Foreign Relations of the United States, 1961–1963, Volume XXII, Northeast Asia

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

Seoul, October 28, 1961, 6 p.m.

640. Department pass Defense, AID. This tel in two parts. This is part one.

1. This message is further response I promised in my reply of September 14¹ to Secretary’s letter of August 1.² It identifies and defines the basic problems involving our economic and military aid programs for Korea. It represents distillation many hours of study and discussion by Country Team members and staff and is a joint and agreed message from General Meloy, Killen and me. This part of message gives immediate political background of problems. Second part deals with economic aspects.³

2. Military government has now been in power five months. It has taken hold with energy, earnestness, determination and imagination, albeit with certain authoritarian and military characteristics which have hampered its public image. Though it has no popular base and there is little evidence of positive popular enthusiasm, it is nonetheless a genuine revolution from the top trying to introduce sweeping reforms of a most fundamental kind. Projects of reform long talked about or under actual consideration by previous governments are becoming realities in banking and credit policy, foreign trade, increased public works for unemployed, tax evasion, agriculture, trade union organization, education, public administration, social welfare (prison reform, rehabilitation of prostitutes, birth control information, assistance to veterans and their survivors) and other fields. Many reforms are constructive and some long urged by American advisors. Others while well-intentioned have been too hastily developed or are poorly implemented. Some of these latter already undergone correction, for government, at least in some cases, prepared admit and correct mistakes.

3. Military government’s efforts to deal with wholesale graft, bribery and corruption in government and business, smuggling, large-scale diversion of military supplies, hoodlum terror, and police and press blackmail of individuals are genuine and are producing results. Vigilance against communist subversion and quality and volume anti-communist propaganda have greatly improved.

4. Government administration, while improved in sense now possible get rapid top-side decisions, suffering from continuous changes in intermediate and senior personnel, but situation gradually stabilizing this regard. Majority of Cabinet ministers with military background have impressed us with their competence and effectiveness for administration. Others less so. Physical breakdowns from overwork becoming problem. PriMin has not been well for a month; Min of Comm and Ind Maj Gen Chonghmae-hyok, one of ablest, collapsed from exhaustion at Cabinet meeting but now back to work after two weeks rest. Chairman Economic Planning Board and Vice Premier, Kim Yu-taek, ordered take two months off. Chairman Pak himself showing some signs of strain from overwork.

5. Increase in administrative efficiency arising from competence of able ministers is handicapped by absence of clear division of responsibility and functions between Supreme Council and Cabinet. Some Supreme Council members are interfering and overriding Cabinet decisions and some military ministers by-passing PriMin. This is producing frictions and in some cases erratic decisions involving increased government expenditures.

PriMin endeavoring establish that Supreme Council limit itself to legislative functions and leave executive functions to Cabinet. He is also endeavoring stop ministers from by-passing Cabinet. He is having difficulty establishing these principles. One reason for this is he not one of original coup group, is tainted by service during Rhee regime, and is suspected of harboring personal political ambitions.

6. Military government has its enemies, but it is not without support. If it has little positive support, it can claim with justice that it does considerable mass good will on part of many who fear a return to instability and drifting and who hope it will succeed in laying foundation for regeneration of Korea before it returns government to civilian hands in spring-summer of 1963 in accordance August 12 promise Chairman Pak. Very large part of population, however, remain non-committal, and “wait and see” remains most characteristic attitude of majority of Koreans. This attitude, almost indistinguishable from skepticism, springs from traditional lack of confidence that Koreans and especially those who govern Korea can be effective for long, will not succumb to corruption and factionalism, or can contain their urge to dominate once they are in power.

7. Too soon to say where this revolution will end. There is evidence traditional propensity for factionalism is asserting itself inside Supreme Council. Most serious case occurred during September and first week of October when bitter internal power struggle was initiated by Kim Chong-p’il, Director ROKCIA, and some young Colonels aimed at purging Generals from Hamgyong Province. But there also evidence that Chairman Pak and others are determined to prevent this and internal power situation has become a little more stable in last couple weeks. However, long-term problem far from resolved. There are also a few signs of corruption and graft again appearing in high places. Here again Pak and others are determined to expose and deal with it ruthlessly. At this writing cannot be said with any certainty that military government will not succumb to endemic factionalism or financial scandals during two years it has set for its term of office. Much will depend on Chairman Pak, who is coolest head and most reliable and stable of leaders. We shall better be able assess these dangers in course of next three months or so.

8. Second threat to stability of government stems from possibility of spiraling price inflation next year. In its determination to make fundamental reforms before it returns power civilian hands, government is trying to do too much too quickly. Public works to relieve unemployment, farm reforms (high and stable rice prices by means of rice supports, refinancing usurious loans, fertilizer subsidies), prospective increases next year in pay rates of government employees and military in order give these dignity and reduce temptation for graft, provision of loan capital at reasonable rates to small and medium industry, and step-up in capital investment in public sector are all worthy objectives. But they are all being pursued simultaneously and government borrowing and money in circulation have expanded rapidly with prospects of further increases next year. Manufacturing and trade only gradually reviving from summer low.

9. Here too there are offsetting factors so that situation not entirely one-sided. Tax evasion has been curtailed, and if manufacturing and trade expand, collections should be much better in future. Higher interest rates on time deposits are encouraging savings. Economic cost of doing business should be reduced with reduction in heavy political contributions and bribes. All or nearly all government enterprises have in past run with heavy losses and subsidies. Most flagrant cases being reorganized and if efforts successful should cut losses substantially. Improved government systems of purchasing, audit, and inventory control in both civilian and military sectors promise considerable savings. High level of foreign exchange reserves will enable government to import if necessary to hold down price inflation. Forced saving measures under consideration. Prices have remained fairly stable since May 16. Finally there is growing awareness by top leaders of need for restraint in government expenditures and greater selectivity in their program priorities.

10. In final analysis ability control price inflation will depend on more rapid revival of manufacturing and trade to meet potential demand which has been created. This in turn requires government settlement with illicit profiteers and tax evaders who control Korean industry and who have been dragging their heels in effort obtain better terms on their assessments and fines. Pak decided settlement imperative, and supported proposal made by profiteers to PriMin Song to pay their assessments over period of years in form of capital investment in new industries, with government holding equity. This has now received SCNR approval. There is therefore chance price inflation may not get out of hand. We will be in better position to assess this danger in two or three months.

11. Further source of danger to stability of government is more intangible and more difficult to assess. It arises from activities of Kim Chong-p’il and ROKCIA. This organization is watchdog of government, has extensive organization, which also embraces military, holds great power. Use of wire-tapping, informers and mail censorship widespread. Practice of “taking people into custody for questioning”—local euphemism for arrest without warrant—(sometimes for weeks) and practice of midnight arrests and reports of strong-arm methods to extract confessions, still occur with sufficient frequency to maintain atmosphere of insecurity and fear. Many Koreans in public or business circles have blemished records in respect to graft or bribes, dealing in diverted military supplies, evading taxes, or smuggling, have associations with past governments or with men under arrest or suspicion which could be invoked against them. Many have reservations about this government or some facets of it and have been indiscreet in expressing them. All this combines to produce pervasive tension that cannot be ignored in our calculations. It clearly plain in government, in active military service, in and outside Embassies, and even the Supreme Council members and the Cabinet.

12. Pak and Supreme Council have taken some steps to deal with this fear. Announcements have been made that certain offenses committed prior to the coup and persons who have not been investigated for certain illegalities before certain dates will not be prosecuted. Certain arrests now require warrants and high level arrests need personal approval of Pak. “Habeas corpus” is still in the law and in use, although it is being suspended in particular cases.

13. Despite above limitations and considerable pressure both in and out of government to limit CIA’s power, power of Kim Chong-p’il is still great enough to represent serious unsettling element in situation, and is a factor in factional fight in Supreme Council. There will be no relaxation in this country until CIA’s power is contained or more judiciously exercised. Pak aware that Kim Chong-p’il is capable of excesses arising from his exuberance for power and his inexperience, but Pak relies heavily on Kim Chong-p’il to detect subversion, disloyalty, dishonesty and conspiracy, and these are four factors in situation which cannot be brushed away. It is our hope that when present Revolutionary Court trials are finished, which is planned for end of this year, atmosphere will become much less tense.

15. From United States point of view, despite above dangers, this government still offers much hope. Gen Meloy, Killen and I are encouraged by fact we have access to top leaders and they are often responsive to our private counsel and advice and sensitive to United States and world opinion. They are determined to establish Korea on far sounder basis in all respects and if they can deal successfully with above dangers, there could be established a stable political and economic environment for progress over next few years. In this event, basic economic growth, which has top priority in their thinking, could be rapid. This however, will be strongly influenced by solutions to problems posed in part two this tel.

Berger

0. Source: Department of State, Central Files, 795B.5-MSP/10-2861. Secret. Also sent to Tokyo and CINCPAC for POLAD.
1. Not found.
2. Document 238.
3. Telegram 642, October 28, in which the Embassy defined the basic unresolved problem of U.S. assistance to Korea. U.S. policy sought to replace supporting assistance and P.L. 480 aid with development loans to encourage economic independence. Because of the scale of U.S. assistance, however, the goal of economic independence would take much longer in Korea. (Department of State, Central Files, 795B.5-MSP/10-2861)