The Korean Economy Beyond the Crisis

The Korean Economy Beyond the Crisis

Edited by Duck-Koo Chung and Barry Eichengreen

Providing an integrated analysis of the event and its consequences, the chapters in the book consider the causes of the crisis, the response of the US government and International Monetary Fund, adjustments in the Korean monetary and fiscal policies, and the success of financial and corporate restructuring. The concluding chapters bring the story up-to-date, describing the aftermath of the crisis and assessing whether there has been sufficient reform to facilitate the country’s recovery and growth.

Chapter 11: Transparency and social capital

Jaeyeol Yee

Subjects: asian studies, asian economics, economics and finance, asian economics, financial economics and regulation

Extract

Jaeyeol Yee INTRODUCTION Five years have passed since the outbreak of the Korean crisis. Painful changes have taken place in the economy, and continue to this day. The country’s shattered financial system has been rebuilt.1 The standard IMF policy package of stabilization, financial restructuring and structural reform has been applied with only slight modification. Reform politics have replaced growth-driven government initiatives. There has been a systematic effort to restructure the economy so as to render Korea more competitive in an increasingly interdependent and open global economy. Five sets of initiatives dominate the reform agenda: raising corporate transparency, strengthening the financial sector, revamping the public sector, introducing labor market flexibility and amicable labor relations, and creating a viable social welfare system. Compared to other South East Asian countries experiencing financial crises, Korea has successfully reduced its debt overhang in a relatively short period of time by following the IMF’s prescriptions. Even before his inauguration, President-elect Kim Dae Jung played a key role in persuading the IMF to become involved in Korea. Market prescriptions have indeed contributed to the subsequent recovery of the economy.2 But while the objective of reform has been to strengthen market competition, the result after five years is not fully consistent with the goal. Whereas reform was equated with the elimination of excessive government intervention in the private sector, government agencies have continued to exert a strong influence over the operation of the Korean economy. Rule by law was the motto of the reformers, but personal...

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