Rebounding after Crisis: South Korea
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Case Details:
Case Code : ECON042
Case Length : 18 Pages
Period : 2012-2013
Pub. Date : 2013
Teaching Note :Not Available
Organization : --
Industry : -
Countries : Korea
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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“The 1997 crisis revealed longstanding weaknesses in Korea's development model. After this crisis, Korea managed to implement broad structural reforms. The country started to build a knowledge economy and we can claim that it has been successful. Nowadays, we often hear that a crisis represents an opportunity. Korea is an example of a country that was truly able to utilize such an opportunity.”
– Ludek Kouba, Faculty of Business and Economics,
Mendel
University in Brno, in 2009
“We should interpret crisis as a window of opportunity for the next era. History shows us that when we overcome a crisis, a new order is created for greater development and prosperity.”
– Taro Aso, 59th Prime Minister of Japan, in 2009
Introduction
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On August 28, 2013, the value of the Indian rupee vis-à-vis the US dollar plummeted to a record low of INR68.80. The stock market took a plunge and BSE SENSEX on August 28, 2013, touched an intra-day low of 17,720, down a whopping 13.6 % from January 2013's high of 20,500. Experts pointed out that the Indian economic condition in 2013 was the worst since 1991.
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After years of facing strong economic growth, South Korea (Korea) found itself mired in a deep economic and financial crisis in December 1997. To avoid a sovereign default, it accepted a USD58.4 billion bailout package from the International Monetary Fund (IMF). Along with the bailout package, Korea also had to accept tough austerity conditions laid out by the IMF. These tough IMF conditions only deepened Korea’s recession. As a result, IMF provided a leeway to President Daejung Kim (Kim), who was elected Korea’s President in February 1998, to carry out major reforms, subject to IMF conditionalities.
After the financial crisis and economic collapse in 1998, Korea made noteworthy progress, which was highlighted by its financial and the Chaebol reforms. The country, which had been forecast to show a growth rate of as low as 1% for 1999, surprised the world with a 9.5% growth. According to economists, Korea recovered rapidly due to the reforms that it undertook after the 1997-98 financial crisis. Under Kim’s leadership, importance was given to foreign investors in reforming the economy.
The post-1997 reforms which Korea undertook helped the economy become resilient and face the major crisis which arose in the following years better than most of the advanced countries. For instance, in 2008, when Korea was hit by the global financial crisis, it was well prepared and rebounded quickly. In the Q2 of 2009, its financial and foreign exchange markets started stabilizing. Many economists opined that Korea utilized the opportunity provided by the 1997 crisis and implemented much needed reforms, which left it fully prepared to face any future crisis.
Background
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