Past and Present of Seoul
Past and Present of Seoul

After the Korean War, South Korea was in a state of devastation with no infrastructure and resources. However, in just 70 years, South Korea has become one of the world’s leading nations. This article will explore the history of South Korea achieved its remarkable economic growth from the time after the Korean War.

1. Libration from Japan and the Korean War(1950s)

After World War II, South Korea celebrated its liberation from Japan’s 35-year colonial rule in 1945. Two governments were established, with a democratic South Korea and a communist North Korea. The world was still reeling from the aftermath of WWII, and South Korea faced both domestic and foreign turmoil. North Korean leader Kim Il-sung persuaded Mao Zedong in China and Joseph Stalin in the Soviet Union to support his invasion of South Korea. Then The Korean War began with North Korea’s invasion on June 25, 1950.

Within just three months, South Korea lost 95% of its territory, excluding the Busan region. However, with the entry of the United States and the UN coalition forces (Operation Chromite, Battle of Inchon), South Korea managed to turn the tide. Just before North Korea could be fully occupied and reunified, China joined the war to support North korea. The allied forces failed to occupy North korea, and eventually retreated back south to establish a ceasefire along the for 38th parallel. The armistice negotiations faced difficulty, but Stalin’s death hastened a conclusion. On July 27, 1953, the Korean Armistice Agreement was signed, creating the current division between North and South Korea.

South Korean soldiers heading to war and refugees fleeing
<South Korean soldiers heading to war and refugees fleeing>

2. May 16 Military Coup and the Park Chung-hee Regime (1960s~1980s)

South Korea was being governed by Lee Seungman , who had served three consecutive terms as the first President of Korea. However, he was forced to resign due to election fraud on March 15, 1960. The opposition party took control for about a year, but on May 16, 1961, Park Chung-hee led a successful military coup.

He amended the constitution, allowing for changes to the National Assembly structure and up to three consecutive presidential terms. After his third term, Park’s government enhanced its control and centralized power by implementing unconstitutional emergency measures. He established a ruling body that grasped all three branches of the government, creating a full-fledged dictatorship. Park’s regime came to an end when he was assassinated by Kim Jae-kyu on October 26, 1979. And two months later, on December 12th, Chun Doo-hwan who was the military commander, seized power through a coup d’état

Despite being a military regime, Park Chung-hee’s government strengthened state-centered economic policies, such as the Five-Year Plans of South Korea. Focusing on heavy industries, South Korea nurtured its export industry and built social infrastructure. The country’s economy continued to grow, owing to special circumstance like the Vietnam War. In the 1970s, South Korea developed export-oriented heavy industries like steel, shipbuilding, and electronics. However, due to overinvestment and the Oil Crisis in 1970s, the international balance worsened, causing inflation and negative economic growth. To overcome these challenges, South Korea encouraged exports as well as construction and expansion in the Middle East.

Welcome Ceremony for Veterans from Vietnam War, 1973.03.20
<Welcome Ceremony for Veterans from Vietnam War, 1973.03.20>

This led to rapid economic growth, increased exports, and improved living standards, but increased dependence on foreign capital. Additionally, the nation’s economy became heavily focused on large enterprises revealing both the strengths and weaknesses of this approach. Chaebol, often depicted in Korean dramas, originated from the large enterprises of this era.

3. The Three Low Boom and the 1997 Asian Financial Crisis (1980s-1990s)

In the 1980s, the Chun Doo-hwan regime attempted to adjust the excessive investment in the petrochemical industry. They restructured insolvent companies and pushed for the opening of the financial market. After these structural adjustment, the role of large enterprises and Chaebols in the national economy expanded. Still, the economy was stabilized based on the three low commodity boom (low oil price, low dollar value, low-interest rate).

Japan, which successfully industrialized and achieved rapid growth, dominated the global market with competitive pricing due to the undervalued yen. The United States struck the Plaza Accord to raise the value of Japanese yen lower the dollar value. China also devalued the yuan with the tacit approval of the United States. Consequently, the increased value of the yen caused a significant decline in Japanese products’ competitiveness, making exports difficult. As a result, South Korea gained a price advantage over Japanese products, leading to a significant increase in exports.

The low-interest rate increased companiesinvestment capacity, low oil price resulted in cost-saving effects, and the low dollar value led to increased exports. Consequently, the Korean economy experienced an annual average growth of 12.1% from 1986 to 1988. It recorded first-ever surplus in the international balance.

However, the booming South Korea economy found itself crippled by large foreign debts. Although low interest rates encouraged borrowing, countries worldwide sought to recover their funds from Thailand and other Asian regions. It triggered the Asian Financial Crisis. The mid-1990s’ rise in US interest rates also inflicted damage.

Citizens protesting during the 1997 financial crisis
<Citizens protesting during the 1997 financial crisis>

4. Overcoming the Asian Financial Crisis and Economic Growth (2000s-2020s)

Rapid growth led to widespread moral decay and structural problems in society. South Korea has been addressing these issues step by step.
Initially, Korea secured foreign exchange liquidity by borrowing dollars from international organizations such as the IMF. And they negotiated the extension of short-term foreign debts amounting to 23 billion dollars.

Gold-collecting Campaign, South Korea, Jan-Apr 1998
<Gold-collecting Campaign, South Korea, Jan-Apr 1998>

During this time, approximately 3.51 million citizens voluntarily donated around 227 tons of gold to the country. Korean helped their government successfully conclude the foreign debt maturity extension negotiations (Gold-collecting Campaign). The government cut public spending by 8.1 trillion won ($6.75 billion), supplemented tax revenue by 430 billion won ($359 million), and maintained a strict fiscal policy. They also opened the doors to foreign investment, liberalizing land acquisition and investment from foreigners, fostering economic recovery and improving the current account balance. As a result, South Korea repaid its 19.5 billion dollars in IMF loans, three years earlier than planned, in August 2001.

Subsequently, South Korea transformed its industrial structure, centering on the manufacturing sector that focused on products such as semiconductors, automobiles, shipbuilding, steel, and home appliances. Experiencing growth as an export-oriented country, South Korea saw its growth rate diminish to 0.8% during the 2009 global financial crisis. However, based on experience from the previous financial crisis, they quickly responded, and the 2010 economy recovered with a growth rate of 6.8%. South Korea maintained a growth rate of around 3% from 2012 to 2018, resulting in a per capita GDP of about 33,000 dollars in 2023.

South Korea has developed through the above history, but after COVID-19, it is now facing various problems. Issues include a high degree of dependence on the Chinese economy, a high concentration in a few sectors that favor large corporations. Also, a uniquely low birth rate, aging population issues are leading to a decline in potential growth rates. It remains to be seen whether Korean society can overcome these challenges in the future, and the focus will be on seeing how they can navigate these issues.

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