Pain, Then Gain for S. Korea

The accelerated aid plan for South Korea devised by the International Monetary Fund, the United States and other major industrialized countries aims above all else at restoring investor confidence in an economy that, however battered it appears right now, remains fundamentally strong. The gratifying early signs are that the move is proving effective.

American and Japanese banks, for example, seem ready to offer easier conditions for much of the estimated $30 billion to $40 billion in short-term loans that are coming due. Easing the possibility of default by South Korean banks should help encourage other investors in that country’s still-expanding economy to stay put. So should the reforms that Seoul has agreed to adopt in return for the nearly $60 billion in aid it seeks. These include allowing foreign ownership of Korean companies, ending certain import restrictions and accepting increased unemployment as the economy shifts to a more rational, market-based footing.

The approximately $10 billion in the speeded-up rescue package includes $2 billion from the IMF and $1.7 billion from the U.S. exchange stabilization fund, disbursements from which do not need congressional approval. These are loans, not gifts, and there is no reason to doubt they will be repaid.

Treasury Secretary Robert Rubin, in announcing the accelerated loan schedule, rightly emphasized the American interest in helping South Korea weather its greatest economic crisis since the Korean War. South Korea is a major trading partner and an increasingly important player in the global economy; it is also a strategic ally on whose soil are stationed 37,000 U.S troops. Instability there, economic or political, is always a cause for concern, if only because the weakness or confusion it might seem to suggest could dangerously tempt North Korea to try to gain some military advantage.

A sense of urgency has prompted the speeded-up aid effort, and South Korea’s leaders must be similarly prompt in meeting their responsibilities. The traditional ways of conducting business affairs in Korea--not least the often wasteful and corrupt favoritism shown the politically well-connected conglomerates--has to end if its economy is to meet the challenges of the 21st century. The present crisis is an opportunity for forcing change that will be painful in the short run but vital for Korea’s future economic health.