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South Korean economy bounces back despite the politics

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In Brief

With the backdrop of global economic crisis, the Korean economy also experienced serious decline. In the fourth quarter of 2008, the economic growth rate fell by 5.1 per cent compared to the previous quarter. However, the economy returned to positive growth in the first quarter of 2009 and recovered to pre-crisis rates of 2.6 percent and 3.2 per cent in the second and third quarters. The Korean economy is recuperating faster than any other OECD country, except Australia, and the IMF expects 4.5 per cent growth in 2010. Though there were some discussions recently inside the government about the exit strategy, President Lee Myung-bak opted for a cautious approach.

In contrast to a positive economic performance, domestic politics in South Korea remained turbulent in 2009 if not more so than in the previous year.

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The most important political news in 2009 was passing away of two former presidents, Roh Moo-hyun and Kim Dae-jung. They were both liberal politicians who pursued policies of political reform and inter-Korean reconciliation.

The death of these two progressive political leaders symbolized the changing map of the Korean politics since the election of Lee Myung-bak as president in December 2007. During the first year of Lee’s presidency in 2008, there were tense confrontations between the liberal camp supporting Roh and Kim and the conservative camp supporting Lee. The most explosive confrontation between the two camps was the mass street demonstration against President Lee’s decision to import beef from the United States in the spring of 2008.

President Lee’s approval rate has risen in 2009 partly due to smooth economic recovery and partly due to his policy shift from the far right toward the center right of the spectrum in Korean politics. In addition to his support base in the right, Lee has been trying to embrace the middle class and those who suffered most from the economic crisis. Three factors —economic recovery, President Lee’s move toward the center, and the deaths of two former presidents —contributed to the weakening positions of the opposition parties and progressive intellectual circles in Korean politics. This, in turn, made Korean politics even more confrontational and the ruling Grand National Party and the opposition Democratic Party clash over almost every important national issue on the political agenda.

Inter-Korean relations went sour from the beginning of Lee Myung-bak government, but it worsened further after North Korea took unusually provocative measures in the spring of 2009. In April and May, North Korea used up almost every important bargaining card it had, launching a rocket and several missiles and testing nuclear weapons a second time in a matter of just two months. It was unusual because the North Koreans usually calculated carefully in advance and used up just one card at a time in order to extort as much return as possible from their negotiating counterparts.

The timing of North Korea’s provocation was also ill-fated because the Obama administration had not yet finished filling the key foreign policy-making positions. Many North Korea specialists speculate that Kim Jong Il, with his problematic health, wanted to show his resolve in making his country a nuclear-power state and then improve bilateral relations with the United States, as India did. Though North Korea shifted to smile diplomacy toward the South and the United States immediately after international economic sanctions began to bite this summer, the international community will continue economic sanctions until North Korea becomes really serious about denuclearizing itself.

An incident with profound impacts internally and internationally was the recent decree by the North Korean government that weakened market mechanisms and wiped out private savings through currency revaluation on November 30, 2009. It may be recorded as the first round of direct confrontation between the North Korean government and the residents who want to survive through a working market mechanism. As long as Kim Jong Il believes that he can reverse the trend of marketisation of the North Korean economy, there will be increasing resistance from the residents and mounting instability in the future North Korea.

The South Korean economy is likely to continue to improve in 2010, and more people become satisfied with restored prosperity. But there are few signs about which to be hopeful in the areas of domestic and inter-Korean politics. There may even be intensification of confrontation between the ruling elites and the opposition parties at least until the local election that is slated for June 2010. North Korea may continue its softer approach toward the South and the United States, and some bilateral as well as multilateral (Six Party Talks) meetings could resume. But the prospect for speedy progress in denuclearising North Korea is dim. In the meantime, the internal socio-economic situation in North Korea appears to be worsening. The year 2010 will likely to be one of increasing uncertainty on the Korean Peninsula.

This is part of the special feature: 2009 in review and the year ahead.

Dr Yoon Young-kwan is Professor of International Relations, Seoul National University and former Korean minister of Foreign Affairs and Trade.

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