In 1954, South Korea proposed at the
United Nations Geneva Conference to hold a general
election to unite the country. This proposal was
rejected by North Korea on the ground that
South
Korea was a US colony and no
election would be free as long as US forces
occupied South Korea. Since the South had twice as
many people as the North, holding a general
election for the whole peninsula would have been a
suicidal affair for North. This problem remains
true today.
After 15 years of repressive
government, Syngman Rhee (1875-1965), the
US-installed puppet president of the Republic of
Korea, was forced out of office into exile on
April 26, 1960, by student mass demonstrations
against widespread corruption and despotic rule.
On May 16, 1961, amid general political chaos and
paralysis, Major General Park Chung-hee (1917-79)
carried out a military coup d'etat followed by an
anti-corruption campaign that was welcome by the
general public. Early in his military career, Park
had participated in a communist cell within the
South Korean army but later served with
distinction during the Korean War and was rewarded
with a year of special training at Fort Sill,
Oklahoma.
As president, Park instituted
central planning and industrial policy and looked
to prewar Japan as a model for developing the
South Korean economy. The Park administration was
ultra-nationalistic and anti-market, harking back
to a Confucian culture that does not hold
merchants in high esteem. Park nationalized Korean
banks and imposed strict control on foreign
exchange to use sovereign credit to develop the
economy through industrial policy and subsidized
export, taking advantage of US anti-communism to
get preferential access to the US market during
the Cold War.
Following the Japanese
model, Park established three key agencies for
modernizing the South Korean economy: the Economic
Planning Board to set economic plans; the Ministry
of Trade and Industry to support industrial policy
and export; and the Ministry of Finance to make
use of sovereign credit to finance economic plans.
A fourth agency, the Korean Central Intelligence
Agency (KCIA), formed under the guidance of the US
CIA, was Park's apparatus for domestic security.
Park normalized relations with Japan in 1965 amid
massive popular anti-Japan protests at home.
Park leaned on the chaebol, large
family-controlled conglomerates that responded
profitably to government development plans,
reserving basic industries such as steel for
state-owned enterprises. Park proved that a
planned economy with intelligent application of
industrial policy was a more effective system for
promoting rapid industrialization and national
prosperity for a developing economy than market
fundamentalism.
Under Park, South Korea
sent 300,000 troops to Vietnam, and was rewarded
by the United States with war purchases that
helped the Korean economy and political tolerance
that consolidated his rule.
South Korea
victimized by neo-liberalism Park was
assassinated on October 26, 1979, while enjoying a
Japanese-style geisha party at a KCIA safe house
in Namsan. The assassin was the head of the KCIA,
Kim Jae-kyu, who worked closely with the US CIA.
The assassination remains a mystery. It
was common knowledge that the KCIA could not have
made any move without the approval of the US CIA,
which suspected Park of being a communist. It was
also a time when US foreign policy was
strong-arming its autocratic Cold War allies all
over Asia, in South Korea, Taiwan, Singapore, the
Philippines, Indonesia and other countries, into
token political reform toward "democracy". The
assassination of Park excised the cancer of
communist sympathy at the top in South Korea.
Exploiting US-Soviet detente, Park had
initiated moves toward Korean unification. The
principles of Korean national reunification were
laid down in the historic July 4, 1972, Joint
Statement after a visit in May by KCIA director
Lee Hu-rak to Pyongyang. The movement toward
unification was abruptly shelved after
assassination threats were made on Park, who was
forced to dismiss Lee as KCIA chief and replace
him with Kim Jae-kyu at US CIA insistence.
Park's assassination postponed development
toward Korean unification for three decades. It
echoed the geopolitical undercurrents that led to
the resignation of US president Richard Nixon on
August 8, 1974, which many observers believe was
not unrelated to domestic opposition to his
historic opening to communist China.
After
the Watergate scandal broke open, Nixon's policy
of detente stalled along with momentum on
normalization of US-China relations. Under
president Jimmy Carter, the terms of US-China
normalization changed from letting the Taiwan
issue be resolved as a Chinese internal affair to
allowing Taiwan to remain an obstacle for full
normalization with the passage of the Taiwan
Relations Act, a US domestic law that blatantly
interferes with Chinese sovereignty and internal
affairs. The justification for US military defense
of Taiwan was that the regime in Taipei has become
a "democracy". US advice to Chiang Jing-guo, the
president of the Republic of China on Taiwan at
the time, was that US support for Taiwan was
contingent on political reform.
The
two-decades-long rule of Park left a lasting
legacy that affects Korean politics to this day.
Applying the cui bono (who gains) theory of
conspiracy, the US and the chaebol both
benefited from Park's assassination. The US
prevented Korean unification and the
chaebol gained much market freedom from
state control. These chaebol subsequently
launched South Korea on the path of neo-liberal
market fundamentalism, which two decades later
plunged the economy into bankruptcy in the 1997
Asian financial crisis.
When financial
contagion spread to South Korea in December 1997
from Thailand, where the problem had started on
July 2, the Asian financial crisis showed itself
as not a local problem but a global one. The New
York Times reported that the US administrative
decision to rescue South Korea was reached by
treasury secretary Robert Rubin at the last minute
before a Korean default on its sovereign debt
because of the surprise discovery that Brazilian
banks were holding a lot of Korean bonds and total
return swaps (TRS) contracts used to capture
"carry trade" profit from interest-rate
differential between pegged currencies.
A
Korean default would have quickly spread to South
America, with more direct impact on the US economy
than previously realized. US multinational banks,
the Treasury and the Federal Reserve Bank colluded
on the classification of non-performing loans in
South Korea for regulatory purposes to safeguard
the exposure of US banks. But the local banks in
Korea enjoyed no such flexibility (see The dangers of
derivatives, May 23, 2002).
Both the South Korean and the Japanese
development model had been closely studied by
Chinese reformers during the 1980s and '90s, until
the Asian financial crisis exposed neo-liberal
market fundamentalism as a false god and
globalization as an ocean of predatory sharks.
Since 1997, both South Korea and Japan have been
looking to developing close bilateral trade
relations with China as a promising potential for
a new economic order for Asia.
Park sought
constitutional revisions in 1969 to run for a
third term. Running unsuccessfully against Park
was opposition leader Kim Dae-jung, a Catholic and
the presidential candidate of the New Democratic
Party in 1971. A year after the election,
President Park imposed martial law, banned all
political activities, and pushed the Yushin
(revitalizing reform) Constitution, which gave the
president power for life, through the National
Assembly.
Kim Dae-jung led campaigns
against Park's regime in the US and Japan. In
August 1973, KCIA agents abducted Kim from a Tokyo
hotel. Strong reactions from the US and Japan
resulted in his release in Seoul a week later, and
he was immediately placed under house arrest.
On March 1, 1976, Kim joined other
democracy activists in issuing the "Independence
Day Declaration for Democratization".
Subsequently, he was sentenced to five years in
prison but was released and put under house arrest
in 1978. Soon after Park's assassination in
October 1979, the civil and political rights of
Kim were restored. A few months of political
unrest later, another military group seized power
and Kim was again imprisoned in May 1980 on
charges of treason.
That November, a
military court sentenced him to death, but the
sentence was commuted to life imprisonment, and
then reduced to a 20-year term. In December 1982,
his prison term suspended, he was allowed to
travel to the US, where his exile ended two years
later in early 1985. Back in Seoul, he was
immediately put under house arrest. In June 1987,
Kim was cleared of all outstanding charges with
full restoration of civil and political rights. He
ran but was defeated in presidential elections in
1987 and 1992.
In December 1997, when
contagion from the Asian financial crisis hit
South Korea like a tsunami, Kim was elected to the
presidency with 40.3% of the votes. Taking over
the government in the midst of an unprecedented
financial crisis, Kim was forced to accept
International Monetary Fund (IMF) conditions based
on the Washington Consensus to pull the country
back from the brink of bankruptcy. Reforms and
restructuring that began early in his
administration continue today, plunging the
economy into permanent decline with little
prospect of full recovery.
Whatever
partial recovery did occur was in spite of, rather
than because of, Kim's misguided economic policies
as dictated from Washington. Harvard economist
Martin Feldstein argued that the financial crisis
did not reflect a systemic failure of the
pre-crisis Korean model of economic development,
but rather the failure of the IMF to respond
appropriately to cross-border hot-money movement.
It was a failure of globalization through
deregulated financial markets. Many otherwise
efficient and successful Korean industrial
companies, unable to withstand the financial
stress, went bankrupt not because of failure to
produce goods in strong demand but because of
failure to withstand sudden wide swings in
interest rates that in some cases exceeded 100%
and foreign-exchange rates that plunged the South
Korean currency to a fraction of its pre-crisis
level. During Kim Dae-jung's presidency, Daewoo
Corp, then the second-largest conglomerate in
South Korea, went under. The wholesale destruction
of the chaebol system deprived the South
Korean economy of its powerful engine of growth,
while Korea was unable to find a workable
substitute to compete effectively in the global
economy.
To find alternatives out of the
financial chaos, Kim began to pursue a policy of
engagement toward North Korea to give new momentum
to his failed economic policy, resurrecting Park
Chung-hee's unification initiative of three
decades earlier. A unified Korea with strong trade
relations with an emerging China would provide
Korea with possibilities of economic
revitalization that conventional IMF globalized
market fundamentalism failed to provide.
In the July 4, 1972, Joint Statement, the
North and South had agreed on the following
principles for the reunification: First, the
reunification must be achieved with no reliance on
external forces or interference; it must be
achieved internally. Second, the reunification
must be achieved peacefully without the use of
military force by either side. Third, both parties
must promote national unity as a united people
over any differences of ideological and political
systems. Such principles were not music to
Washington's ears, and all progress was halted and
finally buried with Park's assassination in 1979.
On June 15, 2000, Kim Dae-jung and North
Korean leader Kim Jong-il signed a joint
declaration on unification. Almost 30 years after
Park's initial move, the joint declaration signed
by president Kim Dae-jung of the Republic of Korea
and National Defense Commission Chairman Kim
Jong-il of the Democratic People's Republic of
Korea was the result of a historic meeting and
summit talks in Pyongyang from June 13-15, 2000,
"in accordance with the noble will of the entire
people who yearn for the peaceful reunification of
the nation". For his contribution to Korean
unification, Kim Dae-jung was awarded the 2000
Nobel Peace Prize, but it was not awarded to Kim
Jong-il, the other signer of the joint
declaration, reflecting the ideological bias of
the Nobel Committee.
The five points of
the 2000 Joint Declaration were: 1. The South
and the North have agreed to resolve the question
of reunification independently and through the
joint efforts of the Korean people, who are the
masters of the country. 2. For the achievement
of reunification, we have agreed that there is a
common element in the South's concept of a
confederation and the North's formula for a loose
form of federation. The South and the North agreed
to promote reunification in that direction. 3.
The South and the North have agreed to promptly
resolve humanitarian issues such as exchange
visits by separated family members and relatives
on the occasion of the August 15 National
Liberation Day and the question of unswerving
communists serving prison sentences in the
South. 4. The South and the North have agreed
to consolidate mutual trust by promoting balanced
development of the national economy through
economic cooperation and by stimulating
cooperation and exchanges in civic, cultural,
sports, health, environmental and all other
fields. 5. The South and the North have agreed
to hold a dialogue between relevant authorities in
the near future to implement the above agreements
expeditiously.
The declaration added,
"President Kim Dae-jung cordially invited National
Defense Commission Chairman Kim Jong-il to visit
Seoul, and Chairman Kim Jong-il will visit Seoul
at an appropriate time."
The key words in
the declaration were in the first point: "agreed
to resolve the question of reunification
independently and through the joint efforts of
the Korean people, who are the masters of the
country". "Independently" meant without the
interference of foreign powers. This meant the US,
China and Japan. The declaration established
clearly that there were no unsolvable domestic
issues blocking peaceful reunification.
On
August 3, 2004, Chung Mong-hun, 55-year-old heir
to Hyundai, South Korea's largest industrialist
giant with 57 subsidiaries and assets of US$60
billion in 1997, who was the chaebol leader
behind the South's policy of reconciliation toward
North Korea, committed suicide by jumping from the
12th floor of the company headquarters building.
Chung had been facing trial on charges that he
secretly passed $100 million from the South Korean
government to North Korea in the spring of 2000.
The payment was said to have been an inducement to
Kim Jong-il to receive Kim Dae-jung on a visit to
Pyongyang.
Chung Mong-hun's father, Chung
Ju-yung, the founder of the Hyundai conglomerate,
was born to a peasant family in North Korea. The
son handled Hyundai's dealings with North Korea.
The father ran unsuccessfully for president in
1992. Earlier in 2004, Hyundai was implicated in
illegally arranging a total of $400 million in
payments to North Korea, not only to ensure that
the 2000 summit would take place, but also to win
contracts for a tourism enclave, an industrial
park, a sports complex, dams, an airport,
telecommunications infrastructure and power
generation. The contracts made Hyundai the leading
"foreign" business player in North Korea.
The 2000 summit was the beginning of a
process of reconciliation between the two Koreas
that endures in the form of railway and commercial
projects, including plans to build a vast
industrial park in Gaesong, North Korea. Hyundai
Engineering and Construction, which remains one of
the core companies of the Hyundai Group, was to be
one of the primary contractors in the project.
Chung Mong-hun, the fifth son of Chung
Ju-yung, who had divided his business group among
his sons, held a master's degree in business from
Fairleigh Dickinson University in Rutherford, New
Jersey. He was to run Hyundai Electronics after it
was founded in 1983, but had to give up his stake
when the company suffered severe financial
difficulties during the 1997 financial crisis and
fell into the hands of foreign creditor banks and
changed its name to Hynix Semiconductor. The
financial restructuring at its parent Hyundai
Electronic Industries Ltd continued in 2001.
A "liquidity crunch" created by nearly $5
billion in loans that matured in December 2000 and
January 2001 was the company's immediate problem,
forcing it to sell off nearly $1 billion in assets
at home and abroad and slash 7,000 workers from
its payroll. The company timed the announcement to
follow a controversial decision by the state-run
Korea Development Bank to roll over more than $400
million of Hyundai Electronics bonds due to mature
the same month. The leniency extended to Hyundai
Electronics was part of a government drive to prop
up the behemoths of South Korean industry,
including Hyundai Group - until 1998 the country's
largest chaebol - on the theory that
cash-strapped companies would endure if they made
it through the first half of the year.
The
Korea Development Bank also rolled over $125
million in bonds issued by Hyundai Engineering and
Construction Co, the hardest-hit of the Hyundai
companies, and Hyundai Merchant Marine Co.
Commercial banks - largely government controlled -
granted reprieves on hundreds of millions of
dollars in loans. The Korea Development Bank
supported corporate bonds of Hyundai Engineering
and Construction, which was burdened by excessive
debt. The restructuring plan called for repayment
of $4.2 billion in debts maturing in 2001, more
than half of it with financing by the Korea
Development Bank.
Foreign neo-liberal
analysts charged that the program for supporting
major companies ran counter to promises by
president Kim Dae-jung to force troubled
chaebol to follow through on restructuring
plans and dump unprofitable entities in line with
the Washington Consensus and IMF conditions.
Despite criticism from market fundamentalists, the
government's efforts to shore up financially
troubled companies appeared to have won a certain
degree of confidence among investors. The Korea
Composite Index, which lost about 50% of its value
by 2001 to fall to about 500, was trading this
Thursday around 1,330.
Despite antitrust
and patent-infringement troubles and
countervailing duties imposed by the United States
and the European Union, Hynix Semiconductor
continued to expand its presence in the DRAM
(dynamic random access memory) chip market in the
second quarter of 2004 and even became the world's
second-largest memory-chip maker, after Samsung
Electronics, another Korean giant.
From
May 11-14, 2002, in a move of high political
drama, Park Keun-hye, daughter of the assassinated
Park Chung-hee and a member of the National
Assembly, made an unofficial visit to Pyongyang at
the invitation of the North's National
Reconciliation Council. Symbolically, she took a
North Korean chartered plane from Beijing to
Pyongyang, and returned to Seoul by way of
Panmunjom, the heavily armed truce village at the
38th Parallel.
Park's surprise visit came
in a complex political climate in the South as she
withdrew from the ultra-conservative opposition
Grand National Party, making critical attacks on
its leader, Ri Hoe-chang, whom North Korean
officials have labeled an "anti-nation,
anti-reunification, pro-American traitor". It also
came as the presidential-election race was getting
heated toward December 2002, when a new president
was to replace Kim Dae-jung, advocate of a
reconciliatory "Sunshine Policy". Park, who formed
a new political party as chairwoman of the
Preparatory Committee for Founding the "Union for
the Future Korea", was widely considered
presidential timber.
Park's North Korea
visit was associated with the Korea-European
Union, of which she was an officer, and her
meeting with Kim Jong-il reportedly was arranged
by Jean-Jacques Grauhar, secretary general of the
EU Chamber of Commerce in South Korea. For seven
years Grauhar was a consultant in Pyongyang, from
1986 to 1992, and had been traveling back and
forth from Pyongyang to Seoul for business and
guided European companies considering investing in
the North.
He accompanied Park on her trip
to Pyongyang, which reactivated momentum to
stalled inter-Korean relations and to what the EU
had done for Pyongyang since mid-1995 in terms of
economic cooperation. Approval to establish a
training center for North Korean economists in
Beijing to introduce a "socialist market economy"
and to produce a professional labor force to
operate privatized companies and factories in the
market was credited to the Europe-Korea
Foundation, of which Park was a senior member.
Park's 2002 trip to the North signaled the
divergence on the part of South Korea and the EU
from ineffective US policy under the George W Bush
administration on North Korea, a reversal of his
predecessor Bill Clinton's policy.
Next: Clinton Policy on North
Korea - a path to peace
Henry C K Liu
is chairman of a New York-based private
investment group. His website is
HenryCKLiu.com.
(Copyright 2006 Asia
Times Online Ltd. All rights reserved. Please
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