Issues and Aspects of Development, Growth, Trade and Investment
Edited by Tran Van Hoa
Chapter 3: Structural reform in Korea: its process and consequences
Jong Won Lee, Hyun-Hoon Lee and Doo Yong Yang 1 INTRODUCTION On 21 November 1997, Korea turned to the International Monetary Fund (IMF), as the rollover ratio of short-term external borrowings by domestic financial institutions kept decreasing and the country’s usable foreign exchange reserves plummeted to US$7·3 billion, from US$22·3 billion only a month earlier. On 3 December 1997, Korea and the IMF signed an agreement on a financial aid package totalling US$58·3 billion. The IMF Stand-by Arrangement was subject to a broad range of conditions, including macroeconomic stabilisation and structural reform. As emergency measures, the Korean government was required to implement a tight monetary policy, fiscal austerity and the immediate closure of insolvent financial institutions. In the longer term, the Korean government was required to pursue economic reform programmes in the financial sector, the corporate sector and the labour market. Because the Korean crisis had its roots in the weakened fundamentals of the Korean economy, attempting to stabilize only the financial market without an emphasis on structural reforms is like treating symptoms without addressing the cause.1 Thus, since the onset of the financial crisis in 1997, the Korean government has pursued structural reforms in the areas that the IMF required. In addition, the Korean government has pursued public sector reform to achieve the efficiency necessary to keep up with other sectors’ reforms. This chapter aims to evaluate the post-crisis performance of the Korean economy with special emphasis on the Korean government’s structural reform...
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