Four Years of IMF :
Structural Adjustment Program: What it Has Done to the  Korean Economy and People

By Kim Hee Joon
 

During the spring of 1997, an economic crisis hit the Asian continent. It started in February in Thailand and quickly spread to Malaysia, Indonesia and the Philippines–breaking the myth of the "Four Dragons". The crisis that started in Southeast Asia soon spread to East Asia, hitting Korea, Taiwan, Singapore and HongKong. As danger spread, there was massive capital flight from the Asian countries, and stock markets all over the world crashed.

Mainstream economists claimed that the economic crisis in Korea pertains to the particular strict protectionist policies and political corruption. Indeed, the State-controlled development and the constant corruption and bribes between businesses and the government were all to blame for the crisis. However, this is only a superficial explanation to the causes of the crisis–one that does not take into account the structural dimensions. In order to understand the causes and thus properly assess its effects on the Korean people, it is essential to look into the historical developments of the Korean economy, in light of its relationship with the contradictions within the imperialist, neo-liberal capitalism itself.

Korea made fascinating progress in its economic development, enough to be "praised" as one of the "Four Tigers of Asia in the early to mid-1990s". Even the International Monetary Fund (IMF), before the crisis, did not hesitate to show satisfaction with the Korean economy–it had smoothly liberalised its markets by effectively dismantling tariff and non-tariff barriers after the Uruguay Round of

994, privatized the public sector while gladly accepting foreign direct investments, and freed restrictions on the movement of capital across the Korean border. In fact, the Korean economic development was based on monopoly by the Korean conglomerates, Chaebols, under strong State control–a complete antithesis to the principles of the IMF. However, Korea started to implement strong neo-liberal measures, incorporating itself fully into the globalisation process. It is only ironic that the IMF, after the economic crisis struck, should strongly criticise Korea for "lack of liberalization", when liberalization itself for which the IMF praised just a few years previously was the reason for the crisis itself. In December 1997, at the outbreak of the crisis, the IMF and neo-liberal proponents such as mainstream media and international banks all blamed it on the Chaebols (which include transnational companies such as Samsung) and their long-aged collusion with the government, a much too large public sector, excessive concessions to the workers, and market protectionism. Thus, they all prescribed structural adjustment as the best medicine for the typically "Korean disease".

The real reason behind the economic crisis is, in fact, structural. The "Korean disease"–the Chaebol structure and its historical collusion with the government–are only variants within this structural crisis. From a global perspective, the Korean economic crisis pertains to the overaccumulation of capital, the increase of speculative capital due to financial globalisation and expansion, and the destructive effects of the unequal General Agreement on Tariffs & Trade and World Trade Organization free trade system. Translating this onto the national level, the previous mode of capital accumulation which can be summarised as "neo-colonial monopoly capitalism" came to its limits, to which the Korean government started to drive Korea to the depths of financial globalization and liberalization.

Although the Korean economic crisis pertains fundamentally to financial globalization and liberalization itself, the role of the Chaebol-centered economic development and its collusion with the government cannot be underestimated. In the initial stage of economic development in the 1960s and 70s, big firms worked as an engine for fast economic growth. With exclusive government support and protection, these big firms grew to be the Chaebols. The Chaebols led fast industrial growth via monopolistic access to resources. The government gave the right to engage in certain businesses exclusively to the Chaebol. The government continuously employed an expansion policy favouring the Chaebol in the form of financial assistance, low interest rates, tax benefits, foreign exchange allocations, import and export licenses and foreign investment incentives.

The relationship between Chaebols and military dictatorship governments is indeed historical. The Korean economy thrived through the symbiosis of the Chaebol and the State, exchanging preferential treatment with political funds, while the whole process was overseen by imperialist countries such as the US. However, the Chaebol-led monopoly capitalism, based on "long-working hours, low wages", faced its limits during the 1980s–the clear manifestation of this was the 1987 Workers’ Struggles–and Korea had to shift towards a new model of accumulation. In other words, it began to feel the necessity to ‘catch up’ with the process of neo-liberal globalization, especially financial globalisation. This conversion in the method of capital accumulation should have theoretically manifested itself through an economic crisis at that time, but the possibilities of bringing on an all-out eruption was sutured, and the crisis prolonged. The government used several concessionary measures at the end of 1980s, especially as a result of the Workers’ Struggles amidst the struggles for democracy throughout the 70s and 80s. The government, on a political level, consolidated the formality of democracy by revising the constitution to allow for direct presidential elections and also revising the Standard Labor Laws, while on the economic level, it allowed a substantial raise in nominal wages.

Then, during the mid-1990s, President Kim Young-sam affirmed that Korea should become a more active player in the global market, especially in the finance sector, instead of being reluctantly pulled into the system, if indeed "there is no alternative". As the first president directly elected by the people, President Kim Y.S. pushed his ambitions to make Korea into an economically "developed" country. In 1995, the Korean government made a bargain with the US, promising to loosen all restrictions on the financial market, both internationally and domestically, in exchange for membership in Organisation of Economic Cooperation and Development (OECD). The government also loosened restrictions on private companies getting loans from foreign or international banks. The liberalization of the financial market led to speculation against the Korean currency, increased speculative investment in the form of portfolios, and allowed private companies to indulge themselves with excessive borrowings from foreign banks. The "connections" between businesses and the government also played its part during this era. Favors towards the giant capitalists continued into the 1990s, where Chaebols continued to enjoy the freedom they had acquired to draw in short-term loans and spread its tentacles around the world, resulting in over-production. At the time the crisis struck, the debt-equity ratio for the 30 largest Chaebols reached 518 percent, while foreign debt increased to US$155 billion. Out of this amount, 65.1 percent comes from the financial sector, 30.6 percent from non-financial private sector and 4.2 percent from the public sector. The total amount is a quadruple from 1993, when total debt was approximately US$40 billion.

Korea could not keep its doors closed to the expansion and the pressure of neo-liberal globalization, and its existing model of accumulation could not be sustained in this global atmosphere. The innate contradictions of global capital

ism, financial globalization that only pushes the world economy closer to the brink, and the contradictions within the Chaebol-driven "neo-colonial monopoly capitalism" of Korea, led to its eventual explosion in 1997. With the overproduction of Korean companies in line with global overproduction and the immense pressure of its short-term debt, conglomerates started to crumble, which led to a massive capital flight out of Korea at first signs of danger. The foreign reserve emptied and Korea was struck with an all-out economic crisis. Most Asian countries had no other choice than to devaluate their currencies. During the one year from July 1997, Korea devalued the Won by approximately 98 percent. The myth of Korea as one of the four Asian tigers crumbled, and, concerned about the safety and profit of imperial capitalists, the IMF intervened. In December, Korea eventually received the financial package from the International Monetary Fund under the condition of implementing Structural Adjustment Programs, and the so-called "IMF Era" started.

The IMF and its Structural Adjustment Program

The IMF came to the "rescue" with a package worth US$56 billion, in exchange for draconian reforms to further liberalize and deregulate, especially in favor of transnational finance capital. The IMF conditionalities are not specific to Korea–which is one of the reasons IMF received much criticisms from even the rightwing–but are part of the basic strategy which the IMF prescribes to any nation in crisis. It was IMF’s intention to turn the Korean economy into recording a positive international balance of payments through economy-stabilizing policies in the indebted country, in order for that country to liberalize its markets and gain the ability to service its debts. On the national level, the IMF prescribed constraints on inflation, decrease in budget deficit and lowering of wages so that there would be enough deposit for debt-repayment. There should also be active privatization of public companies. On the international level, deregulation policies, centered on the liberalization of capital movement, were to be implemented. Also, to draw in more foreign investments, it is essential that interest rates be raised.

On December 3, 1997, the Korean government signed the papers with the IMF that prescribed these basic guidelines for the "revitalization" of the Korean economy, and the Korean government, in turn, set about in planning and executing a broad agenda to completely reconstruct the Korean economy and society to satisfy the needs of the IMF and the global capitalist regime it represents. As well as setting guidelines on macroeconomic policies including monetary and fiscal policies, the government implemented restructuring in four major sectors (financial sector, private sector, public sector and labor), and a set of liberalization policies on capital markets, investment and trade.

The SAP and its Effects on the Korean People

On August 23, 2001, Korea repaid its final installment to the IMF, much earlier than originally planned. President Kim joyfully announced that the Korean economy had finally awakened from the crisis and the IMF congratulated Korea for recording "a major milestone" and for "the close cooperation between Korea

nd the IMF that has been exemplary… and serves as model for other countries." Perhaps these reactions are not completely false, since the economic crisis and restructuring that followed did benefit some. However, for the vast majority of ordinary peoples and workers, it has only been a continuation of a nightmare that sees no end. Almost four years have passed since Korea started its restructuring process, and now Korea stands as the world’s highest-indebted country in short-term (maturity of less than one year) debt, ranks seventh in total debt, and State debt has reached dangerous levels due to the astronomical amount of public funds poured into the restructuring process. Millions of workers have been thrown onto the streets and wages have plummeted–resulting in unprecedented level of poverty and inequality. This seems rather grim for a country praised as being a model of "IMF success".

To "save" the financial sector in crisis, the government infused over 100 quadrillion won (approximately US$830 million) worth of public funds in the form of bond issues, to compensate for restructuring expenses and to "socialize" the debt borne by the companies. However, not only was the amount inadequate, but, as a result, State debt has risen to dangerous levels. After two years of restructuring, at the end of 1999, the total amount of state debt stood at 200 quadrillion won, marking 41 percent of the GDP. Interest expenditure alone was between 8 to 10 quadrillion won. Thus, it is clear that to save the crisis that emanated from the contradictions of global capitalism itself and the collusion of capitalists with the State, the government is jeopardizing its own finances as well as spending the blood and sweat of workers and the ordinary peoples of Korea to save a handful of capitalists.

The effects of restructuring of the public sector, namely by privatization, is immensely destructive, not only to the public sector workers, but also because it jeopardizes the security of people’s access to basic services. In the name of attaining efficiency, public companies were privatised and sold-off to foreign capital in accordance with the demands of global finance capital led by the IMF. Specifically, core companies that provide essential public services while maintaining its profitability such as POSCO, Korea Telecom, Korea Electricity, etc. were sold-off by issuing depository receipts. Also, the budgets of these companies were drastically cut through management reforms, in accordance with the neo-liberal economy-stabilising policies, focused on budget constraints dictated by the IMF. However, the cut in spending comes mainly from decreased wages of public workers or lay-offs. Also, there is no guarantee that the restructuring will indeed eliminate the bureaucracy and corruption that had plagued public companies. Also, privatization will further exploit workers and raise the prices of public services.

To tackle the problem of the fall in profit rate, it has become essential for capitalists to use workers more flexibly to decrease labor costs and increase control on the workers. Also, the success of the neo-liberal project relies on how much of workers’ social and political power and resistance can be weakened.

Instability of employment and the furtherance of exploitation and oppression of workers that come with it, are direct results of the government’s policies (as dictated by the IMF and transnational capital) to realise flexibility of labor. The restructuring process has led to face massive lay-offs and aggravation of working conditions. The government’s estimate for unemployment in 1998 averaged 1.7 million (7-8 percent) people, an increase of 1.2 million from the .4 to .5 million maintained before the crisis. It must be noted that these are official figures from the government. In studies made by the Korean Confederation of Trade Unions (KCTU), which includes discouraged unemployed and unpaid household work, unemployment is estimated to be at four million. The massive unemployment is paralleled by a serious aggravation of working conditions for those workers who managed to escape the fate of lay-offs. Work intensity has increased drastically, wages have been slashed, and working hours increased. Compared to the first quarter in 1997, the average wage for the first quarter of 1998 indicates an 8.2 percent decline in real wages. In the manufacturing sector, the situation is even worse. Nominal wages declined 2.7 percent but the real wages by 10.7 percent. the management is attempting also to introduce merit-based personnel management and wage systems as mechanisms for labour control and attack on trade unions.

Along the lines of increasing flexibility of labour, more and more workers are being changed into casual labour. Close to 60 percent of the total workforce consist of casualised workers, who get much less wage for more work in worse conditions without any protection of basic rights. Division and hierarchy between the workers themselves are also getting worse, since a majority of the casualised workforce is discriminately filled with low-skilled, women, migrant and other minority workers.

Fifty-six billion dollars worth of the "rescue package" did not repay the debt that Korea had accumulated over the last few decades of the hyper-development era, and the Korean people will continue to bear the brunt of the cycle of debt and the repayment of it with the skyrocketing interest rates. Korea has only fallen deeper into the debt crisis, which was the core of the one that came in 1997.

Moreover, the IMF package of structural adjustment programmes has deepened the reliance of Korean economy on imperialists and the neo-liberal system that they impose. The liberalization of capital and the financial market only implies direct control on Korean capital and the working class. At the end of year 2000, the percentage of foreign-owned stocks in the Korean market amounted to recorded 30.1 percent, more than a double from the 14.6 percent recorded at the end of 1997. Control from transnational capital has drastically increased , especially in the financial market. Weak banks were revitalized by using public funds and then sold off to foreign capital at bargain prices. The government is moving even more quickly to invite more and more foreign direct investments, under the false hopes that it will bring employment and technology transfers.

The financial sector, foreign investment and acquisitions have more or less taken over the entire motors industry. In electronics and information technology, Japanese companies are rushing into Korea. Also in heavy industries and petroleum, transnational capital is beginning to dominate the Korean market.

Further liberalization and opening of Korean markets will only push Korean economy to the brink because the Korean market will become much more vulnerable to speculative capital, which will cause habitual crises and worsen the debt situation.

Despite the fact that Korea has officially "graduated" from the IMF by paying off its loans, restructuring of the entire nation is far from being over. The crisis itself and the draconian restructuring process signaled only a start to being completely incorporated into the global world economy ruled by the doctrines of neo-liberalism. The parade in the sell-off of core national industries will continue as is the case with government’s plans to sell off Korea Railway to foreign capital.

Further liberalization will be attained through bilateral investment treaties and free trade agreements. Even though the multilateral regime of the WTO New Round was successfully launched in favor of imperialist countries and transnational capital, the latter will continue to secure more profit and domination through bilateral and regional trade and investment deals.

On December 22, 2001, the text for the Korea-Japan Bilateral Investment Treaty (BIT) was finalized and is scheduled to be officially passed during the first quarter of 2002. The BIT was modeled to contain all the major clauses that protect investors as was drawn up in the Mulitlateral Agreement on Investment (MAI), such as National Treatment and Most-Favoured Nation clauses, not to mention requirements for intervention of the State in cases of labor dispute. Negotiations for free trade agreements with the US and Chile are being hastened, while possibilities with New Zealand and Thailand are undergoing scrutiny. Talks on regional treaties–ASEAN+3 and the East Asia Free Trade Agreement–are also accelerating.

In the meantime, the government continues to promote its anti-worker labor policies, such as making revisions to the Standard Labor Laws that undermine the rights of workers, trying to mainstream the labour movement through the Korea Tripartite Commission, and in cases of disobedience, use violence to forcefully suppress workers.

However, more and more casualized workers and the unemployed are organizing themselves. The casual workers of Korea Telecom have relentlessly been struggling for the last couple of years, while the newly democratised union of Korea Railway are leveling up their resistance to privatization. Autonomous unions for women workers and migrant workers have been established and are acting as the base for organising those workers who are the most oppressed and exploited. Teachers went on mass strike against government plans to introduce neo-liberal education policies. Tens of thousands of angry peasants took to the streets to protest the liberalization of the rice market and to demand the dismantling of the WTO.

Korean People’s Action Against BITs & WTO (KoPA), a coalition of some 40 organisations, is leading the movement against free trade agreements and investment treaties. Korean workers, peasants, urban poor, students and social activists are no longer going to allow the ruling elite to get away with the destruction they have brought to the country, and are fervently resisting the government and its neo-liberal policies. The IMF and its structural adjustment program is far from being over, but neither is the resistance of the people of Korea.