Speech text / June 4, 2003
Honorable Mr. Sugita Ryoki, president of Nihon Keizai Shimbun,
Ms. Urvashi Butalia, who won the Nikkei Asia Prize for Culture,
Dignitaries from Japan and abroad, and
Ladies and gentlemen,
I am Hun-Jai Lee.
It is the utmost honor that the South Korean structural adjustment I initiated has received such high
recognition and been given one of the most prestigious awards in Asia.
Let me thank Mr. Gaishi Hiraiwa, who led the selection committee, and all of its members, for allowing me
to take rank with 21 winners of the Nikkei Asia Prizes in the past and present. I also wish to express my
deepest gratitude to Nihon Keizai Shimbun for giving me an opportunity like this.
It is a great pity that the fellow winner Dr. Yang, recognized for his achievement in technological
innovation, could not be here today due to the outbreak of the Severe Acute Respiratory Syndrome.
It is not exactly appropriate for me to receive this honor as my personal achievement.
The honor should be extended firstly to the people of the Republic of Korea, who have endured a
multitude of pains and demonstrated the spirit of fortitude in the process of facing and overcoming the
nation's economic crisis. My thoughts go out to the people of our nation, who participated in the gold
collection campaign to help the government increase its overseas assets, despite great sufferings from
massive unemployment. The primary factor behind overcoming numerous difficulties to achieve structural
adjustment, was the existence of national consensus that there was no alternative but to go down that
path, however painful it might be.
Another person who truly deserves the honor is President Kim Dae-Jung, who made the brave decision
to take a politically unpopular policy, acknowledging the harsh reality of South Korean economy in the
process of overcoming the nation's currency and financial crisis. Allow me to pray for a quick recovery of
Looking at past examples of countries having overcome crisis, leadership, especially future-oriented
leadership, holds the key for successful structural adjustment.
I wish to also share this honor with my colleagues, junior government staff and private-sector specialists,
who fought a lonely battle, with all their might, to fulfill given duties in the spirit of dedication and
conviction to overcome the crisis and reform fiscal structures.
The new principles and systems we created, have provided the foundation for further developing the
Republic of Korea into the 21st century.
2. Lessons of structural adjustment
Today, I wish to share with you what I have felt during my struggle to overcome the nation's currency and
Firstly, I have found it more desirable to separately handle macroeconomic policies for controlling the
economy, and structural adjustment policies for resolving inconsistencies within financial systems. It is a
common experience among countries that underwent financial crisis that improving the macroeconomic
environment does not necessarily resolve systemic problems. What's more, putting off the task of
structural adjustment, citing economic stagnation, would only expand the problem instead of eluding it.
A government should not resort to an austere policy of artificially manipulating the interest rate or
exchange rate, in order to encourage structural adjustment. Such a policy is not only low in legitimacy but
also doubtful in its effectiveness.
For example, the 1997 financial crisis of South Korea stemmed from excessive and non-performing debts
in the corporate sector. The initial government measures, combining high interest rates and austere
budget, ended up worsening the situation.
This has some relevance in the recent argument in Japan about the priority between anti-deflation
measures and structural adjustment. The two goals are not interchangeable or sequential. They should
be pursued simultaneously.
Secondly, I have come to realize that companies and economies are organic entities that can only
survive through adapting to environmental changes. Re-engineering can solve most problems if you opt
to respond to each challenge as they come. This is why the term "structural adjustment" is positioned as
daily expression in a country that has established economic flexibility, e.g. the United States.
Yet, in South Korea and Japan, the term "structural adjustment" is perceived as some kind of
catastrophe. This is because we have long left inconsistencies and inefficiencies un-addressed to a point
where the use of drastic measures is unavoidable, thus causing significant damage and pain.
Under such a situation, a nation must destroy various economic and financial practices it has long been
accustomed to, and reform the real economy as well as financial structures. In extreme cases, the nation
may have to resort to structural revolution, totally abandoning its conventional system of economic
administration, and building a new one from scratch.
The greatest difficulty of it is the extreme pains all of the nation's economic entities must suffer as they
undergo such revolutionary changes. The pain of unemployment and subsequent social uncertainties
may rock the national system from its foundation. This is why it is always the best option to constantly
conduct structural adjustment, addressing individual problems swiftly as they emerge.
Thirdly, if structural adjustment is required in a terminal state like this, it is important to enforce it with
determination and discretion regardless of the serious pains it accompanies.
Overseas experts on structural adjustment, including staff of international organizations, advised South
Korea to implement it in an orderly and sequential manner.
Since various problems that necessitate structural adjustment are mutually linked, once full-scale
structural adjustment begins, hidden problems tend to emerge simultaneously. Stunned and bewildered,
people often try to cover up such problems. Yet, we must endure the pains and calmly sift through the
problems one by one.
The South Korean capital of Seoul is a major city with a population of over 10 million. The Paldang Dam
on Han River in northern Seoul provides the enormous amount of water consumed in the city.
In order to ensure health of Seoul residents, we must enforce the system of water quality control,
preventing harmful materials from entering the reservoir. However, at the bottom of the reservoir lies a
thick layer of harmful sediments accumulated over many years. Processing the sediment is an urgent
task that needs to be implemented separately from the operation of the water quality control system.
There are two options. One is to ignore the problem and put off taking any measures as long as possible.
However, the cost of rectifying the problem in the end would be beyond imagination. Or the problem may
deteriorate to a stage beyond repair however much money you are prepared to spend.
The other option is to clear the sediment. It is the correct course of action from a long-term point of view,
and must be done at some point in the future. However, it is not the most desirable option from a short-
term perspective. The operation would cause all harmful substances to rise to the surface, making the
reservoir's water unfit for human consumption for some time.
Structural adjustment poses the same issue. Implementing it would inevitably cause shock and
confusion, as well as the need for short-term sacrifice. At the heart of the structural adjustment policy is
the choice between continuing to drink potentially hazardous water while leaving the accumulated
sediment undisturbed at the bottom of the reservoir, and swiftly taking countermeasures to achieve truly
clean water despite immediate inconvenience on a serious scale.
The fourth point I wish to make, precisely in view of such attributes of structural adjustment, is the strong
importance of leadership backed by the sense of commitment and communication with economic entities.
Most people support the general concept of structural adjustment, but oppose specific details that force
them to accept sacrifice. In order to achieve structural adjustment successfully, a government must seek
public understanding, frankly laying out its side effects, development process and future outlook,
including how all economic entities must bear some pain, and how the entire process may take longer
than people may anticipate.
Structural adjustment can be likened to the conventional endoscopic swallowing test, in which a patient
must suffer nausea while observing the monitor, rather than endoscopy conducted under anesthetics, in
which test results are given after a brief sleep.
Then, why do we have to undergo structural adjustment that delivers so much pain? It is like surgery to
remove a leg. The surgery is performed not because having one leg is better than having two, but
because keeping the leg will lead to a situation whereby both legs must be removed.
Unlike the human body, economy has a strong power of regeneration. Once the factors impeding a
positive economic cycle are removed, new jobs and industries of high added value will emerge, just like
new skin is formed over a wound. When the general public understands and accepts this, the operation
of structural adjustment can be achieved smoothly and effectively.
One thing I want to stress is the fact that a mistake is a mistake, and that letting time pass by would not
correct the situation.
When a company or financial organization loses its competitive edge and public confidence, there is a
limit as to how much it can do to revive itself.
When this happens, such entities with compromised competitiveness end up intermingling with more
healthy companies and financial organizations, with healthy operations trying to help rotten operations,
and eventually end up rotting themselves.
Offering rotten apples and fresh apples together in a basket would make it impossible to sell them at a
fair value. Rotten apples must be discarded without hesitation, so that fresh ones can be sold on their
own. The same logic applies to structural adjustment, and it has to be applied quickly. Hesitation would
only cause the rotting to spread, leaving no fresh apples to sell.
Needless to say, the process will require a political leadership capable of making brave decisions and
securing public acceptance for their share of the burden. Structural adjustment is a policy that does not
readily attract public support, forcing people to give up their vested interest. It may very well shake the
political foundation of the leadership.
It is precisely because of this that many countries have failed to achieve full structural adjustment or
repeated failures. And this is why it is extremely important to have leadership with frank communication
3. Suggestions to Asian neighbors, particularly Japan
I have offered my opinions formed in the process of overcoming the financial crisis of South Korea.
Today, has South Korea solved all problems that caused its financial crisis, and secured the foundation
for stable economic development? My answer to this question is still pending.
In my opinion, the country has only just finished cleaning up the old wastes that had been accumulated
for many years. Efforts are now underway to develop and establish a system for preventing new wastes
from accumulating again.
Numerous infrastructures are needed to achieve sustainable growth in the national economy. Many tasks
remain to be implemented, including expanding the social security system, improving the flexibility of the
labor market, preparing a system for transparent corporate management, building a matured system of
local autonomy, and introducing a pluralism-based competition system.
Although many problems remain unsolved, the case can be considered as a successful example, with
the country swiftly and bravely addressing its currency and financial crisis, and overcoming the difficulties
to stabilize the economy. Yet, can Japan and other Asian nations take the South Korean example of
structural adjustment and apply it in solving their domestic problems?
My answer is NO. Just as the policy package for financial crisis in Latin America was not suitable for
South Korea, diagnosis and treatment formulated without identifying the true nature of domestic
economic problems could only jeopardize the situation even further.
Above all, Japan and South Korea are totally different in the scale and complexity of financial structures.
We also have different political systems and cultures. Our current problems are also attributed to different
While Japanese problems have emerged in the maturity stage of successful economic growth, South
Korean problems have arisen from the loss of drive as the country attempted a high level of growth
beyond its capacity.
When the currency crisis struck South Korea, I had the opportunity of reading "Roma-jin no Monogatari
(Tales of the Romans)" by Nanami Shiono. In the introduction for Volume II "War with Hannibal", the
author said that historians should judge historical persons or events solely on the basis of whether they
were in line with the demands of the time.
Traditional society before the Industrial Revolution had knowledge that formed the basis of added value
and competitive capacity. In the industrialized society that followed, since such knowledge was held by
competitors, the approach of learning and improving through benchmarking proved effective.
In the knowledge-based society of the 21st century, the key to competitive edge lies in the capacity to
foresee the future.
We must now look ahead into the future, rather than reflecting back to our past. In this sense, the 21st
century can be described as the age of severance, in contrast to the 20th century dubbed the age of
South Korea followed in the footsteps of Japan in achieving the Industrial Revolution. Yet, we clung to our
own myth of success despite the fact that the success formula had already hit the limit, and missed the
opportunity for taking a fresh path, thus heading straight into a crisis. The group that held vested interest
under the old system refused to accept any changes, and brought reform attempts to a failure.
Since Japan recorded a series of remarkable successes throughout the 20th century, it may
paradoxically experience just as much difficulties for transformation.
Now, concluding my speech...
I feel the Japanese economy is not only for the people of Japan. Whether the Japanese economy
performs well or not will affect areas far beyond immediate Japanese concerns. The Japanese economy
represents a significant proportion of the global economy, with direct links to the economies of East Asia
in particular. Japan not only supplies production technologies, management and capital, but also provides
the demand and sales routes, in other words the market itself, to countries in this region.
Japan appears to keep on postponing the urgent task of structural adjustment, while its economy remains
in a protracted stagnation in the absence of vitality, leaving surrounding economies in frustration. Let me
take this opportunity to express my sincere hope that Japan will overcome the current difficulty, and re-
emerge as a nation of hope, ironing out the creases of East Asian economies.
I will wait, in enthusiasm, for the day of accomplishment in Japan's economic and financial reforms,
backed by the reform philosophy of Prime Minister Koizumi and commitment from Financial Services
Minister Heizo Takenaka.
Finally, let me repeat my deepest gratitude for selecting me for this great honor. Thank you.