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In 1992, the Korean economy rapidly cooled off, with the GNP growth rate dipping to 5.0 percent, influenced chiefly by blunted investment in capital goods. The consumer price index rose just 6.2 percent, and the deficit in the balance of payments also dropped to US$4.5 billion.

At that time, the Korean economy faced many challenges on both the internal and external fronts. Part of the economic slowdown may be explained by the cyclical adjustment of the economy after three consecutive years of rapid growth. However, the stagnation was more likely the result of a structural deterioration in competitiveness, due to a combination of the lingering legacies of the past government-led economic management system, which had now become inefficient, and the disappearance of the advantages derived from the once ample availability of low-cost labor: Thus the country was forced to search for a new driving force sufficient for sustained economic growth.

Major Tasks and Policy Directions

To revitalize the economy, the Kim Young Sam Administration, which was inaugurated in February 1993 as the first civilian democratic government in over three decades, is endeavoring to construct a new developmental paradigm called the New Economy. This signals a clean departure from the past, when the government directed and controlled the concentrated investment of capital, labor and other resources in selected strategic industrial sectors to achieve rapid economic growth. Instead, the New Economy will promote the autonomy and creativity of all economic actors in order to maximize efficiency, while ensuring the equitable distribution of income. In that way, it seeks to enable the nation to leap into the ranks of the developed nations within the next five years.

As an initial step, the new Administration implemented a short-term 100-Day Plan for the New Economy in March 1993, designed to promptly create conditions conductive to revitalizing the economy. This was followed by the development of a new five-year economic development plan. Formally announced in July 1993, the Five-Year Plan for the New Economy was conceived primarily to lay the basis for joining the ranks of advanced countries and thus to effectively prepare for the eventual unification of the Korean Peninsula.

The Government will continue its efforts to ensure the effective implementation of the five-year plan through the spontaneous participation of the people by reforming economic institutions including the improvement or simplification of existing financial and tax systems and administrative measures. Furthermore, the Government will continue to endeavor to fully realized the nations economic growth potential, strengthen its international competitiveness, and improve the economic conditions of the public.

If the plan is implemented as intended, the Korean economy is projected to change as follows:

First with increased efficiency and greater realization of growth potential, the gross national product should rise at an average annual rate of about 6.9 percent, raising per capita GNP to US$14,076 in 1998.

Second, greater price stability should prevail as balance is maintained between the more steadily rising demand and the more briskly expanding supply, while wage increases are linked to rises in productivity. The stabilization of the value of the won currency should help stabilize the prices of imported goods and services. The net effect should be to hold down the rise in consumer prices to an annual average of 3.7 percent, the increase in producer prices to an annual average of 1.6 percent and the rise in the GNP deflator to an annual average of 4.6 percent.

Targets of the 5-Year Plan for the New Economy

91

92

93

94

95

96

97

98

93-98

GNP growth, %

8.4

4.7

6.0

7.1

7.2

7.1

7.0

7.0

6.9

Per capita GNP, US$

6,518

6,749

7,306

8,196

9,339

10,716

12,305

14,076

14,0762)

Rise in producer prices, %

4.7

2.2

1.8

1.8

1.7

1.6

1.5

1.4

1.6

Rise in consumer prices, %

9.3

6.2

4.9

4.3

3.7

3.6

3.2

2.9

3.7

Rise in GNP deflator, %

11.2

6.3

5.3

5.3

4.8

4.5

4.1

3.8

4.6

Balance on curren account,

8.7

4.6

1.4

0

0.9

2.1

3.7

5.3

5.32)

US$ billion

Exports 1) ,US$ billion

69.6

75.1

82.3

82.3

99.3

110.1

122.6

136.3

136.32)

Rate of increase, %

(10.2)

(7.9)

(9.5)

(9.5)

(10.2)

(10.9)

(11.3)

(11.2)

(10.4)

Imports, US$ billion

76.6

77.3

81.3

81.3

95.8

105.3

116.1

128.1

128.12)

Rate of increase, %

(17.5)

(1.0)

(5.1)

(5.1)

(9.3)

(9.9)

(10.2)

(10.3)

(8.8)