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South Korea The Postwar Economy
The war had destroyed most of South Korea's production
facilities. The South Korean government began rehabilitation as
soon as the battle zone near the thirty-eighth parallel
stabilized in 1952. The United Nations Korean Reconstruction
Agency and members of the UN, principally the United States, also
provided badly needed financial assistance. Seoul depended
heavily on foreign aid, not only for defense, but also for other
expenditures. Foreign aid constituted a third of total budget in
1954, rose to 58.4 percent in 1956, and was approximately 38
percent of the budget in 1960. The first annual United States
economic aid bill after the armistice was US$200 million; aid
peaked at US$365 million in 1956 and was then maintained at the
US$200 million level annually until the mid-1960s.
The scarcity of raw materials and the need to maintain a
large army caused a high rate of inflation, but by 1958 prices
had stabilized. The government also intensified its effort to
increase industrial production, emphasizing power generation and
textile and cement production. In order to reduce dependence on
imports, such principal items as fertilizer and steel began to be
produced domestically.
The average rise in the gross national product
(GNP--see Glossary)
was 5.5 percent from 1954 through 1958. Industrial
production led the advance, growing by nearly 14 percent per
year. The tightening of fiscal and monetary policies in 1958,
coupled with the phasing out of the United Nations Korean
Reconstruction Agency program and the reduction in direct aid
from the United States in 1957, caused a shortage of raw
materials for import-dependent industries and led to an overall
economic decline. By 1958 Liberal Party leaders paid more
attention to political survival than to economic development. The
government adopted a comprehensive Seven-Year Economic
Development Plan in January 1960, but before the plan could be
implemented, the student revolution brought down the government.
Data as of June 1990
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