Despite geographical proximity and complementing industrial structure, the possibility of forming a formal organization in Northeast Asia at the supra-national level still seems distant. If cooperation at the country-level is difficult for historical, political or social reasons, then an alternative would be to expand regional cooperation at the city-level. The object of this study, therefore, is to devise a model for cooperation among port-cities of Pusan, Shanghai, and Fukuoka, which will lay a foundation for further cooperation among the three Northeast Asian countries.

This study selected Pusan, Shanghai, and Fukuoka as strategic cities for building Northeast Asian economic cooperation. Pusan and Shanghai are the largest port-cities of Korea and China ; Fukuoka, which well-complements the two port-cities in industrial structure, is only some 200 kilometers apart from Pusan. Because Shanghai and Pusan possess fast-growing automobile parts industries and the Northern Kyusu region (which includes Fukuoka) is one of Japan's largest automobile producing regions, this study proposes that an interdependent automobile parts industry among the three cities be created. In addition to industrial cooperation, this study proposes that there should be a division of labor in maritime transportation cargo. Shanghai has a geographical advantage in the central region of China and Southeast Asia while Pusan's advantage is in the Russian Far East, Northeastern China, and the Western coast of Japan. Therefore, this study proposes to develop Pusan as an international port, Shanghai from a national to international port, and Fukuoka from a regional to national port. For this purpose, this study proposes to create a Northeast Asian Maritime High Way, with Shanghai and Pusan as hub port of Northeast Asian trade, Tienjin, Dalian, Qingdao, Nigata, Hukuoka as feeder port.

Creating a common Local Free Trade Area (LFTA) among the three cities will be another important aspect for regional cooperation. There have been various proposals to create a full-scale Free Trade Area (FTA) among Korea, China, and Japan. However, national-level cooperation faces many harsh realities. Therefore, this study proposes that LFTA among the three cities should be created first, then the model for regional coopeation be expanded to the national level.
In conclusion, the dotted places of Pusan-Shanghai-Fukuoka in map will form a triangular line as trade and cooperation increase. The triangular line will expand into an area of cooperation resembling a butterfly. Pusan will be the body of this butterfly while Shanghai and Fukuoka the wings. If cooperation expands from the body, then we will witness a concentric cooperation model in Northeast Asia.

A Study on the Usage of the Fund on the Claim between Asian Countries and Japan
Jung Sik Kim

One large problem for economic cooperation between South and North Korea is the underdeveloped social infrastructure of the North such as railroads, roads, electricity, etc. In order to develop social infrastructure, North Korea needs huge funds; however, the problem is the source of these funds. One possible source is through the claims to Japan.
When North Korea receives the funds from Japan, the more important issue is the usage of the funds, because it is possible to achieve a high economic growth rate only by using these funds efficiently.

In this research, we analyze the usage of the funds in South Korea, Indonesia, Philippines, Myanmar and Vietnam. Furthermore, we suggest an investment strategy for North Korea and a strategy for South Korea.

The results can be summarized as follows. Most of the countries had invested the funds for the modernization of the social infrastructure and agricultural sector. Also, the funds had been used for industries which had a comparative advantage in each country.

According to these results, we suggest that North Korea give priority to the social infrastructure and agricultural sector. In advance, it is necessary that North Korea consider the experience of countries which already have received funds from Japan. Furthermore, the fund should be used not for political and military objectives but for economic purposes, and North Korea should make a complete plan for the management of the funds before receiving them.

South Korea should help in North Korea's successful negotiation with Japan, and cooperate in North Korea's efficient use of the funds, because it will reduce South Korea's unification costs in the near future.

The European Union's Policies Towards a Knowledge- Based Economy and Information Society
Hee Yul CHAI The European Union has recently set itself a strategic goal of becoming a dynamic and competitive knowledge-based economy and information society. Today, knowledge is increasingly important as a motor of innovation and growth, and the use of information technology contributes to the accumulation and diffusion of knowledge. In this respect, the strategic goal set by the EU is timely and pertinent. Furthermore, it is expected that the new economic and social model based on knowledge and information constitutes momentum to overcome the EU's deep-rooted, ywenty-year old unemployment problem. This study aims to provide an overview of the European Union's policies to promote the transition towards a knowledge-information society, as well as their implications for Korea.

The policy stance of the EU is ambitious and comprehensive. It tries to achieve both competitiveness and social cohesion. It emphasizes both the supply side and the demand side of the information society. However, it is doubtful if the financial sources are sufficient to support such an ambitious policy direction. On the other hand, an economic and social model based on knowledge necessarily implies a certain degree of revenue inequality of revenue and flexibility of the workplace. It is an open question as to how the EU will reconcile the necessary flexibility of labor market and the policy goal of social cohesion.

For Korea, the transition towards a new and feasible economic and social model is also a very important task. The concept of "productive welfare" introduced by the Korean government as one of the three pillars of economic and social policy has a lot to do with the EU's strategy towards a knowledge-information society. The case of the EU thus sheds some light on the way Korea might choose to go.

This study also extracts from the EU's experiences several practical lessons for Korean knowledge-information policies . The opinions of private economic agents shall be, as largely as can be, taken into account into the policy design and implementation. It is desirable to set up an incentive mechanism that can enhance peer competition between local governments. The government has an important role to play in the establishment of information technology standards.

Ten Years of Economic Reforms in India:Achievements and Challenges
Chan-Wahn Kim

Over the last ten years since the economic reforms of 1991, the Indian economy has experienced considerable changes. Almost all licensing restrictions on the economic activities have been removed. The trade and foreign exchange regimes have been substantially liberalized. All these policies have been guided by an export as well as market oriented strategy of growth. These policies have significantly improved the competitiveness of Indian economy and accelerated the pace of integration of the domestic economy with the international economy. As a result, India's macro economic conditions have also improved substantially compared to the situation a decade ago.

Notwithstanding these notable achievements, the Indian economy is still beset by a number of grey areas which require urgent attention. This thesis underlines some critical issues and the tasks ahead. First, it is observed that the majority of the Indian low income classes have not witnessed the fruits of economic reforms, rather they have been adversely affected by the pressure on daily commodity prices. The economic reforms have increased the gap between the rich and the poor. This holds true across persons as well as different Indian states. The inter-state disparity has been widening, especially in the wake of the ongoing IT revolution where a handful of rich states with the requisite infrastructure have been the principal beneficiaries. This widening divide with strong social implications has the potential of snowballing into a major crisis challenging the very structure of Indian federal polity. Therefore, the policy makers should be seriously concerned with this critical matter.

Secondly, for achieving a sustainable growth, India should urgently reduce the fiscal deficits of the Central and State governments, and improve the efficiency of a large number of public enterprises. The most critical obstacle for reducing India's chronically high fiscal deficits and improving the efficiency of the public sector comes from the Indian politics. Since the middle of 1990s, India has witnessed political instability and coalition politics both at the Centre and states. The political situation has aggravated the politicians' tendency of announcing frequent populist measures that have caused a severe burden on the economy. Thus, political consensus for the direction and scope of economic reforms is a strongly felt necessity because the present political situation is likely to continue at least in the near future. This raises the very question of sustainability of reforms.

Thirdly, if the public savings are not improved, India would face serious resource constraint for investment in infrastructure and social services such as primary education and health, which form the basic source of sustainable growth. It is particularly emphasized that the Indian ruling elite should ensure that activities relating to human development accompany the process of economic reforms in order to achieve real development.

A Study on the Politico-Economic Role of Russian Financial Industrial Groups: Situations and ProspectsGu Ho Eom
There is much debate and criticism about whether or not Russia's business grouping is desirable to sustainable economic development. From an optimistic perspective, financial industrial groups will raise effectiveness by lowering the transaction costs in the midst of a chaotic transition process. From a pessimistic point of view, ineffective investment policies, monopolistic acts, and the abuse of influence and authority due to the political-economic adhesion will worsen the economic crisis.

As of March 2000, officially registered financial industrial groups in Russia has reached 87, and unofficial financial industrial groups are estimated at about 110. While it is true that these financial industrial groups show relatively positive results, in particular the so called "oligarchical" condition that resulted from the adhesion of an unofficial financial industrial groups and the political power, is becoming the most important reform subject, even in the Putin Government. At this juncture, the object of this research is to forecast the future of Russia's financial industrial groups, through a historical analysis of the political-economic adhesion from a political perspective, as well as the organizational structure and efficiency of financial industrial groups from an economic perspective.

This research consists of 5 major parts. In Part II, the theoretical background of the formation of business groups is analyzed from a perspective of a combination of institutionalism and network theory. The characteristics of Russian financial industrial groups are explained from such theoretical basis, and from the perspective of the nature of the relationship between state and industry. The institutionalism divides into various perspectives, such as economic, political, sociological and other disciplines, analyzing Russia's financial industrial groups from each perspective, with a critical interpretation. In Part III, the concept and the types of Russia's financial industrial groups is explained. In this part, the theoretical, legal, and practical concept of Russia's financial industrial groups clarified, and its type is categorized according to a combined method, registration status, initiator, organizational structure, form of production integration, size of activity, etc., and the current status and problems are analyzed. In Part IV, the corporate governance and performance of Russian financial industrial groups are analyzed. In particular, their organizational structure and strategies, and relation between central company, soviet of executive manages, and financial institutions are analyzed. In Part V, the political-economic attachment of Russian financial industrial groups is analyzed with oligarchy as the central concept. Oligarchy will be defined in the Russian concept, and the formation and developmental process of oligarchy after 1993 will be analyzed, and finally the people's opinion and the future deployment of oligarchy will be forecasted. In the conclusion, the limitations and the future of the progress of Russian financial industrial groups is forecasted.

Labour Policies in Central and Eastern Europe
Eun-Ku Lee

This study aims at examining the labour policies of Central and Eastern European(CEE) countries in the past ten-years of transition toward a market economy, and to pick out some of lessons from their experiences applicable to Korea. According to its report published in 1999, EBRD has affirmatively evaluated the achievement of economic reform of the CEE countries in general. At the same time, EBRD has, however, recommended that the CEE countries should, in order to remedy some side effects and then to establish an integrated society, pay policy priorities on the redistribution of economic benefits generated from the economic transition.

Among the side effects, this study mainly concerns on unemployment and income differential. The labour strata, under the expectation on that they could become the winners in the economic transition, have sent political and social supports for the transition. However, the labour strata have become the biggest losers. Many of the labour strata have suffered from the decrease of real income and the unemployment. Each of countries in CEE, seriously realizing that the income differential and the unemployment could be the most dangerous challenges to the transition, implemented various unemployment support policies and social welfare programmes. At the first stage of economic transition, the governments in CEE mainly supported the unemployment through the payment of unemployment benefits. But they soon realized its limits for overcoming the unemployment problems. At the second stage, the governments, instead of the payment of unemployment benefits, strengthened active labour market policies. Among the programmes of active labour market policies, the vocational training programmes producted employment effects while the other programmes were hardly contributed to moderate unemployment increase.

On the other hand, while the trade union's movements have been weakened since the collapses of socialist systems, the governments have led the tripartitive negotiations. In regard to real income, the growth of the wage differential between the industries have escalated earnings inequality, and Gini-coefficients have been increased in all of the CEE countries. In order to ease the income inequality, the governments in CEE have introduced new social service programmes and have increased the government expenditure.

In conclusion, this study emphasizes that the CEE countries could be derailed to the bipolarized societies if they do not share the fruits of economic transition with the labour strata. And it also that the dead socialism might be revived if the interests of the labour strata would be continuously neglected in the future transition.

MERCOSUR: Evaluation of Economic Performance and Its Implications for Future
Heon Deok Yoon

Brazil, Argentina, Uruguay and Paraguay agreed to form a customs union called the Mercado Comun del Sur(MERCOSUR). MERCOSUR created an integrated regional market whose members were committed to liberalizing trade with one another while imposing a common tariff on goods imported from nonmembers. Currently the fourth largest integrated market after the North American Free Trade Area(NAFTA), the European Union, and Japan, MERCOSUR has further extended its scope by entering free trade agreements with Chile and Bolivia. MERCOSUR's sheer size gives it considerable market power and influence over trade developments worldwide.

Like other regional trade arrangements that offer preferential terms to member countries, MERCOSUR has generated fair amount of debate on its implications to member and nonmember countries in the region. There are persuasive evidence that MERCOSUR has promoted intra-group trade over outsiders and increased the credibility of the participating governments' committment to trade reforms. In this article, the impact of MERCOSUR on the trade patterns and growth of the participating countries is explored and evaluated its implications for future of MERCOSUR, and considering also Korean perspectives to MERCOSUR.

Taiwan's Entry to WTO and Its Implication
Jemo Koh ·Chai Wook Chun

Taiwans economic strength has already reached that of developed countries and it is expected to enter into the WTO with the conditions set forth by them as well. The U.S. along with most of the Western countries are open to Taiwans entry into the WTO yet due to Taiwans political relationship with China, Taiwans entry into the WTO will not be an easy task.

In preparing to join the WTO, Taiwan is trying to make headway into a gradual reduction of tariffs and market openness along with readjusting and supplementing the existing law in order to relax any sudden percussion in joining the WTO. Even if Taiwan joined the WTO, the impact on each of the domestic industries will not be significant due to the implementation of these prior measures. Though a minor effect is expected in the agriculture industry where the level of protection is comparatively high and a section of the service industry where out-dated management techniques still exist, the impact on the manufacturing sector will not be too great at large.

Taiwans entry into the WTO will influence trade between Korea and Taiwan. Taiwans entry into the WTO does not imply the restoration of the bilateral political relationship. However, Taiwans entry into the WTO may have a symbolic meaning to it. Due to political reasons which have arisen until today, reopening the concrete plan of agricultural products which had been subjected to restriction, increasing the level of tourism and flights, increasing import quotas on Korean automobiles to Taiwan, participating in Taiwans government procurement market and so on will have a positive impact on Korea. The effort of companies and the thorough preparations that the Taiwanese government is showing through this opportunity to enter the WTO are thought provoking.

Especially the establishment of Asia Pacific Regional Operations Center (APROC) which takes on the role of preparing for and collectively analyzing both the domestic and foreign economic conditions makes one realize the degree of preparation being performed by the Taiwanese government. At times, the political instability in Taiwan will have an adverse effect on the Taiwanese economy. Yet the fact that the Taiwanese economy possesses a stable growth potential on the long run is the general consensus. Furthermore, if Taiwan joins the WTO, its economy will become more active.

Some Proposals on New International Financial ArchitectureYunjong Wang· Se-Jik Kim· Doo Yong Yang· Sang-In Hwang
Frequent recurrence of financial crises in emerging markets in recent years has raised a serious question of the adequacy of the current global financial system, and has rekindled enormous public and academic interest in redesigning the international financial architecture. Numerous proposals for reforming the international financial system have been put forward by academics, policy making groups, and financial experts. Among them are included the G-7 Finance Ministers Report, the Meltzer Commission Report, the Report sponsored by the Council on Foreign Relations, and the Financial Stability Forums Reports.

However, these reports are often criticized for not properly reflecting the views of emerging markets. In order to forge a global consensus on the issues of architectural reforms, emerging market economies need to more actively participate in the discussion. By doing so, emerging market perspectives would be incorporated more adequately in the process of designing a new international financial architecture.

The papers in this volume aim to evaluate whether the current system is adequately designed to prevent future crises and to seek for policy recommendations on rebuilding a better system. They address four essential issues related to the reform of international financial architecture: 1) new international lending facilities; 2) exchange rate regime; 3) external debt management; and 4) private sector involvement.
New Proposals on International Lending Facilities The first paper explores two new proposals on international lending facilities for better prevention of financial crises. First, it makes a proposal on reforming the current CCL (Contingent Credit Line) of the IMF. The key of the proposal lies in the adoption of a dynamic threshold, rather than the current approach of static threshold when determining the eligibility for the CCL. The modified CCL is expected to substantially alleviate the adverse selection problem of the existing CCL. Second, the paper proposes a new international lending facility. Under the new facility, the country first hit by the crisis will not be bailed out under any circumstances, but those hit later will be bailed out. The new facility adopts the timing of crisis as criteria for international bailout, so that it does not have to rely on arbitrary judgment of international financial institutions.

This paper further develops a model which show that the new lending facility is better than the existing ones in resolving the problems of moral hazard and contagion simultaneously. The model suggests that traditional lending facilities of the IMF such as Stand-By Arrangement are effective only in mitigating contagion effects, not in preventing moral hazard. In addition, the CCL may effectively reduce both moral hazard and contagion under information symmetry, but cannot avoid moral hazard problem in the case of asymmetric information. In contrast, it is shown that even under information asymmetry, the new lending facility proposed in this paper can effectively abate both moral hazard and crisis contagion.
Choice of Exchange Rate Regime: Emerging Market Perspectives The issue of choosing an appropriate exchange regime has been actively discussed since the recent Asian crisis. As a lesson from the recent crisis, an argument has arisen that an intermediate exchange regime under the expansion of capital liberalization can set off a crisis for emerging market economies. Accordingly, these countries are forced to adopt two-corner solutions. A counter-argument tries to prove that two-corner solutions apply more to developed countries and less to emerging market economies. The second paper in this volume tries to explain the reason that developed countries and emerging market economies have different degrees of intervention in their own foreign exchange market. Moreover, it shows that free floating regime cannot be applied directly to emerging markets due to the fear of floating.

The financial market structure is to be examined in terms of appropriate exchange rate regime. In the case of Korea, the improvement of infrastructure and efficient risk management in the foreign exchange market are needed for a successful floating exchange rate regime. In addition, this paper emphasizes that the elimination of misalignment through effective market intervention is as much an important policy objective as the successful implementation of inflation targeting. More importantly, the choice of exchange rate regime should be consistent with the macroeconomic policy to prevent future crisis.

External Debt Management: Reducing Double Mismatches The imprudent management of external debt and the deteriorating national balance sheet in Korea prompted a bigger economic crisis than its actual economic conditions would have allowed. The result from a quantitative analysis on the Korean economy suggests that the sizable external debt and mismatched external balance sheet exerted negative effects on the economy. Therefore, it is necessary to manage the risk of external debt structure more cautiously. Since domestic capital markets in emerging market economies, including Korea, are underdeveloped and vulnerable to external shocks, emerging market economies need to manage comprehensively not only the public sector debt but also the private sector debt. Based on a proper portfolio plan of external debt, these economies should manage the actual debt structure in advance. In addition, the risk of external debt should be managed in relation to its composition and maturity structure. For example, it is necessary to increase domestic-currency denominated borrowing and to switch from short-term loans to long-term loans.
International cooperation is also required in reinforcing monitoring process over short-term capital flows in the regional context, because deepening financial market liberalization and deregulation renders no individual country to be solely responsible for monitoring international short-term capital movements. Therefore, channels of information sharing should be established, especially with regard to short-term capital movements such as investment funds and short-term borrowings in the Asian countries.

Emerging market economies already with an efficient debt management system, however, may find difficulty in having stable and long-term borrowing conditions. Despite their necessity and willingness to develop their domestic bond market, it will take a long time. Although limited, one way to improve borrowing conditions in emerging market economies can be the guarantee of sovereign bond issuance of emerging market economies by international financial institutions including multilateral development banks and advanced countries.

The development of long-term bond market through regional bond market can be another suggestion for enhancing their borrowing conditions. Finally, technical assistance from international organizations may contribute to improving the sub-structure of capital market in emerging market economies, thereby allowing more long-term borrowing.
Private Sector Involvement: Constructive Engagement The past few years have shown that creditors and investors tend to underestimate risks when they seek for higher yields. In other words, international lenders have as much responsibility for crisis as emerging market borrowers; for every questionable borrower there is a questionable lender. Efforts to achieve greater private sector burden sharing are motivated by the perception that official assistance to crisis countries creates a source of moral hazard on the part of private sector creditors. If private sector creditors are bailed out through official assistance without bearing any cost of the crisis, their habitual poor lending and reckless investment decisions would not be rectified.

Since creditors and debtors is pitted against each other in protecting their own interests, most conspicuous divergences persist in this issue of private sector involvement (PSI). The most unsettled part of PSI would be the question of whether the nature of PSI should be based on predetermined rules or handled on a case-by-case basis. Some want those rules to be very hard and tight, while others desire some degree of flexibility.

Under the broadly defined PSI framework laid out in the 1999 Cologne Summit, the G-7 put forward operational guidelines for PSI at the IMF/WB meeting in April 2000. They distinguished between two different cases. First, PSI could be ensured primarily through reliance on the IMFs traditional catalytic role. Second, more concerted forms of PSI would be required. The official sector will need to insist on appropriate debt restructuring with private creditors, if necessary, as a condition for IMF financial assistance. To make operational guidelines more workable, however, the IMF could act as a crisis lender and manager. Although the IMF stays away from micromanaging the terms of debt restructuring, it could provide bridging loans while negotiations are in progress, provided it is convinced that the crisis country is negotiating with its creditors in good faith. Or if voluntary negotiations are in trouble, the IMF could endeavor to bring the involved players to the negotiation table.

The purpose of this seminar was two-fold. First, it wanted to seek the advice and expertise of the OECD and advanced economies of the world on how Korea should prepare itself for the New Economy and globalization and how it can better managed and complete our economic restructuring efforts which began three years ago.
Second, it wanted to increase the awareness of the Korean public about the economic cooperation and collective discourse taking place among the advanced economies under the auspices of the OECD.