Service Sector Liberalization

Foreign aid and economic reconstruction

Rhee Syngman, the first president of the young republic, strived to rebuild the economy with a series of reconstruction plans.1) These plans aimed to expand the economic infrastructure, build key industries (cement, steel, etc.) and increase the productive capacity of manufacturing (Sang-oh Choi, 2005, pp.358-359).

Rhee’s desire to construct a self-sufficient Korean economy with these plans was in direct conflict with the American government’s intention to rebuild an East Asian economic bloc with an industrialized Japan at its center. America urged Korea to liberalize its market, stabilize the value of the Korean currency, and expand cooperation with Japan. To Rhee, however, this implied nothing but the revival of the Greater East Asian Co-Prosperity Sphere and the re-colonialization of the Korean economy. Rhee made full use of Korea’s geopolitical value to frustrate America’s effort while promoting import-substitution industries through reconstruction plans.2)

The Korean government also differed with the Americans on what kind of foreign aid it would receive. There were two types, one being project assistance and the other non-project assistance. The former was to be used for reconstruction, while the latter was to be distributed to private enterprises for civilian use. Korea received alarge amount of foreign aid from the United Nations and the U.S. in the 1950s and 1960s.3) The Korean government preferred project assistance, while the American government preferred non-project assistance. In the end, the American preference prevailed; under ICA (International Cooperation Administration) aid, for example, project assistance made up 27 percent of the total and non-project assistance 73 percent.
In any event, various reconstruction plans prepared by Rhee’s administration failed to spark economic growth in Korea. They remained just that-plans

Source : SaKong, Il and Koh, Youngsun, 2010. The Korean Economy Six Decades of Growth and Development. Seoul: Korea Development Institute.


1)  The Five-Year Industrial Reconstruction Plan (1949), Reconstruction Plan (1951), Comprehensive Reconstruction Plan (1954),Five-Year Economic Reconstruction Plan (1956), and Three-Year Economic Development Plan (1960). These kinds of development plans could be found not only in socialist economies, but also in capitalist ones such as France after the Second World War (Yergin and Stanislaw, 1998).
2)  The Taiwanese government was much more cooperative than Korea was with the Americans (Jung-en Woo, 1991, p.52).
3)  The amount of aid as a proportion to GDP corresponded to a low of 11 percent in 1954 and a high of 23 percent in 1957 (Sang-oh Choi, 2005, p.362).


· Choi, Sang-oh“, Foreign Aid and Import-substitution Industrialization,”in Dae-geun Lee (ed.), New Korean Economic History: From the Late Joseon Period to the High-growth Period of the 20th Century, Na-nam, 2005, pp.349-375 (in Korean).
· Yergin,Daniel and Joseph Stanislaw, The Commanding Heights, Simon & Schuster, 1998.
· Woo, Jung-en, Race to the Swift: State and Finance in Korean Industrialization, Columbia University Press, 1991.