Rebounding after Crisis: South Korea

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In 1996, Korea’s current account deficit widened to 4.7% of its GDP from 1.7% in 1995 due to decreasing exports and increasing imports. The cumulative current account deficit from 1990-1996 amounted to USD48.7 billion, which was mainly financed by foreign capital. This increased the country’s net foreign debts. It was estimated that Korea’s external debts increased to a massive US$157.4 billion in 1996 from USD29.3 billion in 1989 (Refer Table I – Korea’s External Debts, Usable Gross Reserves, and Debt-Equity Ratios).

"Another factor which contributed to the 1997 financial crisis was the Chaebol system. Korea’s industrial policies adopted during 1962-1995, led to the creation of the Chaebol. According to analysts, the immediate cause of Korea’s financial crisis was the shortage of foreign reserves. The shortage arose due to government-backed low interest loans given to the Chaebols for their risky investments and expansion programs....."

Exhibit I: Korea’s External Debt, Usable Gross Reserves, and Debt-Equity Ratio (1994-2000)
Exhibit II: Top 20 Korean Chaebols: Size and Breadth
Exhibit III: Korea’s Major Financial Reforms after the 1997 Financial Crisis
Exhibit IV: Post-Crisis Financial Restructuring in Korea
Exhibit V: Post-Crisis Chaebol Restructuring in Korea
Exhibit VI: Korea’s Economic Performance After the 1997 Crisis (%)

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