Currency Problems

For the purpose of meeting the local-currency requirements of the U. N. Command, the Republic of Korea on July 20, 1950 agreed to advance local currency against later reimbursement. The basic unit of ROK currency was then the won, which was officially valued at 1,800 to the dollar. Its value with relation to the dollar decreased during the next 3 years successively to 2,500, then 4,000, and eventually to 6,000 by February 1953. The rate established for accounting purposes in determining United States debits for these won advances was generally the same as the official rate, although there were certain minor variations as the exchange value fluctuated. Won drawings for the United States armed forces appear unfortunately to have contributed heavily to the ROK inflation, since additional buying power was thus created without additional consumer saleables being made available. Although the ROK Government had agreed to reduce outstanding amounts of ROK currency when these won drawings were repaid, there is no indication that this was actually done after the United States began to make partial settlements in 1951.

Combined Economic Board

The ROK Government proposed on January 16, 1952, that all previous won advances be paid in full and without delay, and that all future won advances be paid as made. This led to a series of negotiations between CINCUNC and the ROK Government which resulted on May 24, 1952, in an economic coordination agreement, by virtue of which a combined economic board was created, composed of representatives of CINCUNC and of the ROK Government, to serve as a coordinating and advisory agency for the U. N. Command and the Republic of Korea on all economic aspects of the program for civilian relief and rehabilitation.

The United States agreed to make prompt, full, and final settlement for advanced ROK currency by paying the sum of $4 million per month on account, beginning with May 1952. These payments were to be at varying rates of exchange, more or less in accordance with the fluctuating official rate. The ROK Government agreed in turn to require repayment of only 90 percent of the advanced amounts, the remaining 10 percent being considered as a ROK contribution to the combined war effort. The ROK Government further agreed to combat inflation; to apply sound fiscal and monetary policies; to institute rationing and controls over foreign exchange, credit, wages, and prices; to promote the export trade; and to achieve the maximum antiinflationary effect from imports, including aid goods.

However, the ROK Government did not initiate the monetary and fiscal controls contemplated in this economic coordination agreement. United States representatives frequently found it impossible to reach working agreements with ROK officials. In many instances when working agreements were reached, the ROK Government was unwilling or unable to take the necessary measures for the accomplishment of specific programs, and frequently failed to provide timely information as to the economic plans and activities of the ROK Government. Negotiations through the combined economic board were impeded by the tight control over economic decisions which was consistently retained on the highest level of the ROK Government. The actions of the combined economic board thus did not prove to be very effective, and CINCUNC-ROK negotiations were not materially assisted by its existence.

Further Currency Crises

In November 1952 the ROK Government again requested that all outstanding dollar repayments for won advances be made at once, and gave notice that as of December 15, 1952, it would be impossible to continue to advance won under existing arrangements. After consideration of the problem at Washington by the National Security Council, CINCUNC was authorized to effect complete reimbursement to the Republic of Korea for all won already advanced and to be advanced in the future, provided that the ROK Government would agree that reimbursement for future advances would be at a rate of not less than 180 won to the dollar.

In accordance with this authority, CINCUNC made an agreement with the ROK Government on February 25, 1953, to pay $85 million immediately on account, thus settling for all unpaid won advances through February 6, 1953, and in the future to pay for all advances of ROK currency on a monthly basis, at a rate to be determined quarterly on the basis of the Pusan wholesale price index for April 1951. Coincident with this agreement, the ROK Government changed the unit of ROK currency from the won to the hwan, the rate of conversion being 1 hwan to 100 won. Since the won had been last valued at 6,000 to the dollar, the initial value of the hwan was thus 60 to the dollar.

The Tasca Mission

It became apparent early in 1953 that the relief assistance which the United States was at that time making available to the Republic of Korea was inadequate to support the rapidly growing ROK mili

tary establishment, let alone rehabilitate the ROK economy. The ROK armed forces were consuming steadily enlarged quantities of available consumer resources. ROK military expenditures were causing progressively greater budgetary deficits and constantly rising inflation.

In view of this situation, the National Security Council recommended to President Eisenhower that a review of the entire situation be made without delay. In April 1953 the President sent an economic mission to Korea to survey the ROK economy and to make recommendations as to the amount of external aid necessary to make the Republic of Korea self-supporting. The mission was headed by Dr. Henry J. Tasca, subsequently Chief of the FOA mission at Rome, and included representatives of FOA, the Department of Defense, the Treasury Department, and the Department of State.

In June 1953 the Tasca mission reported to the President that United States economic assistance in the order of $1 billion over a period of 4 or 5 years would enable the Republic of Korea to become self-supporting, except for its military requirements. The assumptions on which this estimate was based were that the United States was prepared to assist the Republic of Korea in achieving a standard of living approximately that of 1949-50; in supporting a military force capable of deterring external aggression by other than a major military power; in promoting rehabilitation and reconstruction; and in maintaining monetary and financial stability. (An interesting parallel is provided by a report dated December 15, 1952, that, based on a survey conducted for UNKRA by Robert R. Nathan Associates, Inc., the Republic of Korea would need economic aid amounting to $1.750 billion over a period of 7 years.)

The report of the Tasca mission included an analysis of the economic measures to be taken to achieve these goals. It recommended that the ROK Government initiate certain essential changes in its financial structure for the purpose of balancing its budget, establishing and maintaining a uniform exchange rate, strengthening its currency, and tightening credit controls. It further recommended that the technical and professional skills of ROK nationals be developed as rapidly as possible, that a new aid agreement be negotiated, that the United States Army continue its relief activities, and that the operations of UNKRA be accelerated. It finally recommended that CINCUNC continue to be responsible for economic aid affairs, but that there be focused in one position under CINCUNC the responsibility for coordinating the United States Army's program for civilian relief, the UNKRA program, and the proposed new program for economic rehabilitation.

Reorganization of United States Economic Aid Activities

As an outgrowth of the recommendations of the Tasca mission, President Eisenhower on August 7, 1953, approved a memorandum which reorganized the administration of the economic aid program in the Republic of Korea. Under this reorganization, economic affairs were to continue as a responsibility of CINCUNC until such time as the United States Government, acting in the name of the United Nations, should determine otherwise.

CINCUNC was to have on his staff an Economic Coordinator, nominated by the Director of FOA, subject to the approval of the Secretaries of State and Defense and of CINCUNC, and appointed by the President with Senate confirmation. The Economic Coordinator was to be paid by FOA and was also to represent FOA in the Republic of Korea. CINCUNC was to delegate to the Economic Coordinator the responsibility for developing and supervising integrated programs of relief, rehabilitation, and stabilization in the Republic of Korea and for coordinating all of these programs with the military program. The Economic Coordinator was to represent the United States on the Combined Economic Board and to be responsible for developing overall proposals for economic aid.

FOA was designated as the agency of principal interest within the United States Government for supervising and directing the new economic aid program. Communications between FOA and the Economic Coordinator were to be through CINCUNC channels. The Economic Coordinator was to be subject to the political guidance of the United States Ambassador but not to his coordination, like FOA mission chiefs in other countries. The Economic Coordinator was also authorized to make his own arrangements for negotiating with the ROK Government. This turned out to mean particularly President Rhee, the Prime Minister, and the Minister of Finance.

On August 8, 1953, in connection with the signing of the United States-ROK Mutual Defense Treaty, President Rhee and Secretary of State Dulles issued a joint statement which included the following declaration about the new economic aid program:

We contemplate that the projected 3- to 4-year program for the rehabilitation of the war-ruined Korean economy shall be coordinated through the Combined Economic Board, under the joint chairmanship of the Korean and American representatives. This program contemplates the expenditure of approximately $1 billion of funds, subject to appropriations thereof by the United States Congress. Two hundred million dollars has already been authorized out of prospective defense savings.

The Economic Coordinator was to have a relatively small staff of not over 40, but the staffs of about 258 in UNKRA and 765 in the United States Eighth Army's Korean Civil Assistance Command (KCAC), which had succeeded UNCACK toward the end of the pe

riod of hostilities, were also to be available to him for carrying out the program. In addition, many troops behind the combat areas were engaged in the United States Eighth Army's program of Armed Forces Assistance in Korea (AFAK). Finally, the numerous voluntary agencies operating in the Republic of Korea supplemented these governmental activities with their own substantial private programs.

The Economic Coordinator

President Eisenhower immediately appointed Mr. C. Tyler Wood to fill this new position of Economic Coordinator for Korea, and he assumed his duties in August 1953. The several fields of responsibility were slightly shifted about to meet the new mission, being divided more or less evenly between KCAC and UNKRA in accordance with what they had previously been doing. KCAC was given the responsibility for transportation, communications, public works, agriculture, health, welfare, supply, and distribution. UNKRA took over general education, vocational training, irrigation, forestry, flood control, industry, mining, housing, power, and liaison with voluntarry agencies.

Full use was made of existing personnel, as for instance, by detailing the health specialists in UNKRA to KCAC's health section and the power specialists in KCAC to the UNKRA power section. UNKRA was in general assigned responsibility for capital investment projects of a long-range type, engineering surveys for which were conducted by the firm of Knappen, Tibbett, Abbott & McCarthy under a virtually exclusive contract. KCAC was generally assigned relief projects with more immediate objectives.

Further Currency Negotiations

One of the first difficulties with which the Economic Coordinator came to grips was the currency problem. Negotiations were undertaken through the Combined Economic Board in an effort to settle such problems as the won-dollar conversion rate, expenditures of ROK foreign exchange, and ROK individual pricing polices before launching the program for economic reconstruction and financial stabilization. Agreement was reached on December 14, 1953, whereby the United States committed itself to obtain the necessary aid funds, to commit them expeditiously, and to recognize the won-dollar conversion rate of 180 to 1, while the ROK Government pledged its best efforts to minimize the budgetary deficit, to establish a counterpart mechanism, and to limit the extension of credit to 5 billion hwan annually. A series of annexes to this agreement set forth certain