IMF’s Belated Reflection

Seoul Should Remain Alert on New Economic Order

For many Koreans, the International Monetary Fund has meant much more than just another worldwide organization over the past decade.

In exchange for extending a $57-billion bailout fund to Korea in December 1997, the ``lender of last resort'' forced this country to undergo an extremely painful economic restructuring that called for keeping interest rates unbearably high, deregulating the domestic financial industry and sharply enhancing the flexibility of labor markets.

Numerous businesses, including almost half of the nation's 30 largest conglomerates, went belly up and were put on fire sale, producing a far larger number of unemployed who called themselves ``IMF'' (I Am Failure). Surviving firms saw their financial structures solidified, but the so-called neo-liberalistic reform triggered controversy about a massive drain of national wealth and, more importantly, an income polarization leading to the present 20-80 society.

The United States and a number of other economies are in a situation Korea faced about 11 years ago, but the IMF's advice this time is exactly the opposite: enhanced financial regulations and economic stimulus that may have to continue until 2011.

In a policy report released on Friday, the IMF acknowledged it could neither spot the early signs of crisis nor cope effectively with it even as the global financial turmoil deepened. We would like to add one more age-old problem inherent in the 65-year-old body ― double standards and partiality in favor of industrialized countries.

Fortunately, the nation will likely have a good opportunity to have its voice heard on the international stage when Seoul serves as the chairing country of the Group of 20 summit next year. Even at this year's summit in London on April 2, Korea will be a member of the chairing group, along with host Britain, an occasion for both industrialized and emerging economies to revive the global economy, improve the world's financial system and reform various international institutions, including the IMF.

Korea, which has posed itself as a bridge between industrialized and industrializing countries, should be able to match its words with deeds, not leaning to a particular group or region but taking a balanced and global initiative, such as anti-protectionist campaigns ― no easy task given the nation's limited diplomatic capacity and experience.

Currently, some East Asian countries are calling for enhancing regional cooperation by boosting regional trade from 38 percent to 50 to 60 percent of their total trade and setting up an Asian Monetary Fund (AMF) or Asian Currency Unit (ACU). This is only natural for regional countries, now forced to shoulder inappropriate burdens caused by a crisis that took place across the Pacific.

It would be a high-wire act for Seoul to please both regional partners and its single biggest ally ― Washington ― on which Korea unduly relies on in terms of economy and security.

America is still the world's biggest economic and military power, but the U.S.-originated crisis is driving the world back toward a multi-polar situation, a trend to which many Korean officials seem to turning a blind eye, at least officially.

Putting all your eggs in one basket is always risky, but never has this old saying been truer than it is now. Korea will have to walk on a diplomatic tight rope very skillfully over the next few years, between bilateral and multilateral interests and between regional and global relationships.