The journey to industrialization began in the early 1960s
with the introduction of First Five-Year Economic Development Plan. It was at
this point that the government made a conscious policy shift from the inward-looking
growth strategy of import substitution to the outward-looking growth strategy
of export promotion. The essence of growth strategy was to promote exports of
light manufactured goods in which Korea possessed comparative advantage given
its cheap labor cost. The government utilized various macroeconomic mechanisms
at its disposal in implementing this strategy, such as maintaining high interest
rates to mobilize domestic savings, and enacting the Foreign Capital Promotion
Act to encourage the inflow of foreign investment.
In order to promote exports, the government also devalued the currency by nearly
100% and replaced the previous multiple exchange rate system with a unified
exchange rate. It also provided short-term export financing, allowed tariff
rebates on materials imported for re-export use, and simplified customs procedures.
This new strategy of economic development also affected the government's view
toward imports.
Realizing that it was insufficient for Korea to insist on self-sufficiency in
major grains, the government allowed large quantity of grain to be imported
for the first time.
The government's export promotion strategy did not receive warm acceptance at
first. Conservative economists argued that such strategy would endanger national
independence through excessive reliance on foreign capital. Indeed, foreign
capital made up 83% of total Korean investment in 1962, and it was not until
late in the decade that Korea raised its exports enough to attain a credible
foreign debt servicing capability.
Yet, the alternatives were even less acceptable. During the 1950s, Korea had
depended on grant-in-aid and concessionary public loans, mainly from the United
States, which financed imports and domestic projects. |