by succeeding the outgoing Song on June 18, 1962, and formed a new cabinet by appointing jfohe Korea Times. 25 March 1962. p. 1. J5The Korea Times. 17 June 1962, p. 1. 254 four new ministers including Director of the Economic Planning Board and the Finance Minister, As a consequence, Chairman Park occupied all three top posts as head of the State, of the Cabinet, and of the SCNR. Acting President Park did not move his residence into the Blue House(Presidential Palace) but, he had new staff members and secretaries as he was working as acting President. In this important role, he could also preside over the cabinet meeting as a new Prime Minister and exchange opinions directly with the ministers over a variety of issues. More than anything else, his assumption of Premiership brought a sudden change in the relationship between the Cabinet and the Supreme Council, Until then, the cabinet as a subordinating institution had to follow instructions ordered by the SCNR. What Premier Park emphasized in the first cabinet meeting was the correction of defects such as ineffectiveness, duplicity of work and lack of initiative found among the administrative institution including the cabinet. Park as Premier urged the Cabinet members to: "rectify the spending of unnecessary time and labor on the part of the cabinet in its relations with the Supreme Council." He also said, "each minister should carry out policies with initiative and confidence and be aware of your grave responsibility."36 36The Korea Times. 20 June 1962, p. 1. 255 It was ironical that the Chairman of the SCNR assumed the Premiership and urged the Cabinet to implement various tasks with their own initiative when the cabinet had to put into effect the revolutionary currency reform solely prepared by one powerful committee of the SCNR. Unless Park motivated the cabinet to correct its former problems, especially due to its precarious status vis-a-vis the SCNR, the cabinet members could never attempt to initiate revisions of the reform by defreezing the deposits. Park's Ambivalent Position toward Reforms and His Conversion to Cope with the Economic Changes Chairman Park was a revolutionary with a vision of a new society. He seemed to agree with the idea of freezing the hoarded money even if it were an apparent violation of the principle of property rights. He was also a nationalist and could not reject Yu's idea of procuring funds for industrial development purposes by mobilizing domestic resources. Throughout his career, he had been engaged in posts requiring intelligence and precision. There were a number of episodes to show his propensity as a shrewd administrator who was careful about the smallest details. Therefore, he should have reacted to the outcomes and effects of the Reform with his own cold calculation of costs and benefits of the Reform. 256 Chairman Park had been involved in the reform efforts from the beginning at which time he determined to remain in authority in the future(or so history could attribute social and economic changes to his credit). When the Currency Reform was actually in effect, he nearly decided to carry out his leadership role through the coming election. Since he chose to remain in authority for the present, it was getting more difficult for Park to fulfill his revolutionary vision in social and economic policies. On the other hand, he wanted to execute a drastic currency reform that would mobilize a lot of domestic resources for long-term industrial investment purposes. He wanted to observe the immediate reaction of the various sectors including business, the farmers and fishermen, the U.S. mission, and the general public. As a result of this ambivalence, he permitted the establishment of competing organizations to implement and evaluate the reform efforts. The Currency Reform Center which was directed by Brig. Gen. Yu had tended to justify the sacrifice of the general public and organizations for higher purposes and insisted they had to limit the amount of defreezing to a minimum. On the other hand, the Emergency Currency Countermeasure Committee led by Gen. Kim Tong-Ha and more moderate Supreme Council members, who were more concerned about the inconveniences for the general public and inefficiency and confusion of the Reform, attempted to 257 reduce the impact of Currency Reform by increasing the level of the amount to be defrozen. As the inconveniences which had effects upon the general economic productivity were growing. Park tended to give instructions to cope with the day by day troubles rather than urge his subordinates to intensify educational programs and P.R. about the long-term benefits of the Reform. When the government imposed defreezing of all the deposits enforced by the Currency Reform as of July 13, 1962, Chairman(as well as Premier) Park was no longer in favor of inducing social and economic changes. CHAPTER VI CONCLUSION: INTERPRETATION OP RESOURCE EXCHANGE AND A PROSPECT OP NEW ECONOMIC POLICIES The purpose of the study was to provide a better explanation of why the revolutionary economic reforms of the Military Government, the Counter-Usury Program, the First-Five Year Economic Plan, and the Second Currency Reform, had resulted in miserable failures in such a relatively short period of time. Since the junta's ambitious economic policies designed for a self-reliant economy were replaced by other major structural reforms and policy changes from 1963, the junta's failure itself might be regarded as the origin of the rapid economic growth of the 1960s and 1970s. Thus, in this study we have sought for factors responsible for the transformation of the three major economic policies under the Military Government, 1961 through 1963. Resource Exchange and Policy Change According to the perspective of the new political economy, the junta initiated these three major economic reform policies to increase its resource positions or to prevent future benefits from being extended to their opponents. Through the implementation of these policies, 258 259 however, the Military Government and other individuals and sectors became actively engaged in the exchange of their scarce resources to achieve their own objectives. The junta launched the Counter-Usury Program on May 25, 1961, by declaring a moratorium of usurious debt incurred by farmers and fishermen. A draft of the first Five-Year Economic Plan was unveiled on July 22, 1961. Finally, on June 9, 1962, the junta disclosed another revolutionary measure to reform the national currency and freeze all the deposits at the banks. The implementation of each of these three major economic policies were discussed in great detail in preceding chapters and the outcomes and consequences of each of the reforms were examined from the three vantagepoints of productivity, stratification, and the statesman's choice. Productivity: We assumed that the success or failure of the junta's reform acts would be determined by the productivity of each policy. Given the resources available for each participant in the exchange of resources, the junta's reform policies resulted in failure when they could not produce resources enough to fulfill the intended goals. The major goal of the Counter-Usury Program was to promote and secure a better economy in rural areas by eliminating the huge high interest debts incurred by farmers and fishermen. Naturally, the junta intended to increase its 260 authority and legitimacy among the general public through the execution of the Program. But, from the beginning, in mid-August, the Program showed poor results: 1) Both creditors and debtors were simply not enthusiastic about voluntary registration of their exchanges because the Program would destroy the traditional custom of mutual cooperation within each rural community. 2) The National Agricultural Cooperative Federation(NACF) issued the creditors agricultural bonds and each debtor was required to file a new contract with the NACF bearing names of two co-signers. In poor rural communities, it was not easy to find two co-signers who might be forced to pay the debts in case of the debtors' failure of payment. 3) Out of the reported total, only 49 percent of rural debts were found to be legitimate loans, covered by the Agricultural Finance Bonds issued by the NACF. With such an enforced registration and clumsy procedures, the junta could not achieve its legitimacy and authority among the general public. The junta also was in big trouble with its financial situation because of its easy-money policy to finance the debt clearance by issuing bonds without requiring assets from the debtors. As a result, a temporary paralysis of the financial system in rural areas was followed with a rapid increase in money 261 supply as much as a 42.5 percent increase, and with the threat of potential inflation in coining years. The junta never attempted to eliminate rural usuries even when an increasing number of farmers and fishermen were becoming dependent on usurious loans. The First Five-Year Economic Plan was officially designed to establish a self-sustaining economy and consolidate a foundation for the nation's industrialization. The junta proposed an overall economic growth at 7.1 percent per annum. Priorities were given to the first industry(agriculture) and the second industry(manufacturing) while the tertiary industry(service) was deliberately neglected in the Plan. The junta launched the FFYEP in order to increase its legitimacy by responding to the demand of the general public during the early 1960s, which was the elimination of poverty. As it turned out, none of the planned targets were achieved in 1962: 1) The actual growth rate in 1962 remained just at 2.8 percent, only a half of the planned 5.7 percent. 2) In actual performance of both domestic and foreign savings, only two-thirds of the original targets were in effect in 1962. Consequently the original targets of investment should have been scaled down. 262 3) The government failed in procuring enough savings due to the sharp rise in its spending without an accompanying increase in revenue. 4) Despite the unexpected export growth of manufactured goods, the original goals and targets to increase exports of agricultural and mining products were not accomplished. As a consequence, the junta began to prepare an official adjustment of the Plan from November, 1962. Due to the low annual GNP growth and growing inflationary pressure, the ambitious growth rate was forced to be reduced to moderate 5.0 percent per annum and other major targets in saving, investment, foreign exchange sections were also scaled down. The Second Currency Reform was adopted in expectation of converting as much as hoarded currency for developmental purposes and, as a consequence, reducing the inflationary pressures. In the process of its implementation, however, the policy could not fulfill the junta's intended goals; 1) For a short-run, the Currency Reform gave the general public a great deal of inconveniences. 2) The junta was not prepared for the impact of freezing deposits on the lower income families, farmers and fishermen and thus, ironically, special loans to businessmen had to be provided. 263 3) As a result of the defreezing, only 1.1 billion won(13 percent out of the total deposits) worth of funds were newly created by the Reform. 4) The freezing itself had to be cancelled out because the reliability of banks and banking agencies was critically damaged. In 34 days, the Reform was given up with all the remaining deposits being released. Stratification; In our second explanation, we attempted to look at the process of the same policy change from the perspective of the stratification. We also found that the major reform policies were created with unequal distribution of the statesman's attention and thus could be explained by the political process in terms of the change in the stratification. In Chapter II, we generated the Contradictory Exclusive Model in which Chairman Park deliberately excluded former power sectors like the civilian bureaucracy, big business, and the U.S. aid mission out of his ruling coalition. From the beginning of the implementation of the Counter-Usury Program, the core members of the junta were sympathetic to farmers and fishermen because most of them came from the same rural areas. In preparation of the Program, the junta brought a number of intellectuals into 264 the ruling coalition while career civilian bureaucrats and the concerned U.S. advisors were pushed out of the ruling coalition. However, the stratification began to be changed by the appointment of new civilian ministers within the Military Cabinet and the ineffectiveness of the newly established National Agricultural Cooperative Federation. The Planning Committee that had assisted the promulgation of the Program, was dissolved in about two months. Its chairman, Lt. Gen. Ham Pyong-Son was arrested for being in charge and part of the illicit profiteering while another key member of the reform, Brig. Gen. Song Ch'an-Ho, Supreme Council member in charge of Agriculture, was purged and replaced by another junta member. It was hard to find anyone or any institution that was eager to pursue such a revolutiona Dry task as the Counter-Usury Program. Both big business and U.S. aid mission had been deeply involved in the formation and development of the Korean national economy since the Korean War. The military coup blocked their influence by the formation of revolutionary policies. In fact, the FFYEP was initiated when those former power sectors were not yet fully restored to the pre-coup positions. However, in the process of reexamining the illicit profiteers and Chairman Park's official visit to the U.S., the old powers succeeded in reconciliation with the junta 265 and resumed their involvement in the major economic policies. As the junta ended its purification campaign against the businessmen in December, 1961, the big businessmen were sent abroad in search of foreign investment capital and invited to build the first industrial complex in Ulsan in cooperation .with the Military*Government. After the U.S. was reconciled with the South Korean junta, the two sides began a series of high-level economic talks between the chairman of the EPB and the director of the USOM. Right after the resumption of the high-level meetings, the U.S. resumed its role in '-ie Korean economy including revision of the Plan itself. Even if the U.S. and big business were excluded at the beginning, they were soon allowed to participate in the long-term economic plan and exert their influence to reverse the original FFYEP. When the planners prepared the Second Currency Reform, they worked in complete secrecy and isolation. The Reform was kept secret from the major economic institutions, the Economic Planning Board, the Supreme Council Committee in charge of Finance and Economy, the Bank of Korea, and the U.S. aid mission in Korea. The Reform plan was not revealed even to the top officers of the junta except for Chairman Park and KCIA Director Kim Jong-Pil. The actual reform was designed by Brig. Gen. Yu Won-Sik and Finance Minister Ch'on PySng-Gyu and only two civilian financial experts had participated. Indeed, the whole process was planned and 266 implemented with virtually no involvement of the career economic bureaucrats. However, the rising opposition against the Reform from the BOK, U.S. aid mission, concerned economic ministries, and the rest of the junta was accompanied by the dismissal of Brig. Gen. Yu, Finance Minister Ch'8n and Prime Minister Song. The struggle over the Reform ended with the victory of the rising alliance for anti-revolutionary reforms. On July 13, 1962, a new cabinet led by the first civilian Prime Minister Kim Hy5n-Ch'Sl unfroze all the remaining deposits blocked by the Reform and the Currency Reform turned out to be a miserable failure. Statesman's Choice; We assumed that a policy change was the result of Chairman Park's political choice based upon his own political calculation. With his consolidation of power within the state, Chairman Park as a statesman chose a couple of specific ways to remain in authority in the future and induce social and economic changes. In the case of the Counter-Usury Program, it was found to be ineffective in producing additional resources and was only supported by a weak coalition. Nevertheless, it was not abandoned or exposed to a radical revision. It was Chairman Park who had a special interest in rural problems and declared himself a savior of farmers and fishermen from the notorious usurious debts. Chairman Park regarded the Program 267 as a great success and revealed his determination to repeat a second and third measures if it were necessary to eliminate rural usurious debts. Quite obviously, Chairman Park did not alter his original choices until the completion of the Program in November, 1961. The Military Government officially acknowledged the need to revise the FFYEP on November, 1962. Due to the high inflation and low domestic savings, the revision seemed inevitable. Also the FFYEP was expected to be revised by the reinstatement of the old powers, big business and U.S. aid mission, which had consistently recommended a revision. In Chapter IV, we noted that the revision was coincident with the conversion of Park's political choices. In early 1962, he achieved a reconciliation with the U.S. as well as big business and was ready to be cooperate with their recommendations. As he was changing his mind to run for the presidency in the coming election and also remain in authority in the present, he realized that he needed a more productive coalition which would provide enough resources to satisfy his new choice. Although he still dreamed of a revolutionary and nationalistic economic development and change, he provided a chance for the old powers to participate in the task of reversing the FFYEP. In Chapter V, we found that Chairman Park had decided to remain in authority in the present by running for the presidency in the coming election regardless of his repeated 268 denials. When he agreed to reform the national currency and enforced freezing of deposits, he thought he would induce a radical change in the social and economic lives of the people. As it turned out, it was Chairman Park who led a sudden reversal of the whole process by defreezing all the deposits. Productivity of the Reform and the characteristics of the stratification were; found to be significantly influenced by Park's sudden conversion from a revolutionary to an administrator. When he chose to cope with the social and economic change, the revolutionary Reform was outmoded. Thus far we have examined causes and consequences of the failures of the three major revolutionary economic reforms. As noted in our introduction of the study, we could not just confine ourselves to discovering the direct cause of the failure of the junta's reform policies. Although we found that certain factors were more directly responsible for a policy change, it should suffice to find a reasonable explanation by combining different perspectives in order to understand the dynamic nature of the policy change. The brief summary of our findings listed in Figure 4 illustrates such a variation of the policy switch during the period of 1961 to 1963. The Counter-Usury Program The FFYEP The Currency Reform Period Hay, 1961 - Nov., 1961 Jan., 1962 - Nov., 1962 Jun., 1962 - Jul., 1962 (7 months) (11 months) (3** days) In Favor Of Fanners and Fishermen The General Public The General Public Agriculture and Mining Against Private Lenders Big Business Hoarded Money-holders Productivity Some Negative Negative Negative Ruling The SCNR The SCNK Young Colonels Coalition Fanners and Fishermen Intellectuals Intellectuals Opponents . The Bureaucracy The U.S. aid mission The Bureaucracy The U.S. aid mission Big Business Big Business The Bureaucracy The U.S. aid mission Statesman's Authority in the Future Authority in the Present Authority in the Present Choice Induce Social and Induce Soclnl and Cope with Social and Economic Change . Economic Change Economic Change Figure 4 Resource Exchange and Policy Change 269 270 A New Political Economy of Changes Some Hypotheses We have explained the transformation of the junta's revolutionary economic policies from the perspective of the new political economy. In order to develop our discussion a little further, it is necessary to examine the resource positions of the Military Government and the sectors involved in each policy reform. We need to know the process of how the ruling coalition was replaced by a new one and its impact on the policy change. In addition, we should also be informed of the dynamic changes of the stratification through the reform acts. A couple more additional hypotheses generated by this study of policy change would enhance the persuasiveness of the new political economy model. Hypothesis I: First of all, one may assume that all the political resources are scarce and exchangeable only through the implementation of a policy to improve the resource positions of both the regime and sectors. The outcome of this policy may be determined by the different rates of elasticity of various resources of the regime as well as the sectors. As a rule, when a marginal utility of a resource is low, demand for the resource will be price inelastic while the demand will be price elastic if the marginal utility is increasing or constant. The more price elastic a demand for a resource from a sector is. the less credits would be 271 earned bv the regime with it3 supply increase of reaourcea because of the alow reaction from the aectora■ The more price inelastic a demand from a sector is, the higher the costs for the regime would be because a small decrease of supply caused a panic for the consuming sectors. A market condition for various resources and an elastic demand for a certain resource by a sector are reflected in Figure 5. price P P g. 0* resources Figure 5 Price Elasticity of Resources As noted in Chapter III, farmers and fishermen who had been exploited by the ruling groups for centuries represented a sector with various(elastic) demands for almost any resource. Through the Counter-Usury Program, the 272 poor fanners and fishermen were relieved from their chronic usuries and thus provided with a phenomenal sum of economic resources(S ■* S'). But the regime's spending resulted in disappointment because their elastic demand(D'D') reduced the effectiveness of the reform changes(P P'/Q -* Q' ) . Because of the poor social and economic resources possessed by the military before the military coup(D'D'), the rapid accumulation of resources by the junta(S -* S') did not bring an effective leadership(P -• P'/Q ■* Q'). In the case of the FFYEP, the agricultural and mining were traditionally poor sectors in its overall resources. Even if the junta emphasized development in these sectors with massive investment, their support or allegiance toward the regime was far less than expected. When the junta launched the Currency Reform, they expected that their legitimacy and authority would be enhanced by aggresive and bold actions in dealing with mobilization of domestic resources. However, they did not consider the poverty of the general public. No matter how willing the junta was to support them through various economic means, it could not satisfy them(P •* P'/Q •* Q') because their demand for political and economic resources was price elastic(D'D'). On the other hand, another market condition in which a sector had a variable need(inelastic demand) for certain kinds of resources was demonstrated in Figure 6. 273 price P Q° Q resources Figure 6 Price Inelasticity of Resources As examined in Chapters IV and V, the bureaucracy, big business and the U.S. aid mission in Korea were traditionally powerful sectors and controlled their resource positions. During the implementation of the Counter-Usury Program, the ruling coalition attempted to exclude the high- ranking civilian bureaucrats by overlooking their authority in planning and executing economic policies. The cost was remarkably high for the junta or the ruling coalition because the demand for authority and social esteem of the high-ranking economic bureaucrats had been held firm(inelastic) (P •* P*/Q * Q°). In the case of the FFYEP, the junta wished to build a self-reliant economy without direct involvement of the U.S. 274 and big business. However, the junta could not pay the price (P P°) (due to their inelastic demand(DO)) to maintain its authority, money and prestige(P P°/Q -y Q°) . Through the Currency Reform, the planners intended to confiscate money from the so-called illicit profiteers without consulting with the bureaucratic hierarchy, the junta leaders, the BOK, and the U.S.(S -* S°). Because of their previous resource positions(DD), it really cost a lot for the planners who had to compensate them for the reduction of their resources. Therefore, the reform efforts could not increase the regime's resource positions(P ■+ P°) nor bring a change in resource positions to the major sectors(Q *♦ Q°). Instead, their efforts resulted in failure and the former power sectors were reinstated. Hypothesis lie Even though there were differences in exchange terms through politicization, the markets will be balanced as long as supply and demand conditions fluctuate within a relatively narrow range. However, at a certain point, a sudden and drastic change in the resource positions either of the regime or any of the sectors will escalate offers or threats from the other. We may therefore assume that the policy implementation and its outcome have an impact on the next political choice and the stratification of the community. 275 At this point, if the regime rapidly loses its resources and becomes price inelastic in supply and the supply from the regime does not expand in response to the demands from the powerful sectors, inflation becomes hyper inflation resulting in a crisis. According to Ilchman and Uphoff, the statesmen who prefer to remain in authority will have to compromise certain objectives including a bid for a new coalition. In other words, if the statesmen are unable to control or offset changes, political inflation may reach extremes and decisively undermine their ability to maintain their choices and coalition. In combination these statesments develop a synthetic hypothesis for an explanation of the dynamic nature of the policy change. If the rate of the regime's investment to produce more resources or increase their efficiency drops below a certain point by devaluing most of its currencies through inflationary measures and, as a result, its terms of exchange deteriorate significantly, then the exchange pattern will be replaced through a structural alteration in types of the statesman's choice and the ruling stratification. A situation of inflation or hyper-inflation due to an increase in production cost is well represented in Figure 7. If the resource positions of the regime deteriorate significantly to become price inelastic(Sft -* S) and demands increase rapidly(D° *> D) while the regime fails to meet the 276 demands from powerful sectors, then the inflation becomes a hyper inflation(or a crisis)(P* P/Q® Q). If the regime can increase its supply(S •* S') or reduce demands from sectors through a structural alteration in terms of choice and stratification(D •* D'), the hyper inflation becomes a manageable inflation at P'. pries / __ o ' * O' Figure 7 Political Inflation and Changes in Su p p Iv In every economic reform, the Military Government faced a crisis as its resource positions rapidly deteriorated. In 277 the Counter-Usury Program, the regime was willing to eliminate the enormous amount of usuries by running a deficit budget. However, the policy was limited by the galloping inflation(S° -*■ S). Although the junta expected a rapid increase of domestic and foreign savings to finance its ambitious development projects, the result was miserable. Instead of mobilizing investment capital, the government spent most of its foreign exchange reserves on imports of intermediary and capital goods. In the stock Exchange Market Crisis and the Currency Reform, the Military Government failed in providing enough funds to the business sector for their normal operational purposes. The crisis was not confined to the drastic reduction of the regime's economic resources. Through the reform policies, the junta lost its authority and legitimacy acquired by its draconian purification campaigns. The frequent fluctuation in its policy direction also reduced its credibility as a reliable governing body(S° S). On the other hand, as illustrated in Hypothesis I, all the major sectors which were deprived of their precious resources by the reform policies, directly or indirectly, began to resist and raise their voices loudly to demand the annihilation of the policies or their fundamental revision(D* ■» D). It became apparent that the Military Government could not handle the hyper-inflationary crises caused by the strong demands. As a result, the government had to pay the • 278 high price(P° ■* P) to satisfy even a fraction of the demands from the sectors{Q° ♦ Q) . Due to the lack of resources available to the Military Government, it had two options: one was to reduce the volume of demands from the major sectors and the other was to change its goals and choices. The changes in Chairman Park's choices examined in Chapters III, IV, and V reflected his efforts to increase the supply of regime's resources(S -» S'). In the adjustment process, as the civilian bureaucracy, big business, and the U.S. joined the junta, the regime could expand its resource supply to resolve the crises(S -* S'). At the same time, the regime revised its stratification by accepting new coalition partners that would reduce their demands(D -> D'). Despite a number of contradictions due to changes in the stratification and the conversion of the statesman's choices, the crises (P® -* P/Q° •* Q) were overcome by satisfying demands of the ruling groups with relatively few resources spent by the regime(P® ♦P'/Q® ■* Q'). Hypothesis III: In our study we found that the junta and its revolutionary reforms failed through a combination of poor productivity, a weak ruling coalition or a strong coalition of the opponents and conversion of the Chairman's choices. Then, we may hypothesize that a significant chance of an economic policy could not be realized unless there 279 were an alteration in all three of the components. productivity, stratification, and the statesman's choice. The most dramatic example was seen in the Currency Reform. The Reform was given up immediately after the dismissal of the ruling planners of the Reform because Chairman Park who took into consideration his remaining in authority in the present was already choosing to cope with the social and economic change due to the Reform. On the other hand, although the Counter-Usury Program produced few additional resources for the regime, it was kept alive by consuming more and more resources because this was Chairman Park's original choice. As noted in the case of the revision of the FFYEP, all three components critical for the reform efforts had been completely reversed by the end of 1962. Given new situation like this, one could assume that if the junta could avoid making reallocation of resources through removing them in absolute terms from the sectors which consisted of the former core combination or succeed in securing appropriate resources enough to offset the losses, the chances of the policy transition toward stabilization and liberalization in the mid-1960s might have been significantly reduced. Nevertheless, Chairman Park was ready to run for the presidency in the coming election and the old powers completed their reinstatement as a new coalition of partners of the Military Government. Thereafter, Chairman 280 Park and his new alliance looked for new economic strategies guided by the principles of financial stabilization and economic liberalization to achieve a rapid economic growth. The Origin of the Rapid Economic Growth We have examined why the junta's revolutionary economic reform policies failed and how this occured in less than two years. The junta's economic reform was looking for a self- reliant economy and was eventually replaced by another economic reform. This effort was led by the foreign exchange rate reform, foreign capital inducement, normalization of interest rates, and active promotion of exports. It may look too simplistic to regard the failure of the junta's economic reform itself as the direct cause of the rapid economic growth beginning in 1964. As noted in preceding chapters, however, without the failure of the junta's reform policies, % the rapid economic growth guided by the principle of stabilization and liberalization might not have been launched. 1If the junta was successful in its reform efforts, self- sufficient economy would have reached a stage where most imports of intermediate and capital goods were replaced by domestic production and financed mostly from domestic sources. Then the government might not have had to make a concession to U.S. imposition of economic contraction and stabilization and pressure from domestic industry might have prevented the emergence of such a wide range of incentives and subsidies provided for promoting exports. Anne 0. Krueger, pp. 114-16; Edward S. Mason, et al., p. 164. 281 As a conclusion of this study, we shall briefly discuss the accompanying changes within and without the Military Government in early 1963. The rising new sectors were consolidating a different stratification and Chairman Park was preparing his new career as a leader of the civilian government. This new political situation and new leadership were responsible for the "liberal" economic reforms stressing a rapid economic growth throughout the rest of the 1960s. Retreat of the Revolutionary Junta: Since the military coup on May 16, 1961, the junta controlled all three branches of the government, the Executive, the Legislative, and the Judiciary. The junta which had initiated a number of revolutionary reforms was rapidly losing its power in early 1963 mostly through domestic factional strife. As illustrated in Chapter II, the military coup was prepared by a mixture of various groups with different military backgrounds and solely organized under the strong leadership of Maj. Gen. Park Chung Hee. Thus the factional diversity was carried onto the junta. The first split within the junta came.in about two months. It was already known that the junta was divided by two factions: junior officers of the 8th Class of the Korean Military Academy led by KCIA Director Kim Jong-Pil and senior officers of the 5th Class whose allegiance was with then Chairman SCNR Chang Do-Young. 282 Although they were competing for the hegemony of the Military Government, the most critical issue was the dispute over when and how the power was to be transferred to civilian rule. The junior officers who preferred a long-term military rule to accomplish revolutionary tasks could not accept Chang's desire of an early return to civilian rule. Most of the senior officers who were disappointed with the unity and domination of their juniors within the Military Government agreed with Lt. Gen. Chang and determined to dismiss Lt. Col. Kim Jong-Pil and his colleagues from the junta. When Gen. Chang announced his resignation from the top posts of the SCNR and the Cabinet on July 3, 1961, the plan to eliminate Kim and his faction failed.^ On July 9, 1961, forty-four officers including Gen. Chang were arrested and Maj. Gen. Park Chung Hee assumed the chairmanship of the junta. Through the so-called "44 Anti-Revolutionary Plot," a faction consisting of the senior officers from the Northwestern region(Pyongan Province) were abolished while Kim Jong-Pil and the junior officers of the 8th Class established a stronghold within the junta and continued to dominate the Military Government.^ Another major split within the junta was conceived by Kim Jong-Pil's domination within the Military Government. As ^Ch'ang-Kuk Chang, nos. 156-57. 3Sang-U Yi, Park Chung Hee Sidae. I, p. 27. 283 a director of the most powerful governmental institution, the KCIA, Kim Jong-Pil was involved in various scandals including the Stock Exchange Market Crisis in urae-L to mobilize funds to create a new political party named the Democratic Republican Party(DRP). The Law on Political Purification banned all political activities, therefore Kim and the KCIA had to operate their mission in complete secrecy. When "Kim's Plan on the DRP" was presented to the junta members on December 24, 1962 for the first time, those who did not participate in the preparation were furious at Kim. An anti-Kim Jong-Pil faction was soon formed on a broad base.^ Cols. Kim Hytfng-Uk, Kil Chae-Ho, Ok Ch'ang-Ho, and Hong Chong-Ch'Sl were the members within the SCNR who supported Kim's plan but the rest of the junta members were suspicious of his p l a n . ^ On Jan. 7, 1963, former Prime Minister Song Yo-Ch'an issued a criticisn against the Military Government for its numerous mistakes and wrongdoings and demanded that Kim Jong-Pil be ousted from the junta. On Jan. 16, former Supreme Council member Yu W&n-Sik also criticized Kim Jong- Pil in his public announcement. The criticism against Kim by Marine Maj. Gen. Kim Tong-Ha was beyond measure. On Jan. 21, 1963, Kim Tong-Ha, who was Chairman of the Supreme Council 1 ■ " ■ ■■■ ■ " " ’We have examined in Chapter 5 how the junta members were divided over the Currency Reform. Even Chairman of the Supreme Council Finance and Economy Committee Kim Tong-Ha was not informed of the plan. 5The Hankook Ilbo. 18 Feb. 1982. 284 Defense and Foreign Affairs Committee, resigned from both the Supreme Council and the new DRP: "I joined the DRP in expectation of the realization of the ideology of freedom and democracy. But at this point, it seems almost impossible because I found that they(Kim and his colleagues) had completed the organization in complete secrecy. I could not simply play the role of a "cheerleader" in that party monopolized by them. How could I stay there when they were willing to maneuver National Assemblymen as their robots."° Encouraged by Kim Tong-Ha's protest, a number of senior officers of the junta refused to join the DRP and demanded Kim Jong-Pil's resignation. As the dispute between Kim Jong- Pil faction and anti-Kim faction was escalating, Chairman Park had to choose either an extention of military rule demanded by the younger members, or the creation of a "pan national 11 party which would absorb all political elements.7 What he finally decided was to make half way concessions to each side. Although the DRP was launched as planned on Feb. 26, Kim Jong-Pil resigned from all his posts and left the country one day before on Feb. 25, 1963 for an undetermined period of time.® Kim Tong-Ha and his supporters were also purged from the junta by being arrested on March 10, 1963.® Kim Tong-Ha, in collaboration with his ®Song-Ch'un Yi, p . 442. 7Joungwon A. Kim, p. 246. Kim travelled 34 countries and returned home in 8 months, onQ0ct. 23, 1963. Song-Ch'un Yi, p. 446. ®Kim was born in 1920 in the Northeastern region(North Hamkyffng Province) and trained at the Singkiang Military 285 Northeastern(Hamkyong Province) followers, and Marine Corps officers were arrested for their anti-revolutionary plot to displace Kim Jong-Pil and demanded a smooth power transfer to civilians in accordance with their revolutionary pledge. Through this thwarted attempt, the Marine Corps officers and the Northeastern faction within the junta were completely eliminated from the junta.1® Although a number of anti revolutionary plots were attempted by various individuals and groups throughout the period of military rule, virtually no factions were left within the junta after the elimination of Kim Tong-Ha and his group. This also meant that the junta had lost most of the original coup members except junior officers of the 8th Class. By February, 1963, only seven out of the original thirty-two remained and the total number of the Supreme Council members was reduced to just 21 men when the SCNR terminated its mission in Dec. 17, 1963.11 Institute in Manchuria. After defected to South Korea in 1946, he advanced to Brig. General of the Field Marine Division. Clashed with the Rhee Government and Marine leadership, he was forced to resign as Kim Jong-Pil before the coup. But the retired Kim played a vital role in the coup by mobilizing most of the coup forces in May 16, 1961. Later, it was revealed that Kim< together with Park Chung Hee, Kim Jong-Pil formed the iron triangle of the top leadership of the Military Government. Se-jin Kim, pp. 92- 9 3 ioAUIn fact, Park appointed no Ministers from the Northwestern region and accepted only one Northeastern man, Chtfng Il-Kwbn, as a member of the first Cabinet of the Third Republic. Se-Jin Kim, pp. 117-18. ^ H yok- In Yu, p. 165. 286 Growing Autonomy of Chairman Park Chung Hee; At the beginning of the coup, Park Chung Hee pursued various revolutionary tasks in close consultation with Lt. Col. Kim Jong-Pil and Marine Maj. Gen. Kim Tong-Ha. The iron-triangle was being abolished by Kim Jong-Pil's ambition to dominate the Military Government. It was revealed that Kim Tong-Ha was not informed of the Currency Reform even though he was chairman of the Supreme Council Finance and Economy Committee directly responsible for any currency changes. When he realized that Kim Jong-Pil secretly built a political party in preparation for participation in politics, he was furious not only at Kim's actions but also the Military Government itself. Amid such harsh disputes over the DRP and the open clash between the two Kims, Chairman Park decided to dismiss both men from the ruling junta and, as a consequence, was left as the sole leader of the junta. In preparation of the power transfer to civilian rule. Park had to confront all the hardships by himself. Since Chairman Park indicated that he would run for the presidency on Dec. 27, 1962 to complete the revolutionary mission. Opposition against Park's candidacy within and without the junta had escalated into a crisis by mid February, 1963.*^ After agonizing over the power transfer -^In reaction to the argument for Park's participation in the election raised by the hardliners within the junta, Kim Hyong-Uk, Hong Chong-Ch'ol, and Kil Chae-Ho, the top leaders 287 for a couple of weeks, Park announced a nine-point proposal on Feb. 18, 1963, as e. pre-condition for his non participation in the civilian government.1^ A week later on Feb. 27, representative politicians and military leaders took a public oath to observe the nine- point proposal as Chairman Park requested. Chairman Park once revealed that he made the Feb. 27 Pledge in a conciliatory effort to give politicians a chance to repent their old evils even if he had growing concerns about the behavior of the old politicians.1^ Through the public oath, Chairman Park reaffirmed his pledge not to participate in politics under civilian rule. Following the ceremony, the of the military and the SCNR were against Park's running for the presidency. Defense Minister Paic PySng-Kwtfn and the commanders of the Army, Navy, Air Force, and Marine Corps, and the commander of the Capital Defense Corps joined three moderate Supreme Council members, Yu Yang-Su, Pak T'ae-jun, and Kim Chae-Ch'un to visit Chairman Park the night before Feb. 18, 1963 and demanded that he should observe the Revolutionary pledge with no participation in the presidential election. Scfag-Jae Kang, p. 12. 1JThe nine-point proposal proved thats 1) the political neutrality of the military and its support of the civilian government; 2) the continuation of revolutionary tasks under the spirit of the April 19 Student Revolution and the May 16 Military Revolution; 3) the individual choice of the junta members either to return to military duty or participate in politics; 4) no political retribution of the May 16 Revolution in the future; 5) the employment guarantee of the public officials hired by the Military Government; 6) the priority of the former military officers in Governmental jobs; 7) no slandering, calumny and reminiscence of old evils by all political parties; 8) preservation of the new constitution confirmed by the national referendum on Dec. 17, 1962; 9) cooperation for normalization with Japan. The Far Eastern Economic Review. 21 May 1963, pp. 610-11. 1 Chung Hee Park, The Country. The Revolution And I . p. 102. 288 junta announced the lifting of the ban on 2,322 politicians although nearly 269 people were still under restrictions for their political activities.^ After the oath taking, Chairman Park said he felt as tranquil as the surface of still waters when he returned home.1® Nevertheless, Chairman Park said the next day that he was disappointed about the results: I prayed by that day, by that hour, that politics would assume a new aspect. But my sincere wishes were disappointed from the very next day. In short, I was completely betrayed. Our naivete, trusting in their humanity, was cruelly stamped underfoot. I don't want to ruminate on this painful experience. From that day, when I hoped that their old evils might disappear, they became more ambitious, knowing that I would not take part in civilian government. Old evils expanded in geometrical progression. 7 On March 16, 1963, he issued a statement reversing his early Feb. 27 Pledge. He declared a continuation of military rule for four more years in order to guarantee a smooth power transfer to civilian rule. He said he would ask the people through national referendum whether they would accept his proposal of prolongation of military rule. In fact, he notified U.S. Ambassador Samuel Berger of his reversal of j^The FEER. 21 Mav 1963, p. 610. Chung Hee Park, The Country. The Revolution And I. p. 103, Chung Hee Park, The Country. The Revolution and I, p. 103. 289 the Feb. 27 Fledge for the first time the night before March 16 at a dinner party held by the Ambassador.*® At the same time he dismissed Defense Minister Pak Pyong-GwSh, leader of the military and moderate Supreme Council members, who had insisted on the junta's return to military duty upon completion of its ^evolutionary tasks by mid-1963. Chairman Park's abrupt reversal was followed by massive protests from politicians, intellectuals and students. In particular, the U.S. provided strong protests. On April 2, President Kennedy sent a warning letter to Chairman Park urging him to reverse his determination of.the prolongation of military rule.*® Accompanied by the diplomatic pressures, the U.S. declared postponement of its aid amounting US $25 million and an embargo on the extra supply of grain. The U.S. grain embargo was devastating to the Korean food market which had suffered from its worst harvest since 1962.^® Confronted with such strong protests and pressures. Park reversed his decision again on April 8. Park postponed *®It seemed that Chairman Park decided to extend the military rule alone even though his advisors and followers within the junta and the military demanded that he should reverse the Feb. 27 Pledge. Particulary Yu Hy5k-In stressed the role of Chang Ta'ae-Hwan, civilian advisor at the KCIA, who had maintained contacts with Kim Jong-Pil then in exile in Paris, France. Hyttk-In Yu, pp. 150-51. *®Song-Jae Kang, pp. 105-7. ^°Since the U.S. embargo on grain, the rice price was going up rapidly, almost 30 percent in a month. Song-Jae Kang, pp. 107-8. 290 the referendum and immediately resumed all political activities. By cancelling the Feb. 27 Pledge, Park was given a guarantee to run for the presidential election. He said: This(The April 8th Statement) is the proposition, neither military rule nor civilian government, shall determine the next government. It shall be a good will competition on an equal footing. In other words, the April 8th statement was issued, in which the revolutionary group was to take part in the Third Republic as civilians. This statement originated from the March 16th statement. It was a means to supervise the incipient corruption of the Third Republic, to prevent degradation and stop the recurrence of the tragedy of revolution. It was the third proposal!21 Throughout the crises of the power transfer and his vacillating decision on the participation in politics under civilian rule, Chairman Park established a new political order around him. First, all the important figures of the junta were dismissed or purged. Within the junta, the Northwestern and Northeastern factions were demolished as their leaders, Gen. Chang Do-Young and Gen. Kim Tong-Ha, respectively, were arrested in violation of their revolutionary duty and court- martialled. Kim Jong-Pil and Kim Chae-Ch'un, both former KCIA directors, left the country in exile and Defense Minister Pak Pytfng-GwiSn was dismissed. Thus, Chairman Park could consolidate his direct control of the military. 21Chuno Hee Park, The country. The Revolution And I. pp. 104-5. 291 Secondly, with the departure of the ruling junta members with whom Chairman Park had consulted about various revolutionary tasks, Park looked for advice from his own personal advisors and staff at the SCNR or the Blue House. Although they did not participate in the coup as core members, most of them personally showed strong loyalties to Park. In particular, Yi Hu-Rak, director of the Public Relations Bureau of the SCNR, emerged as the most influential person on the staff. It was Yi as a Chief of Staff who organized a kind of brain trust consisting of advisors and staff within the Blue House and thus, strengthened Park's personal control over both the Party and the Government in the Third Republic.22 Thirdly. Park's decision to participate in politics stimulated a formation of an anti-military coalition among civilians. When Park reversed his Feb. 17 Pledge in March, great resistance and protest erupted from the opposing politicians, intellectuals, and students. As he consolidated his position, these people felt a common threat and a need for a broad coalition against the military regime. In fact, throughout the Third Republic, the Park Government had to handle various kinds of resistance from these groups. Although the rising new political order gave Park an enormous chance to run the country as he dreamed of doing, his excessive domination brought negative reactions by the 22Hyi5k-In Yu, pp. 145-49. 292 formation of civilian opponents. Within the new order, despite their loose organization, students emerged as one of the most powerful potential challengers of the Park Government. Potential Power Contenders - Students: Ever since the successful student revolution on April 19, 1960, which brought an end to the corrupt dictatorial Rhee Government, students emerged as an influential group in Korean society. Students(college and university students) in Korea were selected members in terms of their intelligence and family backgrounds. The corruption of the Rhee Government and election riggings provided students with a common goal to defy the regime and form a new unified force under the noble cause of righteousness.^ Throughout the Chang Administration, students continued expressing their demands and demonstrating their political influence. Because they had not developed a nationwide organization or any universal issue enough to unify all of them, students relied primarily on spontaneous street demonstrations to show their feeling. However, despite a loose organizational structure and meager identities among ^ A n analysis of the 1960 Student Movement was attempted by C.I. Eugene Kim, and Ke-soo Kim, "The April 1960 Korean Student Movement," The Western Political Quarterly. 17(March 1964). They explained the backgrounds of students, either participants or non-participants, the causes of the uprisings, and the factors of its success through a sample survey in early 1961. 293 students, the government(since the April Revolution) could not afford to neglect their causes and demands. On Oct. 11, 1960, some students made a forcible entry into the National Assembly and demanded a quick passage of bills to punish those who were guilty of corruption and election riggings under the previous regime.2^ Indeed, the students as a group comprised a significant part of the whole country. In 1961, 142,576 students were enrolled in colleges and universities and their numbers showed a rapid increase of 18.7 percent a year.25 Furthermore, considering the concentration of all the prestigious universities in Seoul(more than 90,000 students out of some 6 million citizens), the students comprised a formidable force as a potential threat of violence to any regime(Table 47). 2^For about six months since this incident, however, the students did not seem to show any real influence upon the regime. Z5Byung-hun Oh, "Students and Politics," in Korean Politics in Transition, p. 116 294 Table 47 Rate of Growth in School Enrollment* Type of School 1945-1952 1952-1960 1960-1970 Elementary 8.2 5.4 4.7 Middle — 7.7 9.6 High School 7.0 8.8 8.4 Academic 2.4 13.6 6.7 Vocational 12.2 3.6 10.7 College 23.4 14.5 6.7 *From McGinn et al., p. 6. University students also supplied the most highly educated personnel to the community and they were recruited mostly from the middle and upper classes. The characteristics of their socio-economic background were enough to accord them the esteem and prestige as future leaders as these with a "social consciousness". This was partly confirmed in the highly selective process of becoming college students in Korea as illustrated in Table 48. In addition to these potential influences upon the regime, students began to institutionalize their power by turning their idealistic causes into more visible activities. Some students decided to participate directly in politics by running as legislators at the National Assembly on July 28, 1960. Twelve college students and 33 recent graduates competed without producing a single successful candidate. Another group of students turned their interests to more general issues like national reunification. They 295 worked hard to recruit more students and intellectuals and to expand their influence in national politics. Table 48 School Enrollments as Percentages of Corresponding Age Group* School 1953 1955 1960 Elementary(Age 6-11) 59.6% 77.4% 86.2% Middle School(Age 12-14) 21.1 30.9 33.3 High School(Age 15-17) 12.4 17.8 19.9 College(Age 18-21) 3.1 5.0 6.4 *From Mason et al., p. 352. The military coup brought a sudden end to all these efforts and their potential sources of power were removed by the military. The military regime disbanned all student organizations including all private student groups. ^ A number of student leaders were arrested and all the political activities of the students were forbidden under martial law. Undermined by the junta's harsh treatment against the anti-revolutionaries, students resumed their political activities including street demonstrations only after Park's cancellation of both his Feb. 27 Pledge and March 16 Statement. Immediately, they resumed their protest about Park's participation in civilian government and opposed the junta's normalization effort with Japan. 2®It was estimated in late 1960 that there were 67 private student organizations in Seoul. William A. Douglas, "Korean Students and Politics," Asian Survey. 3(Dec. 1963), 588. 296 Nevertheless, quite contrary to the Second Republic under Chang Myon, the Park Government showed no interest in bringing the students into a core combination or ideological bias within the ruling stratification. Instead, what happened was the reinstatement of old powers consisting of the bureaucracy, big business, and the U.S. aid mission. Reinstatement of the Old PowerB and the Revision of the FFYEP; As the junta's power deteriorated rapidly through its internal power struggle, most of the junta's remaining economic reform policies were discarded or revised by a significant number. Right after the failure of the Currency Reform, the government slightly revised the Foreign Capital Inducement Law in July, 1962. According to the new procedures, the Foreign Capital Inducement Deliberation Committee chaired by the EPB Chairman would grant repayment guarantees for all foreign loans and investment proposals.27 Although the government made this commitment in order to induce more foreign capital, it opened a new era of close cooperation among the government, business, foreign aid and financial agencies. As we discussed in Chapter IV, the Military Government decided to revise the ambitious FFYEP in November, 1962. Indeed, for the first year, nothing was achieved as 27Charles R. Frank, Jr., Kwang Suk Kim, and Larry E. Westphal, pp. 103-4. 297 originally planned in terms of total growth rate, mobilization of domestic savings and investment capitals. Particularly, the failure of the Currency Reform accelerated an overall economic hardship in terms of high inflation, low investment and business activities as a whole. The government had to scale down the annual growth rate and their targets of savings and investment. In Feb. 12, 1963, EPB Chairman Yu Ch'ang-Sun disclosed a guiding principle for the revision of the FFYEP by stressing roles of the foreign and private sectors: "The original First Five-Year Economic Plan was in fact prepared under harsh conditions. Thus, it was necessary to give it flexibility to attain its goals by placing an emphasis upon the smooth mobilization of domestic and foreign savings. Simultaneously we shall 1) move a number of governmental missions to the private sector; 2) improve mutual understanding to get more foreign aid and loans; 3) reduce possibilities of future inflation through healthy fiscal and monetary policies."28 Prior to this, however, the Federation of Korean Industries announced a strong message with criticizing the government of its frequent fluctuation of economic policies. The FKI argued that rapid price increase was due to the frequent changes of the government policies and would not be stabilized without a fundamental revision of the FFYEP. The statement was in direct opposition to what EPB officials had supported. In an apparent response to the strong demand from 28Kaebal Nvontae ui Kvonoiae Chonach' aek r Economic Policies of the Development Era], p. 38. 298 big business, a number of Cabinet members were dismissed and the Minister of Commerce and Industry Yu Ch'ang-Sun was appointed as a new EPB Chairman on Feb. 6, 1963.29 In 1962, the government recommended imports of capital goods financed by export credits from the exporting countries. However, a sudden shortage of foreign exchange brought a major shift in South Korea's development efforts. The government had to tighten restrictions on private foreign export loans requiring early repayment. Instead, the government recommended long-term loans from USAID and other non-profit lending agencies or direct foreign investment.30 To get the loans from the U.S., it had to accept U.S. demand for economic stability as a precondition and had to cut off its spendings committed to revolutionary tasks. It was examined in Chapter III that the junta abandoned the annual financial stabilization programs imposed by the U.S. aid mission in 1957. Although the junta adopted an easy money policy to achieve its revolutionary tasks, it had resulted in a failure because of the phenomenal inflation which erupted in mid-1962. Confronted with the combined crises of rising inflation, shortage of foreign exchange and food shortage in early 1963, the Military Government had no other choice but to accept U.S. demand for contraction by means of economic stabilization and liberalization. The U.S. > ^Kaebal Nvontae ui Kvonqjae Chonqch'aek, p. 53. 30The FEER. 22 July 1963. 299 demanded that the Military Government curtail its budget deficit and limit growth of the money supply at 5 percent per annum.3^ on March 11, 1963, the government announced a fiscal retrenchment policy aimed at further financial stability and a working budget, smaller than the original, was accepted three week3 later. Satisfied with the stabilization effort of the Military Government, the U.S. agreed to continue its additional economic aid and lifted its embargo on the extra supply of grain. The Joint Economic Committee between the U.S. and Korea was fully restored in July, 1963, in a very cooperative mood. Assisted by some American economic advisors, the revision of the FFYEP was completed in February, 1964 and the USAID and a number of American experts actively participated in the preparation procedures of the Second Five-Year Economic Plan beginning from 1965.32 An Exclusive Model - A Regime of the Establishment; Thus far we have observed that a number of political as well as economic crises erupted during the transitional period. Although the factional disputes deprived most of the junta's resources by the end of 1963, Park Chung Hee could 3^Edward S. Mason, et al., p. 196. In 1964 the USAID contracted with Robert Nathan Associates to provide a second team of planning experts. Also the USAID mission took a very active and direct interest in the Korean government's planning from 1965 onward and functioned as a planning advisory group. Cole and Nam, pp. 13-14. 300 consolidate his own power base firmly within the new civilian government. As noted before, Park had to decide whether to adjust policies to attain his original goals or to alter his choice and coalition to enhance his resource positions. In fact, he chose the latter by coping with social and economic changes and remaining in authority in the present. A meaningful reshuffle of power positions was followed and thus a significant change was made in the stratification of sectors in terms of their influence and accessibility to Park. The once powerful young Colonels including Kim Jong- Pil were reduced in their influence within the regime. Military officers were moved out to the ideological bias group since many of its senior officers were dismissed or had joined the government. A new breed of high-ranking bureaucrats, big businessmen, and U.S. aid officials in Korea shifted into the core combination by persuading some career politicians into their ideological bias. Farmers and fishermen, small and medium sized businessmen, and the urban middle class people were pushed out into the stability group. On the other hand, intellectuals including journalists, students, and opposition politicians remained in the extra-stability group while workers and the urban lower class people were completely moved out of the political structure as an unmobilized sector(Figure 8). 301 Regime B Core Combination High-ranking Civilian 3ureaucrats(7) U.S. aid mi8sionC6) Big Susineas(8) Ideological Bias The Military(5) The Ruling Democratic Republican Party(9) Stability Group The Urban Hiddla Class(10) Farmers and Fishermen(4) Small and Medium Sized 3unineas(ll) Sxtra-Stability Jroup Studenta(3) Intellectuals(12) Opposition Politicians (a) Unmobilized Group Workers(l) Urban Lower Class{13) Figure 8 An Exclusive Model; A Regime of the Establishment 302 Finally, a new allocation of political influence among various secotrs was completed. On May 27, the DRP nominated Chairman Park as its presidential candidate despite the fact that Park had not joined the Party yet and remained a military officer on active duty. On Aug. 30, 1963, Park ended his military career and joined the DRP on the way home from his retirement ceremony. On Oct 15, 1963, Park was elected as the President of the Third Republic. By the end of 1963, the junta's revolutionary economic reforms were completely outmoded. Instead, another reform guided by the principle of rapid economic growth with a focus on export was about to be launched in full support of President Park Chung Hee and his new core combination. 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