New Bush Administration's Economic Policy toward Korea
As preparations get underway for President Kim Dae-jung's visit to Washington next month, the issue of U.S. economic policy toward Korea under the new Bush Administration naturally arises.
In certain key respects, U.S. policy toward Korea is likely to be a microcosm of U.S. economic policies globally, while other aspects of US policy are likely to have Korea-specific elements.
Interestingly, issues of international finance could loom large. The IMF program was deeply unpopular among many people here in Korea. What is probably surprising to many Koreans is that the IMF is equally unpopular among some Americans who are obsessed with the notions of moral hazard and associated bail-outs of international investors and their domestic counterparts in countries like Korea.
These concerns are being elevated in the new U.S. administration in ways that could have implications for the future of the Korean economy.
Back in 1998, at the height of the Asian financial crisis, the IMF was beginning to run short on funds, and its member governments were asked to increase their quotas for the amount of foreign exchange that they made available to the IMF in emergencies.
In the United States, the IMF quota increase required Congressional action, and many Congressmen expressed skepticism about making additional funds available to the IMF.
In order to secure passage of the IMF quota increase legislation, the Clinton administration agreed to the creation of a Congress-appointed expert commission to review the activities of the IMF and other international financial institutions (IFIs) such as the World Bank and make recommendations.
The Meltzer Commission, as it came to be known, was unable to reach any consensus about reform of the IFIs. The Republican-dominated majority issued a report which called for a radical downsizing of the IMF, a prohibition on lending to middle-income countries such as Korea, and the transformation of the World Bank from a development lending institution to a charitable institution, making grants in only the poorest, mainly African, countries.
Oddly, this issue of what to do with the IFIs has emerged as an ideological litmus test in the Bush Administration, with presidential advisor Lawrence Lindsey seen as the leader of the radical reformers, and Treasury Secretary Paul O'Neill regarded as the leader of the moderates. Sub-cabinet appointments have become the battleground: one candidate for the key Treasury Undersecretary job was reportedly vetoed because he was too pro-bailout, and the eventual Undersecretary-designee John Taylor has stated that he favors the abolition of the IMF (though he does not appear to hold this view fervently).
The Treasury Assistant Secretary job remains unfilled, and the opposing camps are promoting their own favored candidates.
The Clinton Administration was criticized for ineptly integrating economic and foreign policy concerns, including the initial refusal of the U.S. Treasury to participate in the initial Thailand rescue package.
In the Bush Administration, the foreign policy team is being staffed with people such as Defense Secretary Donald Rumsfeld and Secretary of State Colin Powell, who come from very traditional military security backgrounds as do their Deputy Secretary-designees, while the economics side is being staffed with officials skeptical of bailouts. One can easily imagine these two groups coming into policy conflict should a financial crisis occur in a strategically important country like Korea. …