Challenges Faced by Korean Economy and Implications for Madagascar's Development Efforts

1. Challenges and Tasks Faced by Korean Economy Implications for Madagascar’s Development Efforts In-Ho Kim (Republic of Korea)

2. I Korean Economy achieved great success under government-led export-oriented industrialization during the 60s and 70s. History of the Korean Economic development is series of challenges and efforts to overcome them The History of the Korean Economy’s Crises and Challenges But faced many hardship along the way: • The Korean War (1950) • First Oil Crisis (1971) • Second Oil Crisis and Political Instability (1980) • Democratization and Labor-Management Conflicts (1987) • Finacial Crisis (1997) 1

3. II Shortcomings of Korean Development Model Government-led Investment Decision & Resource Allocation 1 Government Decided Investment Priority and Selected Winners  Market Intervention Through Industrial & Financial Policies Need to Reassess Government’s Role & Function in the Changing Economic Environment  Inability to adjust to New Global Economic Order( i.e WTO)  Unhealthy relationship between gevernment and business 2

4. Over-investment in Heavy and Chemical Industries 2  Ecnonomic & Business Management Overly enthusiastic for growth  Chronic Trade (BOP) Deficit  Decreased Profitability weakened business balance sheet  Relying heavily on External Debt and External Demand resulted in Current Account Deficit  Uneven Development among sectors and industries 3

5. Corruption and Crony Capitalism 3 Government Over-Involvement and “Korea, Inc.”  Corruption & Crony Capitalism impeded transition toward market-based economy  Political System Unmatched Economic Development: which resulted in decrease of Economic Efficiency Negative impact of government’s over-involvement in the market  Low level of trasparency decreased confidence of foreigh investors 4

6. III Issues to be Resolved for Continued Economic Development Need to open non-competitive industries such as agriculture 1 • World-class manufacturing and information industries vs. traditional industries • Need for continued opening and fundamental restructuring of traditional industries • Difficulties in nurturing domestic social cohesion • Resultant Conflicts with international community • Need for economic management consistent with global standards 5

7. Financial Reforms 2 • Significance of finance in achieving further economic development • Launching financial reform before and after the ‘97 Financial Crisis • Continued reforms in the financial industry increased profitability • Lack of market mechanism and unhealthy relationship between government and finacial industry • Need to restructure the financial market to increase competitiveness 6

8. Consistency between Economic and other related policies 3 • Most pressing issue: Reconciling the principles of the economy with operational principles of non-economic sectors • Inefficiency due to Discord with labor-management relations, social welfare, healthcare, and education • Improvement impeded by poor leadership and opposing interest groups • Dialogue with citizenry and sound political leadership needed 7

9. Globalization and Adopting Global Standards 4 • Need to actively adopt global economic standards • Stabilizing the principles of the Market Economy – Essential for Continuous Development • True competitiveness Attainable only under competitive market structure • Changes Required: shift in public perception, reform of government’s role, and political leadership 8

10. The Role and Function of the Government 5 • The government’s role during the early stages of development no longer sustainable • Such a role would hinder efforts for globalization and market economy stabilization • Government reform must start with the questions of what to do and what not to do • Despite efforts made after the financial crisis, need for fundamental reforms still remains 9

11. How Madagascar’s Development Efforts Can Gain from Korea’s Experience IV The Government simultaneously a problem-solving entity and problem itself 1 • Role of government is to evolve according to the pace of development • Strong government forces weaken the market and the economy’s structure of competition • Need to reflect on the government’s role and its relationship to the market • Trade-off between Corruption and Government-driven economic development • Strong leadership by example necessary for eradicating corruption 10

12. Market Economy Structure and National Leadership 2 • Adopting a market economy essential for economic success • Determined national leadership necessary for economic success • Specific program development needed to change the perception of political leaders, media, intellectuals, and the citizens 11

13. The importance of globalization and the necessary national leadership 3 • Appropriate economic system as well as cooperation and assistance from the international community needed for efficient economic development • External competition is necessary to strengthen the economy’s competitiveness; however, may cause internal problems • Implementation of advanced policy reform by a strong national leadership needed in pursuit of globalization 12

14. Relationship between strong administration and Congress 4 • Political democratization required for adoption of market economy and international cooperation • Powerful administration (President) may result in conflict with Congress during early stages of development • In the case of Korea, policy implementation driven by the administration was effective after the military coup, but often resulted in dictatorial rule • Desire for democratization along with the economic development caused economic instability and slow-down of development • Democratization and sound relationship with Congress required since it is not feasible for the administration to act alone • Understanding and cooperation from politicians, including Congress, needed for smooth policy implementation 13