The war had destroyed most of South Korea's production facilities. The South Korean government began rehabilitation as soon as the battle zone near the thirty-eighth parallel stabilized in 1952. The United Nations Korean Reconstruction Agency and members of the UN, principally the United States, also provided badly needed financial assistance. Seoul depended heavily on foreign aid, not only for defense, but also for other expenditures. Foreign aid constituted a third of total budget in 1954, rose to 58.4 percent in 1956, and was approximately 38 percent of the budget in 1960. The first annual United States economic aid bill after the armistice was US$200 million; aid peaked at US$365 million in 1956 and was then maintained at the US$200 million level annually until the mid-1960s.

The scarcity of raw materials and the need to maintain a large army caused a high rate of inflation, but by 1958 prices had stabilized. The government also intensified its effort to increase industrial production, emphasizing power generation and textile and cement production. In order to reduce dependence on imports, such principal items as fertilizer and steel began to be produced domestically.

The average rise in the gross national product (GNP--see Glossary) was 5.5 percent from 1954 through 1958. Industrial production led the advance, growing by nearly 14 percent per year. The tightening of fiscal and monetary policies in 1958, coupled with the phasing out of the United Nations Korean Reconstruction Agency program and the reduction in direct aid from the United States in 1957, caused a shortage of raw materials for import-dependent industries and led to an overall economic decline. By 1958 Liberal Party leaders paid more attention to political survival than to economic development. The government adopted a comprehensive Seven-Year Economic Development Plan in January 1960, but before the plan could be implemented, the student revolution brought down the government.

Data as of June 1990