FEBRUARY 1982 - VOLUME 3 - NUMBER 2
South Korea Gets a Loan, and Policy Directives, from the World Bank
South Korea received a $250 million "structural adjustment loan" from the World Bank on December 21, a move by the multilateral lending institution intended to shore up Korea's faltering economy and at the same time to open it even further to foreign investments.
Over the past two years, the World Bank has assumed an increasingly active role in lending to alleviate balance of payments problems - traditionally the domain of the International Monetary Fund (IMF). The South Korea package is no different.
"Aimed at keeping the balance of payments manageable while restoring the growth momentum of the economy," the loan is designed, the World Bank said, to offset Korea's rising oil import bill, which jumped from $2.3 billion in 1978 to $6.2 billion in 1980.
Like the 11 other countries - all U.S. allies - that have received structural adjustment loans from the' World Bank since Robert McNamara introduced the program in 1980, Korea, by accepting the loan, has accepted the Bank's economic strategy of export-oriented growth.
"The loan supports the ' government's policy of reducing its intervention in the economy," the World Bank explained, "in order to give greater play to market forces. Specifically, the World Bank expects Korea to adopt three economic measures typical of IMF austerity programs: loosening exchange rates, restraining wage rate increases, and sharply increasing domestic energy prices.
This World Bank prescription is critically flawed, some Korea experts say. "The economy is so outwardly-oriented now," says Pharis Harvey, director of the North American coalition for human rights in Korea, that local production for domestic consumption "has flagged completely." Noting that this export-orientation has made 'Korea vulnerable both to competition from other outward-looking countries such as Malaysia, Hong Kong, Singapore and Taiwan, and to Western protectionist measures. The World Bank strategy, rather than helping to solve the country's economic crisis, is actually "the source of the crisis," Harvey says.
The structural adjustment loan will "mainly give a greater play to foreign manufacturing" in "the export sector," says Tim Shorrock, Korea specialist with the San Francisco-based Pacific Asia Resource Center. This will shift capital away from domestic producers, who need the most help, according to Shorrock. "They are really suffering," says Shorrock; "they are losing a lot of money." As a result of the loan, these local firms that produce for the domestic market "will probably do worse."