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lowers, “who believed U.S. [policymakers would] have to go along with anything which they [might] do,” making Berger take “pains to prove them wrong.”36
With Kim Chong-p’il’s faction back in power, Park announced his entry into the coming presidential election, now scheduled for October 15. The election was held as planned, and the result was surprising. Park’s margin of victory over Yun Po-sôn was merely 150,000 votes (1.4 percent of the total), and Yun received more votes from the military than did Park. The close race had the effect of proving that the election process was generally free of fraud, unlike during that of the Rhee regime, and of legitimizing Park’s continued rule. The State Department recognized that the election was held “in [an] orderly manner.”37 The general elections in November ran contrary to the U.S. embassy’s prediction of an opposition comeback, and provided the DRP with an overwhelming majority in the National Assembly (110 out of 175 seats). Although the winner-take-all simple-plurality system of single-member districts, coupled with the skewed allocation of additional “party-list” seats to the political party with the most votes, helped immensely in giving the DRP its large majority, the fact that the DRP received the single largest chunk of votes among the political parties was more than enough to demoralize the civilian opposition and legitimize Park’s military-turned-civilian ruling coalition.38 The worst days of political instability seemed to be over, although the expected return of Kim Chong-p’il from his “exile” worried the United States.39
Economy: Development Plan
Immediately after the coup, the military junta had launched a long-term economic development plan, the first of its kind in the nation’s history, which eventually led to the so-called Miracle on the Han River. The state-led development policy was designed not only to legitimize Park’s political rule but also to help the coup leaders, including Park, gain recognition from the United States as nation rebuilders. Given the enormous power and presence of the United States in the political economy of South Korea during the 1960s, it can readily be inferred that the United States was deeply involved in the making of the first Five-Year Economic Development Plan (FYEDP) and especially the reforms required to implement it.
Yet it is wrong to assume that the U.S. role in economic planning was always constructive. Sometimes it was; at other times it was not. What is beyond doubt, however, is that Park’s political ascendancy in the early 1960s coincided with or was closely preceded by the change in U.S. aid policy. The interest in economic issues rose simultaneously on both sides of
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the Pacific as the allies tried to tackle the same challenge of making the Republic a self-sustaining polity. The heightened U.S. interest in economic growth was well reflected in a memorandum drawn up by Robert Komer, an NSC staffer, in the immediate aftermath of the Korean task force report of June 5, 1961. In the memo, sent to the special assistant to the president for national security affairs, McGeorge Bundy, on June 12, under the title
“Relative Priority of Military vs. Reconstruction Focus in Korea,” Komer argued that “one of the basic reasons why [the United States] had accomplished so little in [South] Korea since 1953 [has been the] predominantly military focus” of U.S. policy. He continued: We have spent more money on MAP [the Military Assistance Program] 1953–
60 than on the domestic economy. This mal-focus arose largely from the fiction that there was only a truce on the “38th parallel” and that hostilities might reopen at any time. As a result, we did little more than keep the economy afloat, while focusing our main effort on maintaining very substantial ROK forces. . . . Given all these deterrent[s], the risk of the ROK being attacked again is far less than that of its being subverted because of internal weakness. The North Koreans are already beginning to play the siren song of reunification, and it may have increasing appeal in a weak and disunited south. If South Korea goes, it will go this route and not that of local war.40
Komer’s proposal was that “a gradual cut in ROK [military] forces to around 14 and ultimately 12 divisions would still give the [Allied forces]
quite a deterrent, and free substantial resources to meet the real problems facing [the United States] in the ROK.”41
The shift in U.S. aid policy had been in the making since the late 1950s, and it came as part of the larger change occurring in U.S. global aid policy.
First, the authority to process and release aid money was transferred from the UN Command to the U.S. ambassador, reflecting the growing U.S. intention to use aid for nonmilitary purposes. In particular, the United States began trying to link the release of aid money to the implementation of economic reform and development planning by the aid recipient, as reflected in the “Dillon Letter” of October 1960. The objective was to generate self-sustaining economic growth so that the United States could progressively reduce its burden of economic support and reverse its trend of trade deficit. This turn in aid policy met with an unexpected political backlash in South Korea, where the tight control by the United States over the use of aid money was criticized as violating South Korea’s national sovereignty. Moreover, the reduction of U.S. aid worsened South Korea’s economic plight. But despite these negative consequences, the change in U.S.
aid policy persuaded even the ineffective Chang Myôn government to pre-
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pare an economic development plan that was to become a cornerstone of the military junta’s first FYEDP.
Shortly after the coup, the United States formed a new country team on South Korea and appointed Ambassador Berger to lead it. Having been trained in economics, Berger understood the discipline “better than most ambassadors” and oversaw the refocus of South Korea aid policy.42 The organization of USOM was to be overhauled by its newly appointed director, James Killen. Under his leadership the USOM cut its personnel by half and became more efficient. Initially, the new country team was optimistic about its economic mission. Berger was encouraged by a series of reforms being undertaken by the junta parallel to its aid donor’s own reforms.
Deeply impressed by the junta’s pursuit of economic reform with “energy, earnestness, determination and imagination,” Berger reported:
[It] is . . . a genuine revolution from the top trying to introduce sweeping reforms of a most fundamental kind. Projects of reform long talked about or under actual consideration by previous governments are becoming realities in banking and credit policy, foreign trade, increased public works for unemployed, agriculture, trade union organization, education, public administration, social welfare . . . and other fields. Others while well-intentioned have been too hastily developed or are poorly implemented. Some of these latter have already undergone correction, for government, at least in some cases, is prepared to admit and correct mistakes.43
Nevertheless, it was not until 1965 that the United States began to provide full-fledged support for South Korea’s economic development program with long-term investment funds. A number of factors discouraged such support earlier. First, as Komer complained in his memo to Bundy, the idea of shifting U.S. aid policy from military to economic programs and freeing South Korean resources for the task of economic development through a reduction in the South Korean armed forces encountered strong resistance from the U.S. military establishment, particularly its Joint Chiefs of Staff. Second, the State Department and the ambassador became increasingly wary of the intentions of the junta, particularly of the young, hardcore element led by Kim Chong-p’il, as its members engaged in economically reckless shock therapies. Washington expressed its concern as early as 1961. Robert Johnson, an NSC staffer who was part of the South Korean task force, wrote:
In the case of the old Chang Myôn regime we were more confident about its good intentions than about its political capabilities. In the case of the new military regime we are somewhat more confident about capabilities, at least
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ed by the United States 75
to initiate reform measures, and less confident of intentions. Thus the strategy outlined in the report is one designed to elicit indications of the purposes of the new group and its willingness to act and to give the ambassador considerable discretion in determining when performance merits responsive action on our part.44
Third, many of the economic plans and initiatives drawn up by the military junta were met with skepticism in Washington, thus preventing Berger from backing Park with resources. The first FYEDP announced in January 1962 was regarded by Washington as rash and infeasible. The plan called for constructing a self-reliant economy through inward-looking import-substitution industrialization and identified the creation of heavy and chemical industries as the engine for growth. The first FYEDP also set an annual growth rate of more than 7 percent as the target goal. The objectives were set without due consideration of South Korea’s short supply of capital and technology. Nor did the plan take into account the political uncertainty and instability that prevented big business from undertaking long-term investments.45
The economic projects, initiatives, and scandals of 1962 further deepened U.S. worries over the soundness of the military government’s economic policy. While inflation soared, the military junta kept pursuing expansionary monetary policy and looked for foreign investors in ambitious projects such as the Ulsan Industrial Complex. The failure to secure foreign investors led the junta not to a critical review of the developmental strategy, but to a series of dangerous schemes to mobilize domestic capital that only resulted in economic disaster by mid-1962. In the beginning, the junta tried the conventional method of interest rate manipulation to increase national savings. When the policy brought inflation rather than investment, the junta took the more adventurous path of manipulating the stock market not only to secure capital for industrialization but also, as we have seen, to finance the organization of what later became the DRP. The stock market not only crashed within six months, but also brought a crisis of confidence in the junta when the press reported that the KCIA was behind the massive fraudulent rigging of stock prices.
On June 10, 1962, the SCNR passed its Emergency Measure on Currency Reform, which changed the currency unit from hwan to won by a conversion ratio of 10 to 1. The measure blocked individuals from withdrawing money above administratively set upper ceilings. The excess money was to be frozen and used for state-designated investment projects.
Six days later, the SCNR legislated another emergency law, which forced individuals to “purchase” stock in the Korea Industrial Development Cor-
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poration (KIDC), a newly established state developmental company, with their frozen funds.46 The funds channeled to KIDC through the money-stock swap were to be spent on HCI. This shock therapy was tried in order to force money that South Koreans and ethnic Chinese residents had supposedly hoarded in their closets into banks and then into ambitious industrialization projects. The measure only discredited the military junta when it was revealed that there was no hoarded money on the scale imagined by Kim Chong-p’il’s mainstream faction. Park was forced to rescind both emergency measures when the United States accused him of transforming South Korea into a socialist economy. But the damage was done. The shock therapy shook up the monetary system and aggravated inflation, bringing the weak South Korean economy to the brink of collapse.
Most of these unorthodox economic actions were undertaken without consulting the United States. The currency conversion was deliberately kept secret from the U.S. embassy until 48 hours before it was implemented. Washington was upset by this incident, and deputy assistant secretary of state Edward Rice called in the South Korean ambassador to the United States, Chông Il-gwôn, to complain that the South Korean government “unfortunately seemed to have taken the path of non-consultation. If the United States was to be helpful,” Rice added, “it must know what was being planned. ‘If U.S. efforts are to be nullified, [the United States] must reassess assistance policy.’”47 The American officers in Seoul also emphasized the need for consultation.48 In addition to the lack of consultation, what made U.S. officials particularly unhappy was the nature of the emergency measures of June 10 and 16, 1962. The U.S. embassy held Kim Chong-p’il and other “nationalist” officers of the KCIA responsible for the currency conversion and the establishment of the KIDC. Some saw the incident as a conspiracy by subversive elements to transform South Korea into an anticapitalist statist—if not outright socialist—economy.49
The two emergency measures constituted a turning point in Washington’s assessment of the intentions of the military junta, particularly the plans of Kim Chong-p’il. With this came a change in U.S. policy toward South Korean economic development. Henceforth the United States stopped emphasizing the Rostovian model of development and instead tilted even more toward stabilization. Both Killen and Berger tried to discourage the implementation of the overly ambitious HCI plan. In putting pressure on Park, the most effective and frequently used instrument was the threat of withholding aid. Because U.S. aid constituted not only the seed money for the ambitious HCI plan but also a much needed relief fund for economic turmoil and bad harvests, the threat of withholding aid proved to be effective in making Park rescind the two emergency mea-
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sures. The threat did not always work, however. In July 1963 Berger asked Washington to withhold “$15 million support assistance on grounds of inadequate implementation of stabilization measures until and unless adequate corrective action is taken.”50 The move made Park correct overly inflationary financing in the short run, but it was not until mid-1964 that he tackled stabilization in earnest. Even then, the “rationalization” program was manipulated to accelerate economic growth—not stabilize the economy (see Chapter 7).
Nonetheless, the dismal performance of the South Korean economy in 1962, coupled with the U.S. refusal to supply capital for HCI projects, persuaded Park to revise the first FYEDP. The pressures of trade and fiscal deficits demanded the lowering of the target growth rate. Throughout the tenure of Killen and Berger, U.S. pressure for stabilization remained high, which provoked strong resentment from South Korean officials. Upon Killen’s departure in August 1964, Hankook Ilbo, a daily newspaper owned by Chang Ki-yông, then the deputy prime minister and minister of the Economic Planning Board (EPB), ran an editorial saying that “if the U.S. is not to repeat her mistake in Vietnam, it is hoped that it will not overlook the fact that many economic tasks remain in this land—problems which are more important than the financial stabilization program that U.S. aid officials in South Korea . . . have emphasized so often.”51
Military: Force Reduction
The U.S. proposal (NSC 5702/2) to convert four of the twenty active South Korean army divisions into reserve units in 1957 had met strong resistance from Syngman Rhee. The U.S. military also resisted by remaining passive on the sidelines, de facto refusing to pressure South Korea for arms reduction. Consequently Rhee reduced the active army by only two divisions. In return for his concessions, Rhee got a U.S. pledge to deploy conventional-nuclear dual-purpose weapons and to assist in the modernization of the South Korean armed forces’ conventional weapons system. With the advent of the Chang Myôn government in 1960, economic growth became the top item on the national agenda. Within a few months of his inauguration, the prime minister initiated the reduction of the South Korean armed forces by 100,000 troops. This time, the U.S. military openly resisted.
By contrast, the new Kennedy administration, and particularly its NSC
staff, showed strong interest in lowering the level of South Korean forces.
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The memo drawn by Komer for Bundy and Rostow on March 15, 1961, constituted one such endeavor to release South Korean resources to be used to improve economic development.52 Yet the task force report, issued on June 5, did not fully reflect the concerns of the NSC staff,
including Komer. At the NSC meeting of June 13, defense secretary McNamara and chairman of the Joint Chiefs of Staff Lyman Lemnitzer teamed up against the idea of force reduction. Kennedy took the middle road, proposing to take measures to “increase to any measurable extent the contribution of the armed forces to civilian work” before reducing the size of the South Korean military.53 While the issue of force reduction was put off for further review by the relevant agencies at the NSC, Ambassador Berger and newly appointed UN forces commander Guy S. Meloy, Jr., disputed over how to divide U.S. aid for the South Korean budget between economic and military programs. Reflecting the White House’s changing strategic thinking and being an economist himself, Berger pushed for a greater emphasis on economic development, whereas Meloy argued that South Korea’s present 600,000-man force level was “sacred.” The South Korean military was unhappy with Berger’s perspective as well, and threatened to cut its forces unilaterally, if Berger continued to demand a greater allocation of aid money to the economic side of the budget. The South Koreans made this move with the expectation that the U.S. military would not agree to such a force reduction. On the contrary, Meloy reported the South Korean armed forces’ resentment of U.S. demands and his dispute with Berger on the issue to the higher authorities in Washington.54
The issue of South Korean force reduction was raised repeatedly at NSC
meetings throughout the first half of 1962. The Joint Chiefs of Staff opposed it, as expected. They argued that because South Korea constituted an essential component of the U.S. forward defense strategy in Northeast Asia, any reduction of its armed forces needed to take into account power configurations not only on the Korean Peninsula but also in the wider Northeast Asian region. Specifically, the Joint Chiefs of Staff argued that a reduction in the South Korean force level would increase military risk regionwide, lower U.S. influence in Asia, decrease U.S. capabilities to keep an armed conflict on the Korean Peninsula at the level of non-nuclear limited war, force the United States to take up a greater share of the collective security burden through the augmentation of its own military forces’ capabilities, and complicate the logistics of troop mobilization by dramatically shortening the time required to assemble and fly in U.S. forces outside of the Korean Peninsula into South Korea in the event of war. In the eyes of the Joint Chiefs, it could not be “emphasized too strongly that current US/
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