Korea thanks Gillis and Chae for help during crisis

Korea thanks Gillis and Chae for help during crisis
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BY B.J. ALMOND
Rice News Staff

Rice University president Malcolm Gillis, who has more than casual acquaintance with the subject of Korean finance, is optimistic that Korea will succeed at restructuring its economy.

“Korea’s long history of investments in primary, secondary and university education built the foundation for the country’s economic prosperity,” Gillis told television interviewers in Seoul, South Korea, in January. “The economic reverses your country suffered during the ‘Asian meltdown’ a few years ago were difficult setbacks, but they should prove transitory because Korea’s policy toward human capital has provided the basis for a strong economy.”

Gillis and Suchan Chae, Rice associate professor of economics, were in Seoul at the invitation of Korean president Kim Dae Jung, who wished to thank them for their assistance during the economic crisis of the late ’90s and to hear their views on Korea’s economic outlook. Chae spent considerable time in Korea to help the incoming government cope with the country’s fiscal problems in 1997-98, and he secured Gillis’ help with contacting the U.S. Senate and House, U.S. banks, the International Monetary Fund and the World Bank to ensure that Korea was not tarred with the same brush that was used to paint other East Asian nations at the time of the so-called “meltdown.”

“I readily agreed to assist Korea’s new government in December 1997 and January 1998, partly for two reasons,” Gillis said. “First, because of my long-standing high regard for the indomitable spirit and courage of Kim Dae Jung, who endured years of confinement and mistreatment because of his views on democracy and freedom. Second, I perceived that Korea was at last prepared to move away from the failed Japanese model of finance that underlay banking practices prior to 1997, a move very much in accord with my own views.

“Some of the international financial agencies and lending banks at the height of the crisis were laboring under the mistaken view that Korea was insolvent,” Gillis said. “But Suchan and I took the position that Korea’s problem was illiquidity, not insolvency. We argued that foreign financial institutions, by helping Korea overcome its short-term liquidity problem, would best enable the new government to tackle more readily difficult longer-term economic restructuring, especially in the financial system. This is essential if Korea is to return to the strong record of economic performance it enjoyed from 1960 to1997.”

Because the health of the South Korean economy is, more than any other Asian nation’s, dependent upon the U.S. market, Kim was especially interested in Gillis’ views as to prospects for the U.S. economy in 2001 and the likely economic policies of the new administration. Gillis noted the clear signs of a slowing U.S. economy, the likelihood of a fairly significant income tax reduction and the problems of the world’s sixth largest economy, California.

On balance, Gillis said, “Korea should not expect help from strong growth in exports to the U.S. over the coming months.”

Following the visit with Kim, members of the Korean television and print media sought Gillis’ views on restructuring the country’s economy. Gillis, who spent the first 25 years of his professional life teaching economics and bringing economic analysis to bear on important issues of public policy in nearly 20 countries, cautioned against expecting quick results.

“Restructuring is a time-consuming process requiring a lot of patience if it is going to be successful,” Gillis said. He explained that all economies will need to undergo virtually continuous restructuring in the next 50 years to adjust to the expected rapid pace of change in international trade and technology. But he expects Korea’s economy in the coming decade to fare better than other Asian economies because of the country’s well-prepared and more adaptable labor force.

While in Korea, Gillis and Chae also met with the economics faculty and the president of Seoul National University.