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Paradigm Shift towards Stabilization

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Paradigm Shift towards Stabilization06



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Title Paradigm Shift towards Stabilization
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Material Type Report
Date 2015
Language Korean
File Type Theme
Subject Economy < Macroeconomics
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Abstract

Sub-Theme 2 | Paradigm Shift towards Stabilization





Chronic inflation, among the many problems, became the central concern of leading policy makers. Yet, explicitly recognizing its true causes and thereby designing proper policy reactions were not easy since it was closely intertwined with the government-led development strategy. Chronic inflation was a result of loose monetary policy, which was mobilized to support the HCI drive. In other words, controlling inflation would require a paradigm shift out of the existing policy framework.



The idea of stabilization policy based on a new economic system was growing among the younger generations of government officials. Yet, its political implication would essentially be a challenge on the unquestioned economic strategy strongly pursued by President Park. ##3D_LAYER##[Note]##3D_TEXT:See Chapter 3 of the full paper for detailed discussion on the conflicts between young reform-minded government officials at the Economic Planning Board and existing high-ranked officials including President Park. ##3D_LINK:https://www.kdevelopedia.org/Resources/economy/korea-s-stabilization-policies-1980s--04201306110126627.do##3D_LAYER_END## Although the critical economic situation in the late 1970s pushed the president to unwillingly approve a stabilization policy program, the government stuck to rather piecemeal policies to temporarily lessen the pressure of high inflation, while major policy directions were not changed.



It was after the leadership change that the new policies were fully implemented.  President Chun, who took power after President Park’s assassination in 1979, gave bottomless trust to Kim, Jae-ik, his economic advisor. As one of the core members pushing for a new economic system, Kim convinced President Chun of how desperately the Korean economy needed decisive stabilization policies. The Comprehensive Economic Stabilization Program (CESP) was finally launched in the early 1980s.



A revolutionary departure of the CESP from the previous economic development Strategies faced fierce resistance from various interest groups, not just the private sector that used to benefit from preferential loans but also the government ministries that had exercised policy discretion. ##MORE_LAYER_BOX## For example, one of the main contents of the CESP was relaxing policy-loan decisions targeting strategically chosen private business sectors. This departure alone created a great deal of opposition from the Ministry of Finance in charge of allocating policy-loans. However, the strong support of President Chun, another dictator, suppressed the oppositions, maintaining political momentum of the CESP. ##MORE_LAYER_BOX_END##