By Michel Camdessus
Managing Director
International Monetary Fund
Two years ago, Korea stood on the brink of economic disaster as it was caught up in the tide of contagion that swept across Asia.
One year ago, the global economy itself was in a precarious situation, shaken by new crises in other corners of the world. But by that time, it was
already possible to detect a glimmer of hope, and quite plausible that Korea and its neighbors could show the way out of crisis. How true that has
proven.
With each passing month, we see ever more encouraging indicators of the speed and vitality of Korea's recovery, clear evidence that the policies
adopted in response to the crisis were correct. During 1999, unemployment has fallen sharply, and recent statistics show that Korea is well on its
way to realizing 9 percent growth this year. Output is now above pre-crisis levels.
Other Asian countries are also on the mend. For the region as a whole, the IMF now estimates that growth for this year will reach more than 4
percent. That is some 1½ percentage points higher than the mid-year estimates, thanks in part to Japan's improving performance.
Reforms that have been initiated during the past tow years have not only helped not only helped spark the recovery; they have paved the way for
continued strong progress in Korea and the other Asian crisis countries. While there is still considerable work to be done in the area of
financial-sector and corporate restructuring, there is no quiestion that the remarkable courage exhibited by the Korean people and the Korean
government has laid the foundations for future prosperity.
No account of Korea's determined response would be complete without a tribute to President Kim Dae-Jung. His call for reform reflected a
comprehensive grasp of the economic challenges faced by the Korean nation. But it also included a commitment to social welfare, educational
reform, corporate reform and promotion of foreign investment. What was most striking was President Kim's emphasis on national unity, inspired
by dialogue and participatory democracy.
This concept of reform is central to the strategy we must continue to promote around the world. Policy making cannot be divided into different
compartments-macroeconomics is part of an integral whole.
There are several elements to a multidimensional policy designed to prevent crises. It is essential to promote the free market and outward-oriented
economic policies, along with high saving rates and investment in physical and human capital. But that is not enough. It also is important to
establish sound economic, social and political institutions-which is to say, a web of laws, regulations, standards, codes and norms of conduct that
support efficient markets. One of the key lessons of the Asian crisis is that the liberalization of markets and international capital flows must be
supported by well-run financial systems and high standards of transparency and governance.
However, policy content alone does not guarantee the successful response to a crisis. Without popular support, there can be little hope of
success. Korea's response to the Asian crisis underlines the value of national "ownership" of policies. The country sought-and achieved-a
participatory approach that engaged civil society in a constructive dialogue. The tripartite accord agreed by labor, business, and government in
February 1998 was a landmark event in Korea's recovery. Equally, the unity that was established across interest groups and across regions was
an invaluable asset that should not be given up.
The unity was maintained, in part, by ensuring that the policy response did not lose sight of the human side of the crisis. The focus on social safety
nets early in the crisis helped alleviate suffering among the most vulnerable members of Korean society-and ensured that broad-based support for
the reform agenda. Maintaining that level of support remains vital even though the worst of the crisis is past. As the events of the past few months
surrounding the Daewoo Group demonstrate, a great deal is left to be accomplished in the realm of financial-sector and corporate reform.
A sound financial sector-well regulated, well supervised, well managed and competitive-is indispensable to sustaining the recovery and reducing
the risk of new crises. Impressive steps have been made already, but more is needed. An extensive agenda also remains for the corporate sector
to improve its financial condition, competitiveness, and governance.
Korea has met the reform challenge every step of the way. Sound institutions-accompanied by the development of mature relationships among
market participants-are at the core of structural reform. Korea now faces the task of practicing what is already recognized as essential; a new set
of attitudes, and an arm's length relationship between government and corporations. Moreover, there is an expectation that private investors
should be responsible for assessing opportunities and risk, and that they accept the consequences of their decision.
Fortunately, Korea faces the challenge of completing there reforms at a time when the economic prospects are looking very favorable. This augurs
well for the final success, because people who have paid such a high price for these early achievements will not fall into the temptation to relax
prematurely their efforts for reform. But recovery inevitably will be accompanied by this temptation.
Of course, we can anticipate now that something in the near future, inevitably, strong growth will raise the risk of "overheating," and there will be a
need to re-examine Korea's policy mix. We can trust the authorities to react promptly to such risk; for example, through a tighter fiscal stance.
At a time like this, reform must remain a central concern, and I have no doubt that Koreans from all walks of life understand this. The response to
the turbulence of the past two years inspires great confidence that Korea will persevere.
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