The South Korean economy began to grow rapidly in the 1960s, enabling it to converge with the advanced countries in per capita product. It did so as the leadership change enhanced state capacity. The government intervened pervasively in the economy, making sure that firms receiving the favors used them properly. The size of the government itself was small, but the macroeconomic policy was inflationary. The resultant inflation affected the way financial policy, the most important policy at the time, worked. The export promotion policy degenerated as the government employed non-price measures while the price incentives fell in spite of the 1964 exchange rate reform because of inflation, whereas the reform helped to check import growth. Nonetheless, exports grew rapidly, providing important dynamism for the economy. South Korea coped with the emerging balance of payments problem by normalizing its diplomatic relationship with Japan and sending troops to Vietnam.