Foreign Relations of the United States, 1958–1960, Japan; Korea, Volume XVIII

240. Telegram From the Embassy in Korea to the Department of State⁰

Seoul, September 5, 1958, 7 p.m.

98. Ministers Finance, Reconstruction, Defense, Agriculture, and Commerce-Industry met Wednesday¹ at their request with Decker, Warne and me as follow-up August 20 discussion.

Finance Minister, as spokesman for group, said ROKG firmly committed to stabilization program, and he could assure US revised 58 and proposed 59 budgets definitely would be balanced. To this end, Government planned reduce civil service rolls by 15,000 (present total about 240,000 including teachers whose numbers not to be reduced); endeavor amend financial act to permit fixing utilities rates by Government Commission rather than by National Assembly as at present; make strong effort to “rationalize” government-owned enterprises, thus eliminating subsidies for these operations; and intensify program for sale vested properties. Construction Minister asserted definite planning under way for improved utilization Korea’s own resources, including development of exports. ROKG has already decided export 200,000 metric tons rice this year, and details are now being worked out.

As regards pay raise, all Ministers united in insisting this move essential. Acknowledging corruption in government, they argued living wage for government employees first step in program to correct situation. They promised Liberal Party would introduce in National Assembly anti-corruption law providing severe penalties for violations.

ROKG will also shortly initiate anti-smuggling and anti-black market drive, with three weeks public education campaign to be followed by confiscation smuggled goods as well as military supplies illegally diverted to black market. Ministers asserted that it was now necessary to re-establish code of public ethics which had disintegrated in post-war years, and also insisted that as practical matter improved revenue collections, together with savings from stoppage illegal use official funds and supplies, would go far towards meeting cost of pay raise.

While it is obvious that continued success of stabilization program will depend upon ROKG performance in carrying out stated objectives, we believe meetings have served to impress upon Ministers difficulties which they face, and will result in strenuous efforts their part to maintain stabilization. Revised 58 budget as passed by Assembly, and preliminary draft 59 budget now under study by Embassy–OEC (military budget by COMUSKOREA) and our views will be reported Washington shortly. If and when carried through, other reforms reportedly decided upon will make substantial contributions to solution of problem. We urged strong support of them, and will endeavor to follow up.²

Dowling

0. Source: Department of State, Central Files, 895B.10/9–558. Confidential; Priority.
1. A memorandum of this conversation was transmitted to the Department in despatch 147, September 16. (Ibid., 895B.10/9–1658) See Supplement.
2. In telegram 101 from Seoul, September 6, Dowling reported that he had discussed the budget situation with President Rhee, explaining the necessity of maintaining a program of economic stabilization. Rhee said that his cabinet ministers had discussed the situation with him and “he had every confidence they would carry forward economic progress achieved in last year.” (Department of State, Central Files, 895B.10/9–658) See Supplement. Dowling, Decker, and Warne met with the Korean Ministers again on October 8 and 17; memoranda of these conversations were transmitted to the Department as enclosures to despatch 211 from Seoul, October 16, and despatch 254 from Seoul, November 5. (Department of State, Central Files, 895B.10/10–1658 and 895B.10/11–558) See Supplement for both.