Back to bootstraps after tripping over its own shoelaces

There was an obvious touch of pride in the voice of a senior businessman as he philosophized about South Korea's recent history.

''If you look back over the past 30 years, there isn't a single problem we haven't faced.

''We have survived communist invasion and a war that destroyed everything. We survived the toppling of a president by student riots, military coups, constant communist infiltration, assassination of another president, civil insurrection in our cities, and then a disastrous economic slump at the worst psychological moment.

''But I am convinced now we Koreans have become inoculated against problems. We have come through them all with our people and economy stronger than ever.''

Many Koreans would probably be a bit more cautious than this. They have had a bad scare in the past couple of years and confidence is only just returning.

One chapter in Korea's turbulent struggle for survival was closed in 1979, when an assassin's bullet ended 18 years of iron rule by President Park Chung Hee.

Admittedly, President Park was a man who didn't know how to loosen his grip on the reins of power. But he did preside over the economic transformation of a backward, debt-ridden agricultural society, propped up by American arms and dollars, into a modern industrial state and the world's 17th-largest trading power.

But the vacuum left by his death almost proved Korea's undoing. A civilian government was unable to keep the lid on popular demand for more political freedom and democracy, causing considerable unease in military circles.

Rising expectations, especially among students, led to an explosion of violence centered on Kwangju in May 1980. Suddenly, Korea found itself once again with a military ruler -- Gen. Chun Doo Hwan, a Vietnam war veteran.

At the same time, the economy was going into a tailspin. Business confidence collapsed as inflation brought domestic spending virtually to a halt. Hundreds of firms went bankrupt, and unemployment soared.

The statistics tell the whole story of that bad year: a GNP decline of 5.7 percent after two decades of unbroken double-digit growth, a 36 percent currency devaluation, 43 percent inflation, and a 100 percent oil-price rise. Then the coldest summer on record crippled the crucial rice harvest.

But some observers say South Korea's economy would have been in serious straits even if Park hadn't been killed.

But Kun Hee Lee, vice-chairman of the Samsung group of companies, says, ''In 1978 and 1979 the country was on the verge of economic collapse as the machinery of our then predominant light industries wore out and the government tried to solve everything by leaping straight into heavy industry in a total restructuring of the economy.

''But the effort was made too fast, without adequate preparation or understanding of the problems involved. So, quite frankly, we tripped over our own shoelaces.''

A government economist admits: ''Yes, I think we did make some very serious mistakes. The shift in emphasis was the right choice, but we erred in our economic management. But we have now learned our lessons properly.''

The new five-year plan for 1982-86 just launched, he explained, was designed to steer Korea away from past mistakes. ''We are now moving from a high-growth, high-inflation country to a high-growth, low-inflation one.''

Wonders have already been performed. At the first of last year, the government was merely hoping to haul inflation down below an unprecedented 20 percent.

The final result -- 12 percent -- astonished everyone. One bank put out a sign declaring: ''We no longer live on inflation.'' The government wants to get the rate below 10 percent this year.

Another bright spot has been the International Olympic Committee's decision to hold the 1988 games in Seoul. It's a great honor (South Korea will be the first developing country to be host to the Olympics) which the country is able to afford only because the games are being firmly incorporated into the nation's overall economic development.

Sakong Il, senior counselor to the economic planning minister, sees three main reasons for last year's good performance:

* International raw material prices stabilized or even dropped, a big consideration for Korea, so heavily dependent on imports.

* There was a record harvest, so that basic food prices also stabilized.

* Top priority was given in all the government's economic policies to curbing inflation. This included a campaign to warn Koreans of the danger of continued runaway price increases, especially through excessive wage demands.

Wages last year increased around 18 percent, compared with the 30-plus percent won by labor in the high-growth 1970s.

Both workers and management are now under strong government pressure to hold wages down.

The government's aim is to hold wages down to a nominal 10 to 12 percent this year, and results so far have been encouraging -- some major buisness groups such as Hyundai have managed to negotiate a Spartan 7 percent.

Foreign economic analysts tend to agree that this is possible mainly because the average Korean worker can see, for the first time in many years, that the spending power of his wage packet is not being eroded. In fact, there has been a slight gain.

This feeling is cited as one of the biggest successes of the year-old Fifth Republic inaugurated by President Chun.

Diplomatic analysts argue President Chun, under his year-old Fifth Republic, has had to work hard on the economic front to offset his lack of popular political support. Said one: ''(President) Park never tried to win popularity contests like this man (Chun) is doing.

''Many people had hopes for more political freedom when Park went, but Chun's appearance frustrated this. To keep political temperatures below the boiling point, therefore, he has to produce some solid economic successes.''

Last year was spent clawing back the economic ground lost in 1980. This year is supposed to be the start of the new takeoff. Two sectors will carry the burden as they did last year -- the farmers and exporters who contributed all of last year's 7 percent GNP growth.

Exports are expected to expand from almost $21 billion to $25 billion. The farmers are also expected to stimulate consumer spending with their extra income from last year's big harvest. Many observers, however, say that the farmers are more likely to be using the extra cash to pay off heavy debts incurred during 1980.

Analysts also say the entire government scenario for this year is based on very uncertain ground. It depends on continued stable oil prices. And if the world recession doesn't ease soon, Korean export targets might be hard to achieve.

In this corner of the globe known as the ''cockpit for big-power confrontation,'' the United States is regarded as vital to success or failure.

While government officials are delighted with President Reagan's strong commitment to Korean defense -- after the US troop withdrawal threatened by his predecessor -- they, and the business community, are extremely anxious about his economic policies.

With the US taking a quarter of Korean exports, as well as having a considerable influence on the economies of other big Korean customers (e.g., Western Europe), everyone in Seoul has fingers crossed for a strong upturn in the American economy and a strong downturn in interest rates.

Unemployment has eased a bit, but the current rate of 4.8 percent is regarded by many as masking considerable underemployment. Companies are pressured to retain unwanted workers for the sake of social stability.

There are strong political considerations involved in this. The government argues that political and social instability like 1980's will destroy the economic underpinnings and leave Korea vulnerable to communist takeover.

An image of gradual relaxation is being fostered by the government. The midnight-to-4 a.m. curfew in force since the Korean war has been lifted, although the only practical value of the step was in allowing factories to move to round-the-clock operation.

Restrictions on overseas travel are gradually being eased. To save money and avoid a ''brain drain,'' previous governments made it hard for Koreans to travel abroad. Tourism was allowed only for retired couples. But officials say that within a couple of years holidays abroad will be allowed for everyone.

With an eye on campus unrest, officials have eased the school dress code and strict hairstyle requirements. But the slightest hint of dissent is quickly stamped out by security police. And the jails and harsh reeducation camps have no shortage of dissident guests.

There was relief in Seoul when President Reagan replaced President Carter, as the latter's continual harping on the issue of human rights was proving a major embarrassment.

But that relief might be premature. Late last year, US Ambassador Richard Walker made a speech in Seoul that indicated Washington has not forgotten about the issue.

The envoy was careful to acknowledge Southern fears that disunity could tempt an attack by the 700,000 troops the communist North is supposed to have poised near the demilitarized zone.

But he asked: ''How can we maintain security against totalitarian practices in the North without succumbing to the mirror-image trap? Given the zone of silence in the North, it becomes doubly important to sustain freedom of expression and freedom of exchange of ideas in (the South).''

And more recently, Vice-President George Bush was restrained in his praise of President Chun while on a visit to South Korea, and even found time to meet with dissidents.

Seoul argues that freedom of expression will come as the nation achieves more political security. But this requires strong economic and social underpinnings, which are the main thrusts of the current five-year development plan.

The program is bullish on economic prospects, projecting 7 to 8 percent annual real economic growth, monetary stability, and a more free-market-oriented economic system.

By 1986, the per capita GNP is forecast to rise to $2,170, from last year's $ 1,636 (and from $82 when Park seized power in 1961).

Exports are scheduled to more than double. Korea, with its outstanding credit rating, remains a big borrower of foreign funds to promote its economic development. Its current level of borrowing -- about $7 billion a year overseas -- will be maintained in 1982.

The total foreign debt stands at around $30 billion, with debt service running about $4.7 billion a year. But there is a strong commitment to eliminating this reliance on foreign credit.

A senior government economist says: ''In 5 or 10 years at most I believe we will have a current-account surplus. Our savings rate will have gone up enough so we won't need to borrow overseas (from 12 percent in 1966, the savings rate has increased to a current 26 percent) and can sustain necessary new industrial investment from our own resources.''

Everyone believes the next few years will be extremely hectic. There is an acute housing shortage to be overcome. Communications and transportation networks have to be drastically improved. People must be dispersed from Seoul, which with a quarter of the national population is within the range of North Korean artillery. More equitable distribution of national income is also needed.

A senior minister sighs: ''We seem to be on one of those motorized treadmills for joggers. It is running at top speed, and if we try to slow down or stop for a breather we will be thrown off.

''But I think that in a few years everything will work out OK and we can look back and feel the political and economic sacrifices now being demanded will have been worthwhile.''