of State gives the following information on the population develop ment: During the period between October 1945 and May 1948, almost 2.5 million Koreans officially entered South Korea as refugees or repatriates from North Korea, Manchuria, Japan, China, and other Pacific areas. During the same period only 886,317 persons, almost all of them Japanese, left South Korea. The official net increase in population through migration was therefore 1,519,443 during the 32-month period ending May 1948. (There are, moreover, indications of a considerable number of unrecorded entries, almost entirely of refugees from the north who failed to pass through control points en route from North Korea. For the period from the date of liberation to September 1946 alone, the number of unrecorded entries has been estimated at slightly less than 1,000,000. Korean agencies have estimated that over 4,000,000 persons have entered South Korea from North Korea alone since the liberation. Although these estimates appear to be high, the official population totals are certainly underestimates.) B. PROGRESS UNDER MILITARY GOVERNMENT Relief under United States military government.-An immediate problem facing United States Army forces upon their landings in South Korea was that of providing urgently needed relief and curbing disease and unrest. In the words of General Helmick testifying before the committee: "The early military government's objective was just to keep things going, to keep the whole country from dropping apart." To supplement indigenous food supplies, about 180,000 metric tons of cereals were imported and distributed in 1946, over 440,000 tons in 1947, and 260,000 tons in 1948. To insure equitable distribution, compulsory grain collections were instituted and a rationing system developed. Considerable quantities of medical and public health supplies were dispensed. The trend to rehabilitation.-Again, in General Helmick's words: Very early in our occupation we realized that just giving relief, just keeping Korea on its feet, would not get us anywhere. That would continue unless we built them up so they could take care of themselves. We worked from the very early days for a recovery program, a rehabilitation program which would build them up so they could take care of themselves. Rehabilitation of agriculture.-The military government developed a plan for increasing the application of chemical fertilizer to South Korea soils. In 1948 over 450,000 metric tons of fertilizer were purchased with United States funds. Planted acreage in 1948 was just below the 1940-44 level and a general production index of grains and pulses, which had dropped from 94 in 1940-44 to 71 in 1946, rose to 101 in 1948. A United States military government ordinance established farm rentals at one-third of the agricultural production from each farm. This action cut by nearly half the previous average level of rentals. It raised production and benefited the economic status of two-thirds of the population. The military government also sponsored the sale of former Japanese-owned farm lands to tenant farmers. More than 500,000 such farms were sold during the occupation period. In three occupation years, farm tenancy in South Korea dropped from 73 to 40 percent. Industrial rehabilitation. The military government took steps also to get essential industries back on their feet. Industrial units in which production was revived included two small steel rolling mills, a cement plant, two locomotive works, several textile mills, establish ments for the manufacture of agricultural implements and of spare parts for textile machinery, and many small plants for the production of shoes, bicycles, rope and cable, domestic utensils, and other miscellaneous items. Some 200 food-processing plants, mostly smallscale, operated under military government supervision. Military government took temporary custody of former Japanese state and privately owned enterprises for purposes of rehabilitation and subsequent transfer to the Korean Government and people. Important among these, in view of critical coal and power shortages, were existing coal mines. Average monthly production from these mines increased from approximately 22,000 metric tons in 1946 to over 50,000 in 1948. To compensate in part for the loss of power supply from North Korea, a power ship and a power barge were installed at points on the Korean coast. Available power, however, remained far short of minimum needs. A beginning was made in the rehabilitation of three steam plants for power production. As a first step toward urgently needed. railway rehabilitation, the military government imported 101 locomotives and aided in the repair of others. C. DEVELOPMENT OF A RECOVERY PROGRAM Transfer of activities to the Economic Cooperation Administration.Through 1948 the Army had administered assistance to Korea in pursuance of its caretaking mission to prevent disease and unrest. So far as rehabilitation was undertaken, it was as an incidental and secondary result. It was logical that assistance to Korea should follow the course taken with respect to assistance to European areas. No agency appropriate for planning and executing a recovery program as distinguished from primarily a relief program was in existence, however, until the spring of 1948 when the Economic Cooperation Administration came into being as a result of the enactment of the Economic Cooperation Act of 1948. That assistance to Korea would be transferred from the Army to the Economic Cooperation Administration was presaged in Public Law 793, Eightieth Congress, which -contained a proviso- That expenditures may be made hereunder for the purposes of economic rehabilitation in * * * Korea * ** in such manner as to be consistent with the general objectives of the Economic Cooperation Act of 1948. In pursuance of that proviso the Army began more fully to emphasize recovery as a primary objective. The logical next step was taken as of January 1, 1949, when, in pursuance of a Presidential order, the administration of Korean aid was transferred to the Economic Cooperation Administration. This transfer was accomplished coincidentally with the full diplomatic recognition of the Republic of Korea by the United States. The aid agreement.-The groundwork for a recovery program based upon collaboration between the two nations has been laid in an aid agreement of December 10, 1948. In its principles the agreement follows generally the pattern of the bilateral undertakings between this Government and governments receiving assistance under the economic recovery program, with modifications appropriate and necessary in view of the differences between the European recovery problem and the problem of creating a basis of a national economy in South Korea. This agreement is considered in detail in section IV of this report. Its text is included as an appendix. Preparation of proposed program. The program envisaged by this bill is the product of the collaborative effort undertaken in the agree ment of December 10, 1948, discussed above. The program in its initial stage was drawn up by the Ministry of Commerce and Industry and related agencies of the Republic of Korea as an analysis of import requirements needed to carry on basic relief and rehabilitation and to begin a program of economic recovery. The Office of Planning of the Korean Government reviewed the data. The Economic Cooperation Administration Mission in Korea received the report of the Korean Government and added its evaluation and recommendations, using material it acquired in Korea and material accumulated by private United States engineering firms. Officials of the Department of State and the Department of the Army, then present in Korea, examined the program and it was then submitted to the Economic Cooperation Administration in Washington. At this stage of preparation the program was reviewed by the Department of State, the Department of the Army, the Department of the Treasury, and the Department of Commerce. In addition, the National Advisory Council scrutinized the program from the point of view of its effect on the foreign financial policies of the United States. In its final stages, the review took into account price changes, procurement factors, and the current situation in Korea. The program is thus presented to the Congress as the best judgment of the executive branch of the way in which the United States Government can assist the Republic of Korea. The question of cost. -The essential thing about the program is that it aims not to tide the people of South Korea over from year to year on a relief basis but to enable the Republic of Korea to develop s self-sustaining basis. As background for considering this change of emphasis it should be considered that the assistance given to Kores since the arrival of United States troops has been a heavy charge upon the United States Treasury-and the American taxpayer. Total allocation of funds by the United States for civilian supply purposes in Korea are estimated to have been $6,000,000 during the fiscal year 1946, $93,000,000 in 1947, and $113,000,000 in 1948. Expenditures during 1949 are expected to reach a total of $148,000,000, exclusive of approximately $25,000,000 worth of surplus property provided to Korea under a Foreign Liquidation Commission loan agreement. As to the instant program-proposing the expenditure of $150,000,000 in fiscal year 1950, the following words are quoted from the testimony of Mr. Hoffman: The cost * * does not greatly exceed that of a simple relief program Yet, it brings Korea closer to being able to pay its own way, whereas a reper program would leave the Republic just as dependent upon outside assistance as it is now. Continuation of a mere relief program would necessarily result in the progressive pauperization of the people of South Korea. It would contribute in no way to the substantive improvement in the Korean economy vital to the Republic's position in any negotiations with the Soviet zone. In my opinion it simply makes no sense to adopt a relief program-costing many millions of dollars-which brings the Republic no closer to a self-supporting basis. * ** * I cannot overemphasize that the proposed ECA program, as a result of the most rigorous trimming and the making of every possible economy, costs but slightly more than a simple relief program * * * Anticipated further stages. It must be stressed also that this program is not presented on the premise that it alone will bring the Republic of Korea to the state of economic viability. In the first place, this is not a bill to start a program. It is a bill to continue a program that is already a going concern-a program that has been going for 3 years as an effort to put South Korea economically on its feet. In the second place, the year of operation authorized by this program will not be enough to finish the job. It is expected to take 3 years. The Economic Cooperation Administration has plans for a 3-year effort emphasizing the following lines of development: (a) Coal and electric power production; (b) Agricultural production with the primary objective of producing export surpluses of cereals; (c) Fisheries in order to maximize exportable supply of marine products; (d) Production of tungsten, graphite, and other strategic mineral resources important to the United States stock-piling program; (e) Transportation and communications; (f) The textile industry with the goal of increasing the production of cotton textiles for domestic use and silks for export; (g) The training of Korean technicians and specialists; and (h) Conversion of Japanese-built war factories to peacetime purposes. The additional cost beyond the program for fiscal year 1950 is expected to approximate $200,000,000. The premises of the 3-year program are explained as follows by the Economic Cooperation Administration: * * * for planning purposes, a tentative 3-year economic-aid program for Korea, providing for capital reconstruction and expansion, has been projected, having as its purpose the expanding of production in each sector of the economy where this can economically be done. Full self-sufficiency at an improved general income level has not been made a goal; plans for the expansion of the productive plant, for example, leave ample slack to be taken up by production from North Korea if the whole of Korea were to be reunited. Stress has been laid, however, on developing the economic potentialities of South Korea in order that it may have economic sinews of its own on which to rely rather than face the constant danger of economic and political domination by the more highly developed northern part of the country. This much is essential to the engendering of confidence, among the Korean people in both zones, in the future stability of the Republic. The projected program will not make it possible for South Korea to produce all the goods and services that it needs but it will facilitate its producing a greater part of them and, in the case of rice, fish, several important minerals, and various other products, to produce a substantial surplus with which to enter the world market and procure goods, such as machinery and petroleum, in which the economy will probably always be deficient. The anticipated results.-The anticipated development of the balance-of-payments position of the Republic of Korea, if all goes well, is foreseen as indicated in the accompanying table. It should be noted that even with the working out of this program, the recipient nation will still have a current account deficit equivalent to $35,000,000 in 1953. It is hoped, however, that this deficit will be manageable within the limits of private economic enterprise. 93099-49- 5 Inpayments. Total. Outpayments: Total. Republic of Korea: Estimated balance of payments 1949-53 Current account: Deficit.. D. COMPONENTS OF THE PROGRAM The merits of the program. The proposed program, then, is to be understood as a stage in a series of developments that will involve further costs to the United States. It should be considered on the understanding that there is more to come. Within its limits, however, it is a sensible, practical undertaking one in which recovery, not relief, is the goal. It is a step definitely in the right direction, but it is not the final step. The outstanding characteristic of the program envisaged by this bill is its precision. The types of materials to be supplied by the funds authorized are explicitly stated, the purposes for which they are to be used have been fully developed, and the amounts to be required are specific. This is illustrated graphi cally in charts on the three following pages. The first chart shows the proposed budget for the fiscal year 1950 by projects. The second chart shows the proposed distribution of funds among particular items within each of the principal projects. The third chart relates to the 20 percent of the program specifically concerned with building up productive capacity in South Korea. This chart portrays the keystone of the program. It relates to the fact that this program is not simply a relief measure. Its paramount purpose is to bring about a definite solution for the South Korean economic deficiencies and thus enable the area to make its way to an economically self-sustaining basis free of the necessity of extraordinary assistance from the United States. A map is included to indicate the locations of the principal developments envisaged by this program. A table on pages 32 and 33 shows the intended allocations of funds under this program of assistance subject, of course, to administrative adjustments. Various of the components of the program are discussed in detail in the paragraphs that follow on pages 33 to 45. |