Rebounding after Crisis: South Korea

Abstract:s

The case discusses the 1997-98 financial and economic crisis which hit South Korea (Korea), and the opportunity it provided Korea to undertake reforms to overcome the crisis. Till the 1960s, Korea was an agrarian economy, with the majority of its workforce depending on agriculture for their livelihood. Beginning with General Park Chung-hee's (Park) military coup in 1961, the country's economy made a dramatic turnaround. During the 34 years ranging from 1962-1995, Korea transformed itself from an agrarian economy into an industrialized one. However, behind this splendid transition of Korea, there was a very complex structure by which the economy was managed by the state.

The case discusses the reasons behind the 1997 financial crisis in Korea. According to economists, Korea's financial crisis was due to the government's failure in two major policy areas: exchange rate policy and Chaebol (corporate) policy.

In December 1997, Korea realizing it was in a serious financial crisis, accepted a USD58.4 billion bailout package from the International Monetary Fund (IMF). Along with the bailout package, Korea also had to accept the tough austerity conditions laid out by the IMF. As the IMF policies resulted in a deepening of Korea's recession, the IMF allowed Daejung Kim (Kim), who was elected Korea's President in February 1998, to exercise his discretion in undertaking the financial and Chaebol reforms.

Post the 1997-98 crisis, Korea made remarkable progress, underpinned by its financial and Chaebol reforms. In the following years, the growth momentum continued due to Korea's numerous economic reforms following the crisis, including greater openness to foreign investment and imports.

After the 1997-98 crisis, South Korea went through the major economic and financial crisises better than most of the advanced countries. Even though it was severely hit by the 2008 financial crisis due to high exposure to outside demand, it was very quick to turn its economy around. Many economists opined that Korea had utilized the opportunity provided by the 1997 financial crisis and implemented the much needed reforms, which prepared it to face any future crisis.

Issues:

The case has the following objectives

»Understand how Korea turned the crisis into an opportunity to carry out drastic reforms to revive the economy.
»Study the post-crisis financial reforms which Korea undertook.
»Study the Chaebol reforms carried out by Korea.
»Examine how Korea due to its strong reforms carried out after 1997, was able to avert a major crisis in 2008.

Contents:

Keywords:

Asian Financial Crisis, Korean 1997 financial crisis, Chaebol, won, Korea's external debt, Hanbo Steel, IMF bailout, Korea's financial reforms, Chaebol reform, Financial Supervisory Committee (FSC), Korea Asset Management Corporation (KAMCO), Financial Supervisory Service (FSS), Daewoo, Samsung, Hyundai, 2008 financial crisis, Opportunity in crisis, Korea's economic problems, Korea's economic crisis, Big deals, Korean reforms

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