Adaptive Implementation of the Five Year Economic Development Plans

Knowledge Sharing Program
Adaptive
Implementation of
the Five-Year Economic
Development Plans
December 2008
AdaptiveImplementationoftheFive-YearEconomicDevelopmentPlansDecember2008
MINISTRY OF STRATEGY
AND FINANCE
Ministry of Strategy and Finance, Republic of Korea
Government Complex 2, Gwacheon, 427-725, Korea ● Tel: 82-2-2150-7712
KDI School of Public Policy and Manangement
87 Heogiro Dongdaemun Seoul, 130-868, Korea ● Tel. 82-2-3299-1114
Korea Knowledge Sharing Program
Office for Development Cooperation, KDI
● P.O. Box 113, Cheongnyang, Seoul, 130-740, Korea
● Tel. 82-2-958-4224
www.kdischool.ac.kr
www.ksp.go.kr
www.mosf.go.kr

Adaptive Implementation of
the Five-Year Economic Development Plans
Younguck Kang

ISBN: 978-89-953695-8-6 93320
Government Publications Registration Number: 11-1051000-000023-01
Copyright ⓒ 2008 by Ministry of Strategy and Finance, Republic of Korea

Government Publications
Registration Number
11-1051000-000023-01
December 2008
MINISTRY OF STRATEGY AND FINANCE
KDI School of Public Policy and Management
Korea Knowledge Sharing Program
Adaptive Implementation of
the Five-Year Economic Development Plans

Foreword
Poverty is one of the major concerns of the in-
ternational community. At the beginning of the cur-
rent century, the United Nations adopted the
Millenium Development Goals that put the highest pri-
ority on poverty reduction in the world. More than
100 countries adopted the Paris Declaration of Aid
Effectiveness in 2005. Korea is one of the few coun-
tries that can effectively contribute to the goal of pov-
erty reduction.
Korea has an experience of economic develop-
ment that is quite different from that of Western in-
dustrial countries. Their economic systems evolved
alongside their political, social, and legal institutions,
and economic achievements were the results of such
evolutionary processes. Korea, in contrast, achieved
economic development under institutions that were not
as modernized as those of the Western countries'. For
this reason, Korea's experience is more relevant to
most developing countries aspiring towards rapid
growth and industrialization.
The ongoing Knowledge Sharing Program that
shares Korean cases of development experiences and
policies with developing countries can serve as
effective technical assistance, useful to the developing
countries participating in the program and to Korea as
well. In order to enable the Program to realize its
potential of enhancing participating countries' economic
performance, it was decided to document, study and

draw lessons from concrete examples in Korean devel-
opment experiences and policies. Five specific cases
were selected for that purpose and reports are hereby
published. This volume represents one of such
studies.
I would like to take this occasion to thank the
authors who took part in these studies and hope that
their studies prove to be useful to those who are in-
terested in developing countries' economic performance
and poverty reduction. Also, I would like to note
that the opinions expressed in these studies are those
of the authors' and are not necessarily the same as
those of the KDI School of Public Policy and
Management.
Jung Taik HYUN
President, KDI School of Public Policy and
Management

Contents
Foreword
CHAPTER 1.
Introduction ············································································· 1
1-1 Pursuing Economic Development Plans ······················· 1
1-2 Lessons from the Economic Planning Experiences ······ 2
1-3 Working Process of the First and Second Five-year
Economic Development Plans
(Flowchart of Working Process) ····································· 8
CHAPTER 2.
Balanced Growth Approach based on Foreign Aid ········· 23
2-1 Domestic and International Political, Social,
and Economic Situations ··············································· 23
2-2 Restoration Efforts after the Korean War ···················· 32
2-3 Early Versions of Economic Development Plan ········· 40
CHAPTER 3.
Fundamental Shift in Strategy: Unbalanced Growth
Approach Focusing on Import-substitute
Industries based on Domestic Capital ······························· 47
3-1 Background: Early Achievements and Problems ······· 47
3-2 Shifting the Strategy ······················································· 50
3-3 The First Five-year Economic Development Plan ······ 62

CHAPTER 4.
Shifting the Focus: Export-oriented Industries based
on Foreign Capital ································································ 69
4-1 Achievements and Problems of the First FEDP
and the Political, Social, and Economic Conditions ··· 69
4-2 Shifting the Focus ··························································· 74
4-3 The Second Five-year Economic Development Plan,
its Results and Problems ················································ 81
CHAPTER 5.
Concluding Remarks ···························································· 91
Reference ··································································································· 95

Tables
CHAPTER 1.
Table 1-1. Implementation Process of Economic Plan after 1964 21
CHAPTER 3.
Table 3-1. Comparison of the GNP between
the Democratic Party’s Plan and the CNR’s ·········· 66
Table 3-2. Comparison of Capital Composition (by source) ····· 66
Table 3-3. Comparison of Unemployment Rate ··························· 66
Table 3-4. Comparison of Total Capital during
the Planned Periods ······················································ 67
Table 3-5. Comparison of Projected Wage Income Growth ······ 68

CHAPTER 1
Introduction
1-1 Pursuing Economic Development Plans
Gaining its independence in 1945, the three-year Korean War had
massively damaged the political, economic, social, and cultural as-
pects of Korea. As a result, the Republic of Korea faced the beginning
of a modern democratic governance system with a crippled economic
system lacking the basic elements of production such as skilled
manpower, capital, industrial infrastructure, social infrastructure,
and etc. The Syngman Rhee regime at the beginning of the
Republic of Korea had put its first priority on restoring the econo-
my, taking the basic approach of relying on foreign aid for the
needed capital and focusing on restoring the basic elements of pro-
duction to the state before the Korean War. To carry out such
plans, Lee’s regime actively sought effective ways to allocate the
limited financial resources efficiently.
During the period, socialist economic development models that
would determine the resource allocation and production of goods
and services by a centralized plan under the government’s initiative
had been quite popular among less developed countries such as
India, Pakistan, and the former Soviet Union. Adoption of a central-
ized plan of economic development model could be described as a
natural choice for Korea considering its state of limited resources,
capital, and skills. Fortunately enough, the Korean government had
taken a modified approach in adopting the planning model, recog-
nizing the importance of a market economy system, as the central
government takes initiatives, leads and motivates the private sector
to follow the government’s initiatives. In other words, the govern-
ment would determine the priority of capital resource allocation,
develop and implement the economic development policies accord-
ingly, and guide the private economic activities without suppress-
ing individual property rights and ownership.
Such an approach to economic development is fundamentally dif-
ferent one from that of a socialist economic development model

2 Adaptive Implementation of the Five-Year Economic Development Plans
and has been faithfully followed in subsequent economic develop-
ment plans during the restoration periods and the 60s~70s.
Towards the end of 70s, a major shift towards gradually reducing
the central government’s initiatives had taken place, but the early
versions of so-called “unbalanced” economic development strategies
of nurturing import-substitution industries based on foreign aid and
export-oriented industries based on foreign capital have also created
many structural problems in the Korean economy.
1-2 Lessons from the Economic Planning Experiences
Korea has achieved miraculous economic growth between the 60s
and late 80s boasting an average of 9.3% annual growth rate of
GNP, and the series of Five-Year Economic Development Plans
(FEDP) have undoubtedly played a very important role in such
rapid development. However, the relationship between the “plan”
and “implementation” of such differs from the notion of a planned
economy, where the plan focuses on developing a series of pro-
duction schedule to be followed strictly. The main function of the
Five-Year Plan was to mobilize the energy and efforts of the public
and private sectors in order to achieve set targets as measured by
a set of macroeconomic indicators. By building and sharing a gen-
eral consensus upon basic principles or strategies for achieving the
target, the Korean government tried to incorporate private efforts
under the strong government leadership and policy initiatives.
It is generally known that the First FEDP was developed under
the President Park’s regime, but the matter of fact is that the strate-
gic principles and subsequent action plans moving away from the
balanced-growth towards unbalanced-growth approach has already
been developed under the leadership of the Democratic Party prior
to the change in the regime. The main differences in the two plans
lie in setting a higher average annual growth rate of 7.1% and fo-
cusing upon light-industries with high rates of capital turnover.
However, the initial plan, which resembled more in the character-
istics of a “planned” economy, failed to achieve the targeted
growth two years after the implementation due to the realities of
complex problems such as, changes in the United State’s foreign aid
policy moving away from grant-type aids; unsettled social disorder
from the two revolutions; serious crop failure from the severe cold
wave; overly ambitious military leadership; difficulty in securing
domestic assets and capital failure of the Currency Reform in 1962;
high inflation rates due to expansionary fiscal and monetary poli-
cies, and etc.

Introduction 3
Subsequently, Vice Prime Minister Chang, Gi-young of the
Economic Planning Board made dramatic changes in the strategic
direction of the economic development in May 1964, towards a
more market-oriented economic growth strategy through the liberal-
ization of the market, focus upon export-oriented industries, and
the greater reliance upon foreign capital due to the difficulty in se-
curing domestic capital. Such change exemplifies the adaptive and
flexible implementation, rather than strict adherence to the original
plan, by the government searching and employing appropriate poli-
cy solutions to the problems at hand.
Accordingly, the Second FEDP merely reflects the changed eco-
nomic development strategy, and the actual implementation of the
Second FEDP do not show strong evidence to support the argu-
ment that the outcomes of miraculous economic growth have main-
ly been due to the step-by-step implementation of the well-planned
FEDP. Especially, the historical construction of the Seoul-Pusan
(Kyong-bu) Expressways, Po-hang Steel Co., and Ulsan Petroleum
and Chemical Industrial Complex being carried out separately from
the Second FEDP, as well as the special procurement demands due
to the Vietnam War, suggest that the Korean government has taken
an adaptive and flexible approach in implementing the plan, taking
into account of the state of the domestic economic and technical ca-
pacities and of amassing foreign capital needed for such large
investments.
In retrospect, the social and economic conditions in the 50s and
60s, such as limited natural resources, human and social capital, and
an underdeveloped domestic financial market and scarcity of domes-
tic capital forced the Korean government to inevitably take an un-
balanced economic growth approach focusing on export-oriented
industries. Fortunately enough, Korea has achieved miraculous eco-
nomic growth during the 60s and 70s based on such strategy.
However, this strategy has unintentionally brought about structural
problems in the economic system as well as in society. The Second
Oil Shock and the assassination of President Park towards the end
of the 70s mark the beginning of the series of attempts by the
Korean government to deal with such structural problems in Korean
society and the economic system. Such efforts happened well before
the making of the Fourth FEDP (1982~86), which again reflects the
adaptive and flexible nature of implementation.
In short, the function of the series of FEDPs was in setting the
short-term and long-term targets of economic achievements and in
mobilizing national capacities towards achieving such targets
through adaptive implementation of the FEDP. In order to do so,
constant adjustments to foreign and domestic environments, rather

than following the pre-defined strategic steps of the plan in achiev-
ing the targeted goals, was the major step that was taken. Namely,
the FEDPs served as a locus of consensus of the public and private
sector representing the will to accomplish a self-sustainable econo-
my and a higher state of wellbeing for the Korean people.
From a such perspective, the number of factors that have con-
tributed to the rapid economic development of Korea in terms of
its national production and industrial composition, from the under-
developed agricultural society to developing industrial country, can
be listed as: the cultural tradition of placing high priority on educa-
tion; dissolution of the social class under the Japanese occupancy;
relative income equality at the early stage of economic development
due mainly to efforts of land reform by President Lee and the dev-
astation brought about by the Korean War; and pertinent adoption
of development policy and the effectiveness of adaptive
implementation. Moreover, the positive reinforcement from experi-
encing the rapid economic growth and achieving targeted macro-
economic goals contributed the most in terms of amassing the pro-
ductive energy and strong will of the Korean people, eventually
leading to the formation of a “can-do” spirit. In other words, the
initial success of the FEDP jump started the will of development of
the people, marking a turning point in modern Korean history, re-
inforced by the earlier-than-scheduled achievements of development
targets, eventually sublimating towards building strong national
pride.
The following retrospectively summarize the underlying proposi-
tions in the context of economic development of Korea in the 60s:
(1) Economic growth is an absolute must for increasing employ-
ment and household income, which are desired by the
Korean people;
(2) The Korean government must lead such growth, and achieve-
ment of the targets and goals of the development plan is the
supreme task of the economic development strategy;
(3) Due to the relatively small total population and low average
income of Korea, the given size of the domestic market is
highly confined. Henceforth, exported goods must be the na-
tion’s number one priority in order to achieve the economic
growth targets;
(4) To materialize and support the export industry, the govern-
ment should fully mobilize scarce domestic capital and lim-
ited resources first and unavoidably must rely on foreign cap-
ital and imported natural resources; and
(5) Private businesses should lead the industrialization of the
economy if we are to base our market system on capitalism.

Introduction 5
Henceforth, the government shall provide full support,
through whatever means deemed necessary, to establish such
private firms.
The outcomes of the economic development plans based on the
aforementioned premises of placing the first priority on economic
growth led by the government’s decisions have been quite
tremendous. A point-blank comparison of such achievement prior
to the FEDP demonstrates this point quite vividly. The Korean
economy achieved an annual average growth rate of 4.4% between
1953, right after the Korean War, and 1961. Even a growth rate of
4.4% is relatively a remarkable one considering the devastation of
the Korean War as well as comparing to the 3~5% growth rate of
advanced countries during their early stages of industrialization.
On the contrary, the Korean economy has boasted an annual
average growth rate of 9.8% between 1962, the beginning of the
First FEDP, and 1969, doubling its previous growth rate. The com-
position of such growth rate by industries during the same period
shows 6.0% for agricultural and fishery industry, 17.3% for mining
and industry, and 11.1% for social capital and other services
industry. Such results are mainly due to the selective and focused
government investments on strategically chosen export-oriented in-
dustries based on market principles, which cannot be described as
results of a “planned” economy.
Such efforts by the government eventually paid off since the
light-industry, manned by a relatively high quality labor force, ac-
quired a competitive advantage in the international market. The to-
tal export of $55 million in 1962 has rapidly grown to $623 million
in 1969, almost 12 times larger than before. As a result, the Korean
economy moved towards internationalization much faster than
expected. Moreover, the unemployment rate dropped dramatically
from 9.0% in 1962 to 4.8% in 1969 due to the rapid transition of the
labor force from the agricultural sector towards the light-industry,
increasing the absolute number of urban wage workers.
The relative weight of the agricultural and fishery industries in
the composition of GNP declined from 44% in 1962 to 27.9% in
1969, whereas that of the mining industry has increased from 16%
to 21.7% during the same period, showing the rapid progress to-
wards the status of being an “industrialized nation.”
To support the export-oriented economic development strategy,
the Korean government had employed a number of tactical yet
aged policy tools. Examples of such tactical tools are the revived
Monthly Briefing of Economic Trends (MBET) and Monthly
Expansionary Council of Export Promotion Meetings (MECEP).

Policy measures included, but were not limited to, various policy
favors, financial incentives such as preferred loan rates and repay-
ment structure, and numerous tax incentives to those business enti-
ties exporting goods and services.
The MBET is resided by the head of the Economic Planning
Board (EPB) where President Park actively participated. The major
functions of this particular forum is to concentrate all of the gov-
ernment’s efforts towards dealing with the economic issues at hand
in order to ensure that the same perspectives and definition of
problems are shared, as well as the political intention to strengthen
the relative power of the EPB within the government so that it is
easier for the head of the EPB to lead policy coordination and im-
plementation efforts.
Also, the major functions of the MECEP forum, which President
Park presided over, were to troubleshoot the bottlenecks and
hold-ups faced by exporting firms. At this forum, the president
himself would make sure that the previous bottlenecks and
hold-ups of these firms would be properly dealt with by mandating
the appropriate government agencies to report the policy efforts
and measures by the next monthly meeting. Members of this
MECEP include, as the name suggests, owners of the private corpo-
rations, which allowed them to raise issues directly to the president
himself.
Another example of policy favors given to exporting firms is il-
lustrated by the short-term bank loans practice. A firm with a letter
of credit proving a purchase of goods by foreign entities can bor-
row, by default, loans for a three-month-period without interest,
without back-up of assets holdings, and without owning production
facilities or factories. If a firm is able to produce and export the
goods and services earlier than the due date, for example, within
one or two months, the firm is free to use the loans for the remain-
ing periods. Numerous trading companies started this way by uti-
lizing the loopholes in this practice, and they have exported goods
and services left and right, which, in turn, contributed tremen-
dously to the rapid economic growth.
Such miraculous economic growth has its own price since such
favorable policy measures also created structural problems within
the Korean economy. Focusing on processing industries with cheap
labors and imported raw materials created an economic structure
where total imports automatically increases with the increase in to-
tal exports. Export-oriented light-industry with cheap and un-
believably long hours of labor has become industrial standards
where the well-being of blue-collar workers is of low priority in the
policy, subsequently resulting in the slow growth of real wage

Introduction 7
incomes. Cheap imported crops and price ceilings imposed by the
government on domestically produced agricultural goods destroyed
the rural economy, which sped up the already-too-rapid
urbanization. This increased the supply of wage workers forming
low income class in urban areas, creating a source of constant social
unrest.
The export-oriented unbalanced growth approach with protective
policies towards the domestic market also contributed to the birth
of large monopolistic firms with strong ties to government bureau-
crats and politicians, distorting the economic system. Government
policies of export-promotion, preferential financial favors in busi-
nesses investments and loans, protective trade policy, and giving
priorities in allocating foreign capital contributed to the rapid
growth of Chaebols. On top of those already-established chaebols
such as Samsung, Lucky Goldstar, and Ssang Yong, there have
been numerous others who rapidly joined the status of chaebol in
the 1960s such as Hyundai, Daewoo, Hanjin, Sunkyung, Daenong,
Kolon, Lotte, Keumho, Kukjye, Dae Lim, and Hanil.
Moreover, increasing reliance on foreign capital in the face of an
insufficient domestic financial market increased the sensitivity to
changes in currency exchange rates. Foreign debt has accumulated
over time, which forced the constant outflow of scarce capital in
the form of interest payments rather than reinvestment of the gains
in the domestic market.
Towards the late 60s, single-mindedly growth-oriented economic
policy created numerous problems such as inflation, economic gaps
between the agricultural and industrial sectors as well as regional
gaps, rising income inequalities, pollution and the destruction of
the natural environment as a result of rapid expansion of
industries.
This case study focuses mainly upon the history of social, politi-
cal and economic development after the U.S. military government
(after 1953) and the makings of the First and Second FEDP. The
overall state of Korea between 1948~61 is examined in chapter two
and focuses on the restoration effort after the Korean War. In chap-
ter three, a detailed comparison is made between the economic de-
velopment plans developed by the Democratic Party and the First
FEDP, developed by President Park’s military regime, highlighting
the shift in the economic development strategy from bal-
anced-growth towards an unbalanced-growth approach. Social and
economic problems faced by Park’s regime after two years of im-
plementation of the FEDP is described in chapter four, followed by
policy measures taken by the Vice Prime Minister Chang, Gi-young
focusing upon the liberalization of the market and the subsequent

shift in the development strategy from import-substituting industries
towards export-oriented industries. Other major government-initiated
investment projects will be briefly discussed in the same chapter.
1-3 Working Process of the First and Second Five-year
Economic Development Plans (Flowchart of Working
Process)
The main contributions of the First and Second FEDPs were on
building a nation-wide consensus on the necessity of economic de-
velopment efforts, and it is difficult to say that the actual im-
plementation of the FEDP was carried out according to the original
plan. However, there is no doubt that the critical turning point in
Korea’s modern economic history could be marked as the early
1960s when industrialization efforts manifested itself in the midst of
political and social upheavals through the official public announce-
ment of the First FEDP in 1962. Even though there are earlier ver-
sions of economic development plans such as the Nathan Report
and the TASKA Plan in 1953, such plans were not the official plans
adopted by the Korean government.
The first economic plan that was officially adopted by the Korean
government was the first three-year plan, a part of the Seven-year
Economic Development Plan, prepared by the Committee of
Economic Restoration (CER) under the Ministry of Restoration in
March 1959. However, the following 4.19 Movement and sub-
sequent changes in leadership of the Second Republic of Korea put
the plan under the table. Shortly after, the CER of the Second
Republic developed yet another plan based on the first part of the
Seven-year Economic Development Plan, but it was also dis-
regarded due to the 5.16 Military Coup in 1961. Both plans served
as the basis for the First FEDP.
The First FEDP is the first comprehensive mid-range economic
development plan of any kind that was actually implemented to
build the economic basis for economic independence and to over-
come the structural constraints of the Korean economy. The First
FEDP had a number of issues in its implementation because the de-
velopment targets were set too ambitiously to meet the expectations
of the people, because the suggested methods for securing needed
financial resources were unrealistic, and because working officials
lacked the technical skills for developing the plan on top of poor
statistical data. Subsequently, supplementary plans were developed
to correct for the shortfalls of the First FEDP to increase the feasi-
bility of the implementation.

Introduction 9
The fundamental goal of the First FEDP was “establishing the
economic basis for a self-sustainable domestic economy and break-
ing the vicious circle of existing economic and social ties.” The
Supreme Committee of Nation Rebuilding (SCNR) established the
Advisory Committee of Economic Plan (ACEP) in July 1961 by se-
lecting professionals from academia, government, and national
banks and putting them in charge of developing the structure of
the economic development plan that would reflect the will of the
new government. The ACEP developed a set of principles for the
economic development plan based on the political will of President
Park, developed a structure of the plan, and handed it to the
Ministry of Construction (later known as the Economic Planning
Board) to work out the details. However, there was not much room
for making the needed adjustments due to the specific principles al-
ready set by the ACEP. The Economic Planning Board (EPB) final-
ized and announced the First FEDP, along with its own birth,
based on the plan developed by the Ministry of Construction.
In developing the First FEDP, focus was put first on targeting the
economic growth rate along with modeling the needed production
level of each industry and total size of investment. Additionally,
the development of individual business plans and the production
targets and the amount of capital investments by industry, and ad-
justing the set targets and investment amounts to maintain con-
sistency was the second focus.
More specifically, efforts were made to first develop the basic
growth model based on the overall economic growth rate, pro-
duction level by each industry as well as the amount of total in-
vestment and, secondly, to select the individual development plans
in each industry and to target the relevant investment amounts,
and, lastly, coordinating and adjusting the details of the plan.
In the first stage, the main priority was to focus on developing
the basic national accounts in terms of Gross National Product,
based on a macro approach. In projecting the overall economic
growth rate, factors such as the past trend of economic growth, the
needed amount of capital inputs, the relative ratio of such by each
industry, the projected total amount of financial resources available,
trade account, and temporary adjustments were taken into account.
In the second stage, a micro approach was taken to estimate the
production, consumption, and investments of ten economic units
such as agriculture/fishery, mining, manufacturing, construction,
electricity, transportation, safekeeping, housing, infrastructure, and
other services.
In the last stage, a cross-examination between the economic
growth model based on the national accounts (macro approach)

and the 10 individual plans by industry (micro approach) was car-
ried out using an input-output table. However, such was done in a
limited scope due to a number of constraints. Accordingly, plan-
ning efforts focused only on ensuring the feasibility of the target
growth rate and the subsequent balancing of each industry to ach-
ieve coherence in planning of total capital accumulation, savings,
investment plan, plan for securing the needed foreign capital, pro-
jected level of domestic financial assets, and trade account.
Major corrections were made to the First FEDP and its targeted
economic growth rate, soon after its conception, due to the follow-
ing reasons: 1) the targeted economic growth rate was too ambi-
tious that it exceeded the growth potential of the time; 2) the eco-
nomic complications caused by the Currency Reform only one year
after the implementation of the First FEDP plan; and 3) the changes
in the economic environment caused by massive crop failures from
sudden climate changes.
The overly ambitious pursuit of the first FEDP created develop-
ment inflation which, in turn, created an unnecessarily large num-
ber of unforeseen obstacles such as: 1) immediate budgetary deficit
inflation caused by the mandatory savings policy that aimed to
draw out the hidden capital to compensate for limited financial re-
sources; and 2) foreign currency inflation and the subsequent cur-
rency crisis caused by the unbalanced rapid growth between the
sudden increase in imports and the underachievement of plans for
foreign capital inflows, especially due to sudden changes in the
U.S. foreign aid policy.
Subsequently, the EPB initiated a major mi-dcourse correction of
the First FEDP beginning in November 1962, and announced a
modified plan on February 1964, which targeted the latter three
years (between 1964 and 1966) of the First FEDP. However, this
modified plan was not enacted due to the major shift in economic
development strategy towards export-oriented economic develop-
ment based on foreign capital only after the three months of im-
plementation as the vice Prime Minister Chang, Gi-young became
the head of the EPB in May 1964.
The modified plan focused upon enhancing the implementation
feasibility by reestablishing the targeted economic growth rate, size
of capital investments, as well as the plan for securing the needed
capital. The projected overall economic growth rate was lowered
from 7.1% to 5% in order to achieve stable economic growth, and
the growth rates of the mining industry and electricity sector were
readjusted accordingly. Also, the ratio of capital investment to total
available capital was decreased from 21% to 15.5%, and the con-
sumption ratio was increased from 79% to 84.5% to reflect the real-

Introduction 11
ity of resource allocation. Furthermore, the targeted amount of capi-
tal resources supply plan supported by the foreign aid and foreign
borrowing were lowered as well. The overall investment ratio was
reduced to 17% by lowering the domestic savings ratio from 9.2%
to 7.2% and the foreign savings ratio from 11.6% to 9.9%.
Preparing and implementing the First and the modified FEDP
gave the planning officials some experience and confidence, and
they eagerly wanted to develop a “better” FEDP for the second peri-
od in terms of content in addition to the technical skills needed for
development planning. Planning of the Second FEDP began in late
1964 to reflect the major shift in the economic development strategy
and to allow ample time for the development of the Second FEDP.
Furthermore, planners wanted to involve government officials from
other ministries from the outset of the planning process. To do so,
the planners needed to develop a set of directives which other min-
istries could refer to in coming up with their own plans.
Consequently, the officials in the EPB, with the help of a handful
of scholars in academia, laid out the outline of the plans based on
a number of alternative economic development models that would
enable the realization of the growth potential along with a set of
different goals for each major industrial sector.
Time was the essential component in this endeavor to ensure the
successful development of the Second FEDP which would be based
upon a wide range of participation from the executive branch of
the government as well as related public agencies. Developing and
distributing a set of directives in a relatively short period of time
was also essential to ensure the quality of sub-components of the
plan that would be developed by associated ministries and
agencies.
A set of directives specifying the overall development targets was
finalized and authorized in early 1965 by the Cabinet Council, and
was delivered to all of the ministries and associated agencies. These
directives focused less on specifying the quantitative development
targets and more on the core strategy of the Second FEDP, the ex-
pected priorities of capital investment areas, instructions to the min-
istries and associated agencies on how to develop the individual
plans for investment projects of their own, and specifying the dead-
line for submitting individual plans.
The major reason behind this open participatory process of devel-
oping the Second FEDP was to strengthen the reliability and trust-
worthiness of the plan, and especially to ensure the successful im-
plementation of the Second FEDP by creating ownership of the
plan among officials from the ministries and associated agencies
who would be in charge of the actual implementation of the plan.

For those economic development issues that would require more
professional skills and expert knowledge, outside experts composed
of professors, think tanks, and technical experts from various fields
were hired through academic research contracts to examine issues
and come up with creative solutions. Topics included, but were not
limited to, “Long-term Prospects of Korean Economic Development,”
and “Study on Korean Economic Development Based on Input-
Output Tables,” examining the export potential of domestically pro-
duced goods, and international market analysis for major export
products.
Over a dozen of sublevel task groups were formed to study the
details of the Second FEDP as well as the related issues in each
economic sector, such as the overall macro economic performance,
individual plans by each sector, trade account, fiscal performance,
agricultural/fishery sector, mining sector which was further divided
into 10 subcategories (each with its own task groups), and social
infrastructure. Each task group consisted of government officials
from associated ministries, planning staff and technicians from
state-owned companies, and academic experts.
Significant contributions were made by foreign experts in devel-
oping the Second FEDP, such as the Economic Division of United
States Operation Mission (USOM) which was quite active in the de-
velopment process. Nathan Advisory Delegation and Advisory
Delegation of German Government both visited the EPB for ex-
tensive periods to participate in developing the Second FEDP from
the beginning of the process. Moreover, internationally renowned
academic scholars from various fields were invited from abroad to
provide consultation in the areas of quantitative modeling, banking
and finance, tax and public finance, and trade. The gross economic
development model of Irma Adelman had been the fundamental
backbone of the Second FEDP, giving authority to the Second FEDP
of being a co-product of domestic as well as international scholars
and experts.
The Second FEDP was based on the three pillars of the Gross
Plan, the Industrial Sector Plan, and the Capital Investment Plan.
The Gross Plan was based on the national income account includ-
ing the gross target, finance, banking, and trade account, and was
carried out by the Comprehensive Planning Division, Financial
Resource Planning Division, and the Inflation Planning Division.
The Industrial Sector Plan was developed by categorizing all of
the industries into 43 sectors and projecting the production level
and the necessary capital for each based on input-output table and
was carried out by the Comprehensive Planning Division and
Capital Investment Planning Division to ensure the consistency and

Introduction 13
feasibility of the Second FEDP.
The Capital Investment Plan was developed by first examining
the investment-earnings ratio, marginal effect to value-added, and
marginal effect to trade account of the major investment plans, and
then selecting and reflecting those investment projects that made
economic sense to the Second FEDP. The plan was carried out by
the Capital Investment Planning Division and the Industrial Sector
Working Groups.
The Capital Investment Plans for the area of electricity was based
upon the Long-term Plans of Electricity Generation prepared by the
Korean Electricity Company, and the portion of the plan that co-
incided with the Second FEDP periods were taken with some minor
adjustments. Also, plans for the area of transportation infrastructure
was developed based upon the recommendations made by French
experts on traffic and transportation with the support of the World
Bank.
Predicting how long the U.S. government would continue its for-
eign aid policy, the main source of financial resources that the
Korean government could rely upon, was one of the most difficult
tasks in preparing the Second FEDP. Such information had huge
implications in terms of the fiscal account plan and trade account
plan, as well as the political rhetoric of achieving a self-sustainable
economy. Some had argued that such foreign aid should be kept
into the late 70s, but the planning officials concluded to end the
foreign aid before the end of the Second FEDP, and such foreign
aid was kept until the year 1970.
The Industrial Sector Plans prepared by each task group were an-
alyzed and readjusted by higher committees such as the Committee
for Economic Planning and Coordination, consisting of the vice
ministers of economic-related ministries, the vice presidents of cen-
tral banks and state-owned banks, professors, columnists of major
newspapers, representatives of business/economic organizations,
and etc. The “Joint Committee for Developing the Second FEDP,”
another higher committee, consisted of ministers of economic-re-
lated ministries, the speaker of the ruling party, and representatives
from the USOM and Foreign Advisory Board. The latter was higher
in the decision-making chain and most major decisions were ac-
tually made by this group.
The above committees met once or twice per month during the
initial stages of the development of the Second FEDP, and in-
creased their meetings to once or a couple of times per week, or
even once a day as the Second FEDP reached its final stage. The
meetings were held at 10:30 a.m. every time, thereby earning the
nickname of the “ten-thirty meeting.” In most cases, the ministers

themselves could not attend due to their busy schedules, and thus
the vice ministers attended such meetings instead. However, this
was the most utilized venue for the development of the Second
FEDP. The preparation process lasted nearly two years, and was
authorized by the Cabinet Council on July 29, 1966, after the brief-
ings to President Park.
In 1967, there were rising opinions among government officials
that the economic growth target set in the Second FEDP would be
reached “within three and a half years” due to Korea’s respectable
economic performance. Gaining confidence from the successful im-
plementation of the First FEDP, President Park had announced in a
public address for the general election, claiming that the goals set
in the Second FEDP could be reached earlier than the targeted date.
The idea of “within three and a half years” became a hot topic
and drew much public attention, especially in the business com-
munitys as well as in the political arena, when the vice Prime
Minister Chang, Gi-young publicly declared in July of 1967, that the
targets set by the Second FEDP would be reached within three and
a half years. The minority party and the media attacked this idea
as being overly ambitious and would put too great of a tax burden
on the Korean people and would accelerate the rate of inflation.
Eventually, President Park gave an order to “not to pursue the idea
of early achievement too aggressively” to calm the public political
debates, which ended when the Deputy Prime Minister Chang step-
ped down from his office in October 1967.
The successor, Park, Choong Hoon, reinvigorated this idea in
1968 by ordering an expansionary modification to the Second FEDP.
Although this expansionary modification faced some political oppo-
sition, it was approved in May 1968, with a 50% increase in the
number of investment projects, resetting the annual growth rate
from 7.0% to 10.5%, targeting national savings to 16.0%, and raising
the total investment to 25.8%. The foreign savings rate was also
raised by 2.4% to an average of 9.8%. Judging from the past pro-
ductivity, capacity gains, and the export-product sales trend, it was
projected that the $1 billion total exports target would be reached
by 1971, the last year of the Second FEDP.
By the end of the Second FEDP implementation (1971), the in-
dustrial structure was estimated to change dramatically due to the
rapid economic growth, especially in the areas of mining and heavy
industry and social infrastructure. The expected growth rates in
such sectors were as follow: agricultural and fishery industry sector
to be 28.1% of the GNP; mining and heavy industry to be 30.2%;
social infrastructure and other service industries to be 41.7%; and
the reduced growth rate projection from 5.0% to 4.3% in the agri-

Introduction 15
culture and fishery which was originally set too high.
It can be said that the consensus building approach in develop-
ing the Second FEDP and the political emphasis on the necessity of
economic growth in both the first and Second FEDP had con-
tributed much to the rapid economic growth. Similarly, there were
two other factors not readily visible in their large contribution to
the implementations of the series of FEDPs and to the rapid eco-
nomic growth: 1) the relentless pursuit of economic development in
its highest priority and strengthening of political power and deci-
sion power of the EPB through the Monthly Council of Reporting
Economic Trend meetings (CRET); and 2) swift policy decision-mak-
ing and expedited process of developing pro-industry policy deci-
sions supporting private efforts in the market through the Monthly
Expansionary Council of Export Promotion meetings (ECEP).
The CRET meeting was first introduced along with the beginning
of the military regime and was only occasionally held to brief the
overall economic trend to military officers with no background
knowledge in economy. From May 1964, when Chang, Gi-young
was appointed as the vice Prime Minister and head of the EPB, the
CRET was held once a month on a regular basis until the late
1970s, serving as one of the decision-making forums for economic
development policy coordination across ministries and government
agencies to cope with rapidly changing economic conditions.
The critical role and the large contributions that the CRET was
able to play out in the economic development of Korea came from
the following reasons: 1) the range of participants on the CRET was
vastly diverse from all of the cabinet members, working officials,
committee chairs in the National Assembly related to economic is-
sues, and members of the Special Committee of Economics and
Science 2) the president himself resided over all of the CRET meet-
ings thus, giving a tremendous political support to the EPB; and 3)
as a consequence agendas on the CRET drew grave attention from
the public.
Typical agendas on the CRET consisted of monitoring the actual
implementation of major policy issues, analyzing the economic
trends, and decision-making and coordination of important policy
issues based on such. From the third FEDP, typical agendas were
broadened to include the celebration of the successful cases of the
SaeMaEul Movement (Rural Town Renovation Project), which could
be interpreted as functional expansion to include the evaluation of
the economic development policy outcomes. As the CRET was ad-
ministered by the EPB, it had contributed greatly to heightening the
prestige of the EPB and strengthening the planning functions of the
Korean government, leading to effective and efficient economic pol-

icy decisions and coordination within the government.
Another facet of the CRET was that it served as a learning
ground for President Park himself on economic policy issues, and
he actively used this chance to encourage and reprimand govern-
ment officials at the same time. For instance, he would ask ques-
tions during the presentations to reconfirm the content of the brief-
ings or express his thoughts on the issues at hand. He asked such
questions not just to the presenter but to anyone present in the
CRET, forcing them to be well-prepared before attending the CRET.
During the session, President Park sometimes openly and harshly
reprimanded those government officials that would not follow his
initiatives and directions.
Yet another function of the CRET was to put everyone involved
in the government on the same page in terms of the coordination
and direction of the policies, sometimes inviting committee chairs
from the National Assembly, the head of the policy committee of
the ruling party, the president of the central bank, the head of oth-
er financial institutions, the special secretary to the President, and
those working officials who were directly in charge of
implementation. This was the group of people who were in charge
of designing, adopting, implementing, and evaluating economic de-
velopment policies as well as those in charge of reviewing and ap-
proving budget proposals and various regulations.
Those government officials who were directly in charge of de-
signing and implementing economic policies especially wanted to
use the chance to get approval from the President himself for their
own policy agendas in front of other related ministries. The
President, on the other hand, wanted to use the chance to align
those officials in the direction he wanted by monitoring the prog-
ress of the policies and asking questions. This had the effect of re-
ducing the disharmony that may arise from implementing the poli-
cies by sharing information and putting everyone on the same page
on the current issues at hand.
The EPB had utilized the CRET to gain political power to control
the others in government, where the typical planning ministry
would not be able to have such power. The EPB and others also
utilized the CRET as a policy battlefield to gain final approval from
the President, where the CRET provided chances for direct commu-
nication between the President and lower ranking government offi-
cials who would normally not have the chance to talk to the
President directly. All in all, the EPB having a leading role in the
CRET and providing the room for the event was able to strengthen
its influence in the economic development policy making process as
the executive branch had higher ground than the legislative branch

Introduction 17
during President Park’s regime.
According to the memoirs of former Deputy Prime Minister
Chang, the primary reason for reinvigorating the CRET was that
“the President and the Prime Minister should know about the eco-
nomic conditions and related issues so that the Korean economy
would advance,” where such represented “an opportunity to report
directly to and to get directives directly from the President himself
once a month” as well as “a chance to show-off the skills and capa-
bility as a government official in order to heighten his own
authority.” There was no doubt that the CRET played a major role
in the long-term economic development of Korea.
Another similar forum that contributed greatly to the rapid eco-
nomic growth of Korea was the Monthly Expansionary Council of
Export Promotion (MECEP) meetings, led by the Ministry of
Commerce and Industry (MCI), where the plans for exports and
policy decisions and coordination to promote and support ex-
port-related market activities were made. The beginning of the
MECEP in February 1965 would have the symbolic meaning as the
Korean government began to heavily stress the export-driven eco-
nomic development policy. In other words, such a policy would
mark the shift from an import-replacement focused economic devel-
opment strategy towards an export-oriented one supported by for-
eign capital.
The mandate of the MECEP was to push for export-driven poli-
cies and regularly analyze, monitor and evaluate the outcomes of
such policies. Initially, the forum was headed by the Prime Minister
and led by the MCI to function as grounds for developing and im-
plementing export-driven policy measures and government-wide
supportive structure for such initiatives. Soon, it was found that the
export policy decisions were delayed, and subsequently it became
difficult to guarantee the competitive edge of export industries due
to such delays, where the timing of the decisions were critical mat-
ters in promoting exports.
As a result, President Park himself resided over the MECEP from
January 1965, where functional implications would be very similar
to that of the CRET but only in the areas of export policy-related
decision-making. Another symbolic meaning of the presence of the
President at all MECEP meetings was the official recognition and
approval of the export-driven economic development policy as fun-
damental engines of economic growth, not just within the govern-
ment but to the private sectors that would be in charge of ex-
port-related activities in the international market. Considering the
political power of the President, there would be no doubt that such
actions sent a very strong signal, which changed the behavior of of-

ficials as well as business communities.
By clearly showing that the performance evaluation criteria based
on the performance of the export industries to the government offi-
cials who would be in charge of developing, designing, and im-
plementing policies, opportunistic behaviors were curtailed and ef-
forts were directed towards productive directions. In addition, the
curtailed rent-seeking behavior of private firms may have arisen
from the protective regulations by strengthening the discipline of
government officials. Furthermore, clearly stated policy deci-
sion-making criteria based on export promotion in quantitative
measures enabled a system of policy decision-making and coordina-
tion in a relatively easier way.
The MECEP functioned as an incentive mechanism for govern-
ment officials to devote their full energy and efforts into the policy
agenda of the President as well as an incentive mechanism for pri-
vate sector companies by reducing uncertainties in the business cli-
mate through continuous emphasis on export-oriented policy meas-
ures and their implementation, thereby contributing to a heightened
confidence in government policies.
The most active participants of the MECEP were the officials
from the MCI and the Ministry of Foreign Affairs, who would be
in charge of collecting and disseminating information of foreign
markets, promoting economic ties with foreign countries, and pio-
neering and expanding foreign markets. The MECEP also func-
tioned as a direct communication channel between the President
and representatives from a wide array of business communities.
It was quite apparent that the MECEP placed tremendous pres-
sure on government officials from the MCI or related agencies who
had to report the figures directly to the President on a monthly ba-
sis, of which the main focus was on export promotion. It was quite
apparent that the MECEP served as an open communication chan-
nel to attend to the difficulties that business communities faced and
to celebrate their successes. In short, the MECEP functioned as a
highly responsive mechanism to cope with a rapidly changing eco-
nomic environment by monitoring the progress of policy planning
and implementation, developing new export policy measures, and
modifying and coordinating existing policy measures under the
strategic guidance of the FEDP.
A successful implementation of the government-led economic de-
velopment strategy required an establishment of an incentive mech-
anism that would ensure the voluntary compliance from the private
sector businesses would be highly critical. Designing and providing
enough incentive mechanisms as well as advocating and publicizing
policy measures among private businesses in order to enhance

Introduction 19
credibility was of the utmost importance. In this sense, the MECEP,
along with the FEDP, had strong ceremonial characteristics in its
nature in building a consensus on the export-driven development
strategies and subsequently promoting related policy measures of
the government.
It can be said that the successes of the export-driven strategy
might have not been accomplished without the nation-wide atten-
tion it had enjoyed. There would be no doubt that the presence of
the President in every MECEP meeting ensured such attention, giv-
ing direct messages to private companies of the strong-will to push
for export promotion by inviting their participation.
The typical participants of the MECEP were the President, Prime
Minister, Deputy Prime Minister of EPB, ministers from related
agencies, president of the Central Bank of Korea, president of Korea
Trade-Investment Promotion Agency (KOTRA), president of the
Korea Chamber of Commerce and Industry, president of the Korea
International Trade Association, export industry promotion commit-
tee chair of the Federation of Korean Industries, the president of
the National Agricultural Cooperative Federation, the president of
the National Fishery Cooperative Federation, minister without port-
folio, the members of the Economic-Science Council, Chief of
Planning and Coordination Division, head of the Maritime Affairs
& Fisheries Office, president of the Korea Development Bank, presi-
dent of the Industrial Bank of Korea, president of the Korea
Exchange Bank, president of the Korea Federation of Small and
Medium Business, president of the Korea Tourism Organization,
head of the Korea Shipping Office, in addition to others. Individuals
from major export industries as well as large trade companies had
also participated in the MECEP on a regular basis.
It surely was a “mammoth meeting” that easily exceeded 100 or
more participants from all the three branches of the government,
economists, media, banking industry, business communities, and
owners of export companies. Especially since January 1967, under
the direct order from President Park to ‘use the MECEP as a feed-
back channel by inviting representatives from the media, academics,
and business communities for their opinions and criticisms,‘ the
MECEP had grown quite large in size that extended its member-
ships to local government officials and those representing regional
business communities.
The MECEP was also a celebrating place in order to publicly rec-
ognize those individuals who had contributed to export promotion
initiatives. Based on a wide set of criteria, those company heads of
outstanding performance in exports, those engineers who had come
up with new ways of production, those developed or discovered

new export products, those contributed in increasing the pro-
ductivity, and etc. were identified and publicly praised by the
President and the media, which also served as a strong incentive
mechanism. Of course, there were a wide range of policy favors
that provided access to cheaper capital and preferential treatment in
conducting their own businesses once someone or a company had
been recognized as one of the major contributors to the ex-
port-driven policy initiatives. Naturally, everyone wanted to jump
on the ship called the “export-drive,” in order to have the chance
to grow quickly through a relentless export of goods.

Introduction 21
Table 1-1. Implementation Process of the Economic Plan after 1964

CHAPTER 2
Balanced Growth Approach based on Foreign Aid
2-1 Domestic and International Political, Social,
and Economic Situations
As of August 15, 1948, after the rule of three years of U.S. mili-
tary government, the First Republic of Korea began its first modern
independent government based upon a presidential system headed
by the President-elect Syngman Rhee. However, it was an in-
complete beginning since the sovereignty of the government lied
within the south of the 38 latitude line drawn by the U.S. and
Soviet’s military governments, dividing the Korean Peninsula into
two regions. More than 500 years of monarchy under the Chosun
dynasty and 36 years of Japanese colonization deprived the Korean
people of any self-governing experiences, and the modern demo-
cratic government based on the presidential system was something
very foreign to the people. Three years of experience under the U.S.
military government did not deepen the understandings of the
proper roles of those governing as well as those governed under
this new modern government structure, contributing to the political
and social instability and confusion.
Since gaining independence, more than 3 million refugees returned
from overseas. Those relocated from the North were struggling to
survive day to day. Politically left-wing organizations established
the National Council of Chosun Labor Unions (NCCLU), and the
right-wing organizations established the Korea Independency-
Promotion Federation of Labor Union (KIPFLU) to counter the
movements made by the left-wing organizations. The NCCLU was
established in November 1945, and it organized a general strike on
September 1946, hindering the normal practices of business activ-
ities and organizing numerous walk-outs, sabotages, demolition of
machineries and tools, and demanding resignations of the
management.
The Japanese colonial government had developed the industrial
base of Korea according to the strategic needs of the Japanese

mainland government, spreading the industrial bases auxiliary to
the industries in Japan. As a result, the southern part of the Korean
peninsula had agricultural products mostly in the form of rice
fields and light-industry mostly of textiles, and the northern part
had power and fertilizer plants. The total production capacity of
the power plants right before the independence was 1,722,695kw, of
which 11.5% generated from the power plants located in the south-
ern region and 88.5% generated from those in the northern region.
Utilizing the abundant excess electricity, the North had industrial
bases such as Heung-nam Nitrogenous Fertilizer Plant, whose prod-
ucts were used as far as the south-west region full of rice fields
and the Manchurian region. On the contrary, there were a handful
of smaller scale light-industrial bases operating with the electricity
supplied by the power plants located in the northern regions of the
Korean Peninsula.
Over 90% of the metalworking industry was located in the North
and over 85% of the textile industry was located in the South. The
natural resources for the metalworking industry such as iron ores
and pig irons were almost non-existent in the South, not to men-
tion other natural resources such as bituminous coal, anthracite,
graphite, tungsten, in addition to others. To make matters worse,
94% of the total assets of the cotton-textile industry were owned by
the Japanese, and over 80% of skilled labor-technicians were
Japanese, bankrupting or closing down almost all of the textile fac-
tories along with the independence.
Junk trade based on bartering began right after the independence.
Such trade involved agricultural products, chemicals and medicines,
and industrial products previously stored under the Japanese mili-
tary or trading companies in China with dried squid, dried
shrimps, seaweeds, Japanese isinglass, and Ginseng produced in
Korea. It was not much different from smuggling. Shortly after,
such junk trades were replaced by goods flowing-in from Macao
and Hong Kong, and the typical goods traded then were wrist
watches, clothing materials, newsprint materials, crude rubber, cot-
ton yarn, silk fabrics, miscellaneous goods, penicillin, and sugar, in
addition to others.
The overall situation of Korea after gaining independence can be
summarized as follows: lack of manpower with public and business
managerial experiences and those with skilled labor, especially en-
gineers and technicians; lack of understanding of democratic proc-
ess; lack of essential raw materials in order to restore the economy;
crippled public education system caused by the withdrawal of
Japanese teachers; a currency without gold standard and interna-
tional currency exchange status; urgent national defense problems

Balanced Growth Approach based on Foreign Aid 25
without sufficient military manpower; and the U.S. economic aid
mostly focusing on relief work for daily consumptions rather than
focusing on needed investments in production facilities.
Under the given situations, President Lee declared to build an in-
dustrial nation under a primary principle of an agricultural-industry
balanced development approach. To achieve this particular develop-
ment objective, he developed a series of annual plans to promote
the productions of goods and services which would, in turn, work
towards reducing the unemployment problem at the same time.
These annual plans focused upon increasing the production of
crops, achieving self-sufficiency in the basic necessities of life, build-
ing power plants, aggressive development of underground natural
resources and fishery resources, fostering related critical industries,
and the quick restoration of transportation and communication
infrastructures.
President Lee’s government developed a number of production
plans in each of the areas described above, primarily based on eco-
nomic grant-type aid provided by the U.S. The government first in-
vestigated the actual conditions of the textile industry, steel in-
dustry, ceramic wares industry, carbide industry, oil and fat manu-
facturing industry and developed production plans in each, fol-
lowed by the investigations on war plants in the Kyong-in area and
raw material reserves for industrial production. Based on the find-
ings, the government was to develop a comprehensive production
plan from the 1950s and to prepare blueprints for actual im-
plementation, utilizing the economic grant-type aid from the U.S.
mostly to develop critical industries such as steel-manufacturing,
shipbuilding, cement, fertilizers, plate glasses as well as for building
power plants and natural resource development.
During his exile in U.S. and while carrying out independence
movements, President Lee had perceptively gained a deep un-
derstanding of western capitalism, values of freedom and de-
mocracy, and the strengths of industrialized countries. After as-
suming presidency, President Lee developed a radical idea of
“giving the cropland back to peasants” to bring about funda-
mental changes in the Korean society as a whole, thereby push-
ing it towards an industrialized country. He reasoned that only
by squaring away the thousands-years-long old-fashioned eco-
nomic ties between the landowner-peasants would it be possible
to form a basis for industrialization of Korea.
President Lee concluded that “if we were to follow the precedents
of a land reform policy of the North based on the principles of
‘confiscation-without-compensation and allotment-without-owner-
ship,” we are only replacing the landowners with the government,

only making peasants slaves to the government instead of making
them slaves to landowners.“ He further reasoned that ”since the ma-
jority of assets are in the forms of land, it is critical for landowners
to form needed capitals with the due compensations from the gov-
ernment so that they would begin investing such in the in-
dustrialization process.“ Based on such reasoning, President Lee pur-
sued an aggressive land reform based on the principles of
”confiscation-with-due-compensation and allotment-with-ownership.“
Simply based on his strong will and even before legislating the nec-
essary rules and regulations for land reform, the government began
issuing the ”Notification of Planned Cropland Allotment“ to peas-
ants starting from March 1950. Landowners received Certificates of
Land Value (CLV) on the condition of releasing their properties of
paddies and dry fields. Three months after the initiation of land re-
form, the Korean War broke out.
Between 1945 and 1953, the wholesale price index skyrocketed
508 times. Those landowners evacuated to Pusan city sold their
CLV 40~80% under the face value, using the funds from the sales
for daily expenses. As a result, the majority of those landowners
centered on the southwestern (Ho-nam) area had gone completely
bankrupt. The capital to be used for economic revival and in-
dustrial development began disappearing at a faster rate as the
landowners had no choice but to use the CLV for daily con-
sumption and expenditure. Recognizing the seriousness of this im-
pending problem, the government hurriedly began allowing others
to buy up the CLV to be used for purchasing government-vested
properties. Such an attempt made it easier for newly rising en-
trepreneurs to become industrial capitalists relatively quickly by
taking advantage of the changed policy, but only about 54% of the
total outstanding value of the CLV was used for such purposes.
The remainder vanished as it was used for living expenses and ex-
penditures on daily goods.
The three years of the Korean War brought devastation to every
corner of society, not to mention the loss of millions of lives. The
war destroyed 60% of social infrastructure and manufacturing facili-
ties and 16.9% of housing, amounting to about $3 billion, twice the
size of the GNP of the 1949~50 accounting year. A series of bomb-
ing and battles destroyed or brought down 67% of the textile in-
dustry, 75% of the printing industry, 32% of the machinery in-
dustry, 30% of the food industry, 24% of chemical industry, and
26% of the metalworking industry. Just one year into the Korean
War, 67% of spinning and weaving machineries and 47% of weav-
ing machineries became heaps of scrap and junk, which once repre-
sented, before the war, the one and only industry boasting the

economies of scale in production in the South.
The war vaporized the efforts of the newly established govern-
ment towards restoring economic stability, and crumbled what re-
mained as the meager industry bases after the independence.
Military operations such as Incheon Ashoring Maneuvers and vari-
ous attempts to recapture the capital, Seoul, turned Kyong-in in-
dustrial complex, the heart of industries, into ruins by bringing
down the remaining industrial facilities. Words cannot accurately
describe the devastating social and economic conditions of Korea in
the early 50s. As the Korean War brought down the production fa-
cilities left after the independence, political leaders, high-ranking
government officials, and business owners began coming together
and started pushing the Korean economy towards industrialization.
After a moment of reflection by government officials, embrace-
ment of development came, once again, with the “Nathan Report.”
The United Nations General Assembly initiated the United Nations
Korea Reconstruction Agency (UNKRA) in December 1950 in order
to restore the Korean economy to the state it was at before the war
and began its operations from July 1951. UNKRA immediately be-
gan the urgent relief operations along with the war, and at the
same time investigated the conditions of production facilities of
plate glasses, briquette manufacturing, cement, fertilizers, and pow-
er plants, that were internally decided to be in the top priorities for
restoring the Korean economy.
In the midst of the war, UNKRA initiated consultation in search
for the action plans to restore the Korean economy after the war,
and subsequently the Nathan Report was published in 1952. The re-
port suggested that in order to construct the basis for industrializa-
tion, the Korean government would need first to concentrate its in-
vestments in rice production increasing productivity and supply the
materials urgently needed for relief using the proceeds from export-
ing rice. The main point of this report was that it was necessary to
invest $120 million each year for five years starting from 1954 and
to increase GNP by $50 million each year, so that the GNP would
rise to $2.510 billion by the target year of 1959.
A lot of criticism and controversy arose with the Nathan report.
Korean government officials were actively opposed to the idea of
investing in the agricultural sector, citing the anti-feudalistic eastern
ways of a petty farming agricultural structure. Rather, they insisted
on an industrialization strategy that could utilize the generally high
level of education and abundant cheap labor force in Korea.
While the talks of truce were going on in 1953, the provisional
government, located in Pusan, actively pursued efforts to rebuild
the steel manufacturing facilities, especially for rebuilding houses,

as a part of the restoration plan for after the war. The government
decided to establish the Dae-han Heavy Industry Public Corporation
as a national enterprise which reconstructed an open-hearth furnaces
with a yearly production volume of 50,000 tons and building steel-
making and rolling mill as well.
At the time, the Korean economy relied entirely on the U.S.
grant-type aids. Naturally, the Korean government requested addi-
tional funds for building steel manufacturing facilities, but the U.S.
turned down the request since the U.S. aid policy was primarily for
providing emergency relief rather than investment. President Lee fi-
nally decided to invest the necessary capital of $1.4 million from
the government foreign currency reserves for building steel manu-
facturing facilities. This decision was not an easy one to make con-
sidering the situation in which there was a great difficulty securing
dollars at the time of war. He asked Dr. Hoover, Director of the
Red-Cross Hospital, for help in contacting West Germany’s govern-
ment to request technical support for building the facility. Demarg
of West Germany, which specialized in constructing steel pro-
duction facilities, won the international bidding for the construction
of 50,000 ton open-hearth furnace in 1954 as well as for the con-
struction of a rolling mill worth $3.8 million in 1956. Many of the
Korean technicians and managers were sent to West Germany dur-
ing the construction phase to learn details about the modern steel
manufacturing industry. This particular group of technicians and
managers, after they had returned, formed a solid basis of restoring
the steel manufacturing industry in Korea.
During this period, there were other movements in the private
sector that had influenced the early versions of the economic devel-
opment strategies of Korea. Namely, those business entrepreneurs
who accumulated capital through war-time trade started to look for
ways to produce imported goods domestically. The major exporting
items at the time of war were scrap metals, empty cartridges and
bullet-casings collected from the battle fields, serving as an im-
portant source of valuable dollar currencies. For instance, the
mid-sized Samsung Trading Co. invested $300 million in 1951 for
international trade, and in the following year it invested $6 billion,
a 2000% jump in growth within a year, where most of the capital
was raised by exporting scrap metals, empty cartridges and bul-
let-casings and by importing medicine and necessities of life.
Among those entrepreneurs who had accumulated tremendous
wealth by such trade, some pioneers began to look for ways to pro-
duce these imported goods domestically rather than simply enjoy-
ing the proceeds from the trade. They wanted to produce and sup-
ply cheaper and higher quality necessities of life goods to domestic

markets by providing solutions to food and clothing shortage prob-
lems, and, at the same time, they wanted to offer jobs to the dish-
eartened Korean people, thereby contributing to the economic re-
storation efforts. These pioneers who pushed the tide of
“transformation of commercial capital to industrial capital” became
a dominating force in forming conglomerates in later stages of
Korean economic development.
The industrialization of the Korean society jump started while ex-
periencing dramatic changes originating from the war and restora-
tion efforts. The U.S. grant-type aid played an undoubtedly critical
role in this process. Based on the aid, the Korean government could
afford to import raw materials for production such as agricultural
products, oil products, crude rubbers, and timbers, and brought
about a railroad transportation revolution by importing diesel
engines. Based on such aid, the Korean government was able to im-
port the telephone system made in West Germany improving com-
munication services, and built “AID housings” that marked the be-
ginning of the housing businesses of Korea.
Since Korea had become independent from the Japanese, the
U.S. military based in South Korea helped the restoration efforts of
the troubled Korean economy through the Government and Relief
in Occupied Area plan. The U.S. began operating systematic eco-
nomic relief through the Economic Cooperation Administration in
1949 and provided about $1.3 billion worth of grant-type aids to
Korea until 1961. The International Cooperation Administration was
established as the U.S. discontinued previous practices of providing
grant-type economic relief. The Korean government established a
counterpart fund in the Korean currency from the grant-type aid
received in dollars by using a prearranged currency exchange rate
between the two governments. Such a counterpart fund was used
for the war expenditures of the UN troops or transferred as tax
revenues of the Korean government to be included as a part of the
government budget. Some of such counterpart fund was released
into private sector in the form of government loans or investments.
For instance, $2.7 million worth of counterpart funds was lent to
more than 400 small and midsized businesses, spreading the seeds
of development to small and midsized businesses in Korea.
The U.S. government also provided technical assistance in numer-
ous areas by sending their technicians and technocrats to Korea,
helping the industrialization of Korea. Learning and receiving train-
ing from these specialists, Korean officials, technicians, and business
owners began to open their eyes towards industrialization and
modernization.
By agreeing to the truce only on the condition of signing the

Korea-U.S. Mutual Defense Treaty and by using the release of war
prisoners as a bargaining chip, President Lee was able to secure
agreements from the U.S. on providing initial economic relief of
$200 million and subsequent economic aid over the long haul,
thereby greatly reducing the burden of national defense and
security. In retrospect, such agreements between the U.S. and Korea
allowed the Korean government to focus exclusively upon
industrialization. Furthermore, President Lee focused upon reducing
the overall illiteracy rate and upbringing the quality of manpower
through the extensive restoration of and large-scale investments in
the education system to build solid foundations of mass-producing
the manpower needed for industrialization in Korean society.
Without dispute, education was the central theme of Lee’s regime,
putting all-out efforts to plant the seeds of industrialization through
educating future generations. Rebuilding and improving schools
from elementary schools to universities was always given the top
priority among other government policies. To increase the overall
number of educational facilities, President Lee granted large num-
ber of permits for opening private institutions, opening up the nar-
row educational circle. At one point, the number of private schools
exceeded the number of public schools due to his expansionary ed-
ucation policy. The degree of importance placed upon education by
the Lee’s regime can be illustrated by the following fact: through-
out the 1950s, 20% of the government budget was allocated to-
wards the education system, making it the second largest budget
item next to the national defense marking 50% of the budget.
One of the subcategories of economic relief provided by the U.S.
was “technical assistance,” where the recipient government could
use this money to send its people abroad for the needed training
and education in areas deemed necessary for its social and econom-
ic development, transfer of technologies, enhancing the efficiency
and effectiveness of public administration, or inviting the needed
technicians and skilled workers from abroad. The former Minister
of Restoration Ministry and also the former Minister of the Finance
Ministry Song, In-sang, under Lee’s government, made the follow-
ing comments: “If you would ask me to pinpoint the most success-
ful programs of the U.S. economic relief, I would not hesitate, even
for a second, to put my finger on the plans of technical assistance.”
Almost all of the government officials during that time had re-
ceived their education under the Japanese system, making it diffi-
cult for them to communicate effectively with their U.S.
counterparts. Naturally, the decision-makers thought that “to prop-
erly manage the country as a whole, not just the public sector, we
need to send people abroad, have them trained, and have them

work in every corner of society.” Subsequent examples would illus-
trate the efforts made by the decision-makers in upbringing the
highly needed human resources.
With a contract of $7 million between Seoul National University
and the Minnesota State University in the areas of Science,
Engineering & Technology School, Medical School, and Agriculture
School, faculty exchange programs were established along with
sending many Korean students for study abroad. A large number of
research equipment and machinery was imported through this
channel. Efforts of improving the educational programs of middle
and high schools were carried out in partnership with the Peabody
College of Education. Management schools were newly established
through the MOUs between Korea and Yonsei University and the
University of Washington, which contributed tremendously to train-
ing the needed managers in the private sector, giving Korean stu-
dents the chance to learn the advanced techniques of management.
With the fund from the “technical assistance,” Public Administration
School of Seoul National University and the Graduate School of
National Defense under the Ministry of Defense were established as
well.
Sending government officials, managers in the private sector,
technicians and skilled labors abroad for three, six, and twelve
month periods of practical training were other ways of utilizing
“technical assistance.” One of such example is illustrated by the
training of operators and technicians for power plants. Under
President Lee’s regime, Dang-in-ri (100,000kw), Muk-ho (50,000kw),
and Ma-san (50,000kw) power plants were constructed. To operate
these power plants, young technicians with backgrounds in science
and engineering were sent to the Edison Electricity Company in
Detroit using funds from the “technical assistance,” where they
seamlessly operated these up-to-date power plants after they had
returned. There were 180 technicians working at the Dang-in-ri
power plant, far smaller in numbers compared to one of the same
capacity plant built by the U.S. in Pakistan where 1,500 personnel
were at work. This crude comparison suggests the dedication and
talents of those sent abroad for training.
In addition, the Korean government could invite technicians from
the U.S. using the funds from the “technical assistance.” The most
successful example of such was the railroad program, among many
other similar programs in various areas. There were total of 25
members in the advisory group for railroad operations and
technology. Unlike other advisory groups of similar programs, this
group was mainly composed of field technicians. The head of the
advisory group was an experienced train operator from Texas, and

they had put tremendous effort into running the trains between
Seoul and Pusan on time, contributing to a finalization of the sys-
tems of scheduled runs when it was almost a miracle to see a train
depart or arrive on time.
At the time, all of the trains in Korea were steam engines using
bituminous coals for fuel, and there was a rise in public concern
about illegal circulation of these coals to restaurants in Myong-dong
area. After a series of debates, the U.S. and Korean officials agreed
upon importing diesel engines to deal with the illegal circulation of
fuel by sealing the fuel inside fuel tanks, not to mention the im-
proved fuel efficiency from 5% of steamed engine to 18% of diesel
engines. Twenty seven diesel engines were imported from General
Electric, along with the training of the needed operators and main-
tenance workforce. Rumor had it that the members of the advisory
group were quite impressed by the talent and intelligence of the
trainees. After years of hard work, the chronic transportation prob-
lems were successfully resolved by the early 1960s.
As these examples suggest, the “technical assistance” provided by
the U.S. government had highly productive influences throughout
the Korean society, especially in terms of education and training of
the needed manpower. Many of the elite in government under the
President Park’s regime received education from abroad, using the
funds from “technical assistance.” Government officials fully uti-
lized the funds from the “technical assistance” in order to reduce
the illiteracy rate and providing education to the future leaders of
Korea, making Korea one of the countries with the largest number
of people with college degrees.
2-2 Restoration Efforts after the Korean War
After signing the truce in 1953, every effort was focused towards
undoing the damages of the war and restoring the economy, along
with attempts to gain control over the war-time inflation. It could
be described as a horrific struggle to survive day to day. In
December, the U.S. and Korean governments signed the treaty of
Joint Economic Committees for Rebuilding Economy and Fiscal
Stabilization Plan. According to the agreements from the treaty, the
Korean government laid the fundamental principles in restoring the
economy such as maintaining fiscal balances, a fixed single ex-
change rate, free-enterprise economy, and basic rules of administering
counterpart fund.
The size of the U.S. grant-type funds between the 1950~51 fiscal
year was about $100 million, which later doubled to $200 million

each year from 1953. Of the total loans and investments made by
the Korean government, 41.4% in 1954 and 68.4% in 1957 were fi-
nanced by the counterpart fund raised by the sales of the goods re-
ceived through the U.S. aid. Based on such foreign aid, the Korean
government started rebuilding the foundation for economic growth.
In February 1954, to appropriate the U.S. relief funds as part of
the total government revenue to be used for economic restoration
purposes, the Korean government enacted the “Special Accounting
Law for Counterpart Fund” and the “Special Accounting Law for
Economic Restoration.” In May 1954, the Korean government en-
tered into an agreement with UNKRA, signing the “Treaty for
Korea Economic Relief Plan.” Technical details got cleared in July
for securing military and economic aid and importing relief goods
from the U.S. The total amount of economic relief dramatically in-
creased since the signing of the Korea-U.S. Farm Surpluses
Agreement in May 1955. A series of such efforts jump-started the
engines of economic restoration.
The state of the key industries in Korea at the time of the begin-
ning of the economic restoration was quite insignificant. In 1945,
the total production of coal was 175,000 tons the total production of
electricity was 120,000kw including those sent from the North, and
the total production of cement was a meager 40,000tons. Three
years of war massively damaged the industrial bases, making it dif-
ficult for the government to raise any tax revenue. Electricity was
cut-off by the North and all the power plants were destroyed ex-
cept the one in Ma-san, which generated only 20,000kw, the abso-
lute total amount of electricity in the South. Due to the damage in-
curred to Sam-chuck Cement Factory, the total production volume
of cement was a meager 25,000tons.
The bigger problem lied in lack of engineers and specialists in
each industrial sector. All figures of Korea right after the war sug-
gested a typical agricultural country. The transition from an agricul-
tural society towards an industrial society would not happen over-
night, but the government of Korea tried all it could to begin re-
storing the economy.
Each step of restoring industrial facilities and developing eco-
nomic development policies between 1954 and 1960 would vividly
show the complexity and multitasking nature of restoration efforts
by the government, constantly adapting to changing environments.
The Industrial Bank of Korea was opened in April 1, 1954, to sup-
port the restoration of industries. The Hwa-chun power plant began
its operations in July 21, 1954, and the Five-year Economic
Restoration Plan was announced on July 28, 1954. The total number
and composition of registered vehicles in 1954, under the Seoul city

registration office, was 5,017 passenger cars, 7,466 trucks, and 2,542
buses/vans.
In April 1955, the Five-year Plan of Electricity Production Plan
was announced, and the Korean government joined the IMF-IBRD
on August 26, 1955. Diesel engines began operating on October 1,
1955, marking the beginning of the transportation revolution, and
the amount of electricity generated exceeded 100,000kw on
November 23 of the same year for the first time. The Young-am
railroad tracks became operational in January 16, 1956, bringing in
the anthracite coals from the Tae-back coalfield belt into the capital,
and Dang-in-ri thermal power plant subsequently began its oper-
ation on February 15 of the same year. Restrictions on the use of
electricity had been lifted on April 28, 1956, and the Exhibition of
Nuclear Power was held for the first time in Korea on September
17, 1956. On December 17, 1956, farm surpluses began flowing in
from the U.S. following the Korea-U.S. Farm Surpluses Agreement
that was commonly referred as PL-480.
On February 3, 1957, the Five-year Economic Restoration Plan
was announced, boasting a total investment figure of $2.375 billion.
On April 39, 1957, the Ten-year Coal Mining Plan was announced.
On August 22, deep-sea fishing vessels sailed into the Indian Ocean
for the first time, and the Moon-kyung cement factory owned by
the Dae-han Cement Company opened on September 25. The
Han-river Footbridge, which was blasted into pieces to slow the
North Korean troops from advancing quickly towards the South at
the beginning of the Korean War, was finally restored on May 15,
1958. On June 12, 1958, the White Paper on Economic Restoration
was published. On October 30 of the same year, the number of
black and white TV sets exceeded 7,000 for the first time. The
Chung-book railroad track began its operation on January 10, 1959.
On April 2 of the same year, the Five-year Shipbuilding Plan was
announced and on April 8, the Eight-year Coal Development Plan
was announced respectively. May 13 of 1959 marked the first day
of exporting plate glasses to the U.S. On March 24, 1960, an
Enforcement Ordinance on Promoting the Induction of Foreign
Capital was officially announced by the Korean government. On
March 30 of the same year, construction of the Pusan Diesel
Electric Engine Factory began. Shortly after, Lee’s regime of
Democratic Party disappeared from the scene of history due to the
April 19 uprising by students.
The most critical moment during the breathtaking restoration of
production facilities and the gradual economic restoration described
above came when the Korean government became a member of the
International Monetary Fund (IMF) and the International Bank of

Reconstruction and Development (IBRD) on August 26, 1955, which
signified the beginning of the Korean economy’s joining the world
economic order. Joining international institutions such as the IMF
and IBRD signaled to others around the world of the serious efforts
by the Korean government to overcome the devastation brought
about by the Korean War. What was more important was the back-
ing-up of the national credit deemed necessary for international
trade and foreign currency exchange with hard currency holdings.
The symbolic meaning of the decision to join the IMF and IBRD
was that the Korean economy had become a part of the world eco-
nomic order of free trade.
Earnest restoration efforts since 1954 concluded in just four years,
owed to the hard work by government officials, business owners
and entrepreneurs, and the Korean people who endured the eco-
nomic hardship without much complaint. This did not mean that
there were no major bottlenecks. Before 1957, there was a perpetual
friction between the U.S. and Korea about how to manage the proc-
ess of restoration. The most fundamental cause of such friction was
the difference in the opinions on how to spend the economic relief
funds. The Korean government wanted to invest in the areas of
critical manufacturing facilities such as oil refineries or fertilizer
plants, whereas the U.S. government insisted on importing urgently
needed consumer goods to resolve the pending problems of
“hunger and disease.”
For instance, UNKRA had projected that the aggregate demand
for chemical fertilizers would be 400,000 tons between 1953~57,
amounting to $288 million in total. This meant that $60 million,
20~30% of the annual economic relief fund of $200 million, would
be thrown away each year just to import the needed fertilizers.
Korean officials viewed this as being no different from wasting val-
uable relief funds for importing non-durable goods that would dis-
appear after just a single usage. Rather, they wanted to use the
money for building the urgently needed fertilizer plants instead.
The U.S. government was persistently against this idea, forcing
President Lee to look for other ways to fulfill this desire to have
fertilizer plants. President Lee began negotiating with UNKRA, per-
suading them to use the relief funds for building plate glass plant
in Incheon and a cement factory in Moon-kyung. UNKRA agreed
to do so since, they reasoned, plate glass was critical construction
material for economic restoration and it would make economic
sense since there were enough raw materials in Korea as well as
the needed experiences in producing such products. In February
1956, the construction of a plate-glass plant with an annual pro-
duction volume of 120,000 boxes of plate glasses finally initiated by

UNKRA, totaling $3.63 million and 602,510 thousand Hwan (the
old Korean currency) from the counterpart fund.
During 1955, 70% of the total consumption of 189,000 tons of ce-
ment had to be imported. Subsequently, a cement factory was con-
structed in Moon-kyung as the second project carried out by the
UNKRA. The building of the Incheon plate glass factory and the
Moon-kyung cement factory utilizing the UNKRA relief fund gave
a strong signal to the U.S., forcing them to follow the footsteps of
UNKRA. As a result, an agreement between the U.S. and Korea to
build fertilizer plants using the Agency for International
Development (AID) funds was reached in 1955, finalizing a basic
principle of allowing maximum of 25% of the total relief funds to
be used for investment purposes.
Financial resources were assembled from AID loans of $33.8 mil-
lion and 275 million Hwan of domestic funds. While building the
Chung-ju fertilizer plant, the Korean government selected 68 train-
ees to be sent to a fertilizer plant in the U.S. The original plan was
to start the construction in April 1958, but due to a number of
problems such as slow process of securing the needed financial re-
sources from the U.S. and lack of expertise of domestic technicians,
the first test-run was conducted in 1959 and began full operation
producing 85,000tons each year from April 1961 a long time after
President Lee was forced to step down. Despite the strong desire of
the Korean government officials to use the relief funds for invest-
ment purposes, the actual use of the relief funds during 1954~61
showed 74.7% of the total relief fund being used for importing raw
materials and 23.6% being used for importing machineries for
production.
The talks of the Chung-joo fertilizer plant in 1957 marked the be-
ginning of the rapid advancement of restoration activities. The con-
cerned parties of the two governments gradually began to narrow
gaps in opinions, subsequently increasing the quantity of imported
goods dramatically. Using the repayments of outstanding loans
made to the UN troops, the supply of essential goods including
food products began improving. Another critical turning point of
restoration efforts came with the increased supply of electrical pow-
er since all other plants would not be able to operate in full ca-
pacity without electricity. Construction of the Young-well thermal
power plant, with the help of the U.S. economic relief agencies, fol-
lowed by the construction of the Dang-in-ri thermal power plant,
greatly contributed to such a change in electricity supply.
A large number of engineers was needed to operate the newly
built power plants. President Lee gave a special executive order to
the minister of National Defense to select 45 military officers with

college degrees from the top universities from the army, navy, and
air force, discharge them from military duty, and send them to the
U.S. for nine-months of training in electrical engineering. These un-
expectedly discharged military engineering officers received training
in the U.S., gaining detailed knowledge in the areas of the gen-
eration, transmission, and distribution of electricity as well as the
management and daily operations of power plants, becoming a crit-
ical source of manpower in the electric power industry.
The not-widely-known efforts made by the cabinet members and
those involved in developing economic policies also contributed
greatly to hasten the progress of economic restoration. To name a
few, the Vice Minister of Economic Restoration, Shin, Hyun-hwak,
and the Director of Planning Bureau, Song, In-sang, who led the
Planning Committee played pivotal roles in the restoration process.
The Director of Budget Bureau, Lee, Han-bin, and the Director of
Financial Bureau, Kim, Jung-ryum, who led the Financial Affairs
Committee, also played critical roles in stabilizing the money sup-
ply through fiscal and monetary policies. In 1957, skyrocketing in-
flation rates turned direction, recording –0.27%, and, for a brief pe-
riod in 1958, the Korean economy marked a positive growth for the
first time. The dreadful inflation finally settled down from this
point, stabilizing the overall economy.
The overall speed and content of economic recovery of Korea dif-
fered greatly from that of Japan‘s, however. Although Japan had
lost the Second World War, it already had an industrial base strong
enough to invade China and Southeast Asia and to wage the
Pacific War with the U.S. With the “rare opportunity” of the
Korean War, Japan was able to not only recover from the loss of
war but also grow dramatically. On the contrary, Korea was se-
verely damaged from the Korean War on top of already-lacking
technological knowledge, unfavorable industrial conditions, and a
drastically small number of entrepreneurs and managers not to
mention the lack of assets and capital.
In March 1956, the Korean government finally sold off its stake
of nationalized banks, the only remaining government-vested prop-
erty at the time, after a series of similar attempts, beginning from
November 1954, had not succeeded in finding the right bidders.
Private firms constantly struggled in securing needed financial re-
sources for investment due to the lack of overall assets and capital
in Korea at that time. To alleviate the financial difficulties faced by
these private firms, the Korean government decided to form a mod-
ern form of “Konzern (pool)” composed of private firms and a
leading bank. The officials were expecting to speed up the overall
restoration process and industrialization of the Korea through

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