Korea - a role model for emerging economies

By Suma Chakrabarti

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Korea -- a role model for emerging economies

This article first appeared in The Korea Herald on 10 July 2016

During a visit to Seoul this week, I will hold meetings with government officials from South Korea to discuss the important role that Korea has as a shareholder in the European Bank for Reconstruction and Development.

I will also meet Korean companies, with a view to stepping up joint investments in the EBRD regions.

We already have strong partnerships with the Korean industry and a history of successful investments with some of the countries’ leading corporations such as Samsung, LG and KT.
By linking up with high quality companies like these we can make an important difference to the emerging countries where the EBRD invests -- in central and Eastern Europe, Central Asia and the Caucasus, south-eastern Europe and the southern and eastern Mediterranean.

The investments we make in these countries facilitate the transfer of skills, know-how and modern technology, and are supported by significant donor contributions from the Korean authorities, without which our financing would be far less effective.

This is how Korea can make a material impact on the economic development of the EBRD’s regions. There is, however, another way that our emerging economies can benefit from Korea: by looking to the country as a role model for remarkably successful development.

In just five decades, Korea made the transition from aid recipient to major donor of overseas development aid. It can now send out a strong message of possibility and hope to other developing countries.

How Korea achieved this provides key lessons for regions still struggling to develop the institutions and policies that are needed to unleash private sector potential for growth.

The EBRD’s 2013 Transition Report “Stuck in Transition?” revealed how many countries are seeing a slowdown and even reversals in reforms.

While this partly reflects reform fatigue after years of progress, there is no doubt that, without a concerted effort to get transition back on track, the path to convergence with more advanced economies could remain blocked for many years come.

The creation of the now-famous Korean Economic Planning Board made a decisive impact on Korea’s economic transformation and is an example of how this country systematically addressed the question of economic reform.

The EPB’s key role in financial resource mobilization, in formulating policies, coordinating foreign aid programs and promoting foreign investment has proven to be a powerful mix.

EBRD countries emerging from the shackles of communist central planning were initially eager to reduce what had been seen as the harmful role of the state in economic development.

What has emerged since is an appreciation of the constructive role that the state can and should play in helping to create the institutional and policy framework within which the private sector can flourish and without which it can wither. Korea has made important progress in achieving a productive balance between the private and the public sectors.

Equally relevant for many EBRD’s countries of operation is how the EPB has forged national consensus by bringing all significant stakeholders, including government technocrats, research institutes, the business community and nongovernment experts into the strategic planning process.

It is only by creating such consensus that policies can be developed and by taking a long-term perspective and avoiding hasty reactions to individual vested interests.

Korea’s development has also been supported by greater inclusion and enhanced equality in income distribution and access to opportunities, a recipe the EBRD believes helps build up economic resilience; and by government intervention that has been largely free from rent-seeking, a model for good governance elsewhere in the emerging world.

Regional integration is another key plank of the EBRD’s strategic focus for its countries of operation and another area where Korea has excelled. The outward orientation of the Korean economy, which initially reflected an increase in demand for imported capital goods, contributed to the creation of the successful, export-oriented economy we see today.

As the EBRD intensifies efforts to work with even more Korean companies in its countries of operation, it will try and increase the exposure of these economies to Korea’s best practices.

This reinforces the bank’s broader aim of promoting innovation in its regions by encouraging countries to increase their international commercial links and by fostering integration as key to future growth.

Korea, like many countries in much of the rest of the world, is currently dealing with key challenges. It has seen a slowdown in economic growth that partly reflects global uncertainty but which is also a typical feature of a country potentially facing a “middle-income trap.”

However, the strong policies that Korea is putting in place to encourage creativity and innovation, particularly in its small and medium-sized enterprise sector, provide new lessons and experiences relevant to many of EBRD’s countries of operation. Its policies should help it weather the storms of the present time and prepare it for the challenges of the future.

The country’s unique combination of strong market-based economy principles with a clear strategic national development framework and the implementation of robust reforms proved to be right for Korea.

This potent mix could also be the right one to ignite growth in the EBRD’s countries of operation.

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