• First, the primary goal of our engagement policy is to promote peace and stability on the peninsula. This means steering North Korean behavior in a more positive direction, particularly with regard to reducing tension, fostering confidence, and building a structure of peace. A related aim is to induce North Korea to open in a way that will improve its economy and impel it toward becoming a responsible member of the international community. It is also essential to address humanitarian problems such as alleviating hunger in the North and reuniting separated families. All these efforts would contribute to peace and stability.
  
  
• Second, we must inject the element of reciprocity into the relationship. Our policy toward North Korea cannot be based on handouts or olive branches alone. Instead, it must be built on reciprocity and verification - based on a realistic assessment of whether Pyongyang is genuinely interested in change. Although we do not and cannot insist on strict reciprocity on every issue in all respects, North Korea needs to understand that our relationship is a two-way street -- there is no free ride.
  
  
• Third, our policy of strategic engagement should not run counter to domestic public opinion; it should not be carried to political extremes at the expense of public consensus at home. To be sure, there is overwhelming national support for improving relations with North Korea. However, the sunshine policy has widely come to be viewed as over-reaching, over-generous, and oblivious to the anxiety and insecurity felt by many people in the South.
  
  
• Next, although unification is an important and ultimate goal of our North Korea policy, an even more important priority is to promote and safeguard human rights, democracy and free market economy. So the fourth principle of my strategic engagement policy is to preserve and protect our fundamental values; on this we cannot compromise.
  
  
• Last but not least, our engagement policy should be underpinned by a strong national defense. We must take the terrorist attacks of September 11 as an occasion to reflect once again on the importance of national security and safety. In this regard, the ROK-US alliance will continue to serve as the mainstay of peace and security on the Korean peninsula.

The fact is that despite its brave talk, North Korea badly needs outside help -- in food, energy and other commodities. This provides us with an opportunity for effective engagement. But we should use our resources wisely, and in a deliberate fashion. We should not be carried away with political rhetoric nor indulge in vain expectations.

We do not seek the collapse of North Korea. At the same time, we should not allow Pyongyang to believe that gamesmanship will be rewarded. We need a policy consistent and firm enough to let the North's regime know that it must take us seriously.

We need to approach the North Korean problem in a business-like way. We should appeal to their self-interest, rather than relying on their good will. For our part, we should deal with the North in good faith, but not with the illusion that somehow it will be reciprocated or that agreements will be kept without our insistence. A proactive approach should be balanced with healthy skepticism. In sum, we need a policy flexible, yet firm enough to induce Pyongyang to negotiate, cooperate and exchange with us.

Another critical element of our approach to North Korea is close trilateral coordination among the Republic of Korea, the United States, and Japan. It is true that relations between Korea and Japan can be touchy, usually over the issue of past history. However, geographically, we are destined to be neighbors and we have to learn to live and work together. Fortunately, our bilateral relationship is now mature enough to withstand occasional difficulties.

As for China, it has played a constructive role regarding North Korea. It has had a moderating influence, trying to lead it toward a path that China itself has taken with success-that is, addressing economic problems in a pragmatic way.

China is going through enormous social and even political changes. Those changes may accompany risks, to its government as well as to neighboring countries. We should try to help Beijing manage these changes, even if it means China's progress is slow in some areas. In this connection, I would like to compliment the United States for the recent improvement in U.S.-China relations. The progress toward a cooperative relationship is indeed a positive step.

Russia also has a role to play, as both a former ally of North Korea and a permanent member of the United Nations Security Council. As a country undergoing profound political and economic changes itself, Russia can help in steering North Korea in a more positive direction.

And now for a look in the mirror. We recognize that however brilliant our strategy for North Korea might be, it will not be effective unless we have our own political and economic house in order.

During the past few years, Korea too has had its share of political turbulence. The tug of war between the government and the media, and the plethora of political corruption scandals have taken their toll. Our chief strength versus the North lies in the fact that we have a democratic government. But this government must be clean and effective. So far, the government of President Kim Dae-Jung has had a mixed record.

For a number of years I have advocated honesty and transparency in government. Now I am as determined as ever to bring about clean government and clean politics. We have finally to rid ourselves of money politics. Political cronyism has to go. Blind regionalism in politics must be broken. To consolidate true democracy in Korea, we must increase transparency, fairness and accountability.

In the economic sphere, the Korean economy is showing signs of improvement lately, as chip prices and the Korean stock market recover. Consumption, exports and investment are on the way up. If the economy of our most important partner, the United States, also recovers this year as expected, it will be a tremendous boost for Korea.

However, we still face the unfinished tasks of reforming the corporate and financial sectors, labor relations and the government. This year, we will hold local and presidential elections, and I am deeply worried that political considerations may overshadow any true effort at reform during this critical time.

The role of the good politician should be to shield economic reform from political influence that tries to set it off course. I try to promote a consistent vision and a reliable long-term economic plan. Instead of short-term adjustments and quick fixes, I believe in working to create sustained economic stability for the country, and making a difference for every Korean household.

In meeting the challenges of economic reform and restructuring, I fully understand the importance of adhering to market principles and norms. Reform efforts during the last four years were largely controlled by the government. But in the future, if reforms are to stick, the market must be given precedence.

Non-viable firms and financial institutions should be restructured or driven out of the marketplace. State-owned banks need to be privatized. Unreasonable government regulations that hamper corporate initiative should be scrapped. Chaebols' transparency and corporate governance should be enhanced. Laws and principles should be respected in the labor market.

Moreover, our capacity to restore confidence and stability in the Korean economy depends on finally rooting out corruption. We must do a better job to ensure transparency and accountability in the implementation of Korea's laws and in the running of its corporations.

I have great confidence in the future of Korean economy. And I have great confidence inthe Korean people to work through these economic challenges. Through a dramatic rise from poverty, our people have shown that they are resilient and committed to improving their country's future.

As we look ahead to the first decade of the twenty-first century, it is clear that there are both challenges and opportunities. We are now at a crossroads. We can pursue a path toward greater peace, economic well-being, and global cooperation. Or, we may encounter a rise of tension between North and South Korea, economic downturn, and international conflict.

In my mind the choice is clear. With the right leadership, we have an excellent chance to create a brighter, more secure future for our people. In this effort, I consider close relations with the United States to be the cornerstone of Korea's security and prosperity. Our two countries are committed to the fundamental values of peace, freedom and democracy.

Together, we fought - and died -- for these values. I am here today to reconfirm our friendship and stress the need for strengthened trust and cooperation for the next fifty years. Thank you.

Lee Hoi-chang is President of the Grand National Party, Republic of Korea