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 14: Reform and the risk of recurrence of crisis

In June Kim, Baekin Cha and Chi-Young Song

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


In June Kim, Baekin Cha and Chi-Young Song INTRODUCTION A large number of studies have sought to determine the roles of domestic and international factors in the currency and banking crises experienced in East Asian countries, including Korea, in 1997. These studies can be usefully classified into three groups. The first one stresses structural weaknesses in the corporate and financial sectors, misguided economic policies, and deteriorating macroeconomic fundamentals (see for example Corsetti et al., 1998b; Fischer, 1998b; Lane et al., 1999). The second emphasizes the instability of international capital markets, as panicked creditors withdrew their short-term loans to East Asian borrowers (see Radelet and Sachs, 1998; Feldstein, 1998; Stiglitz, 1999). A final group of studies emphasizes the contagious nature of the crisis as it spread from Southeast Asia to Korea (Kaminsky and Schmukler, 1999; Park and Song, 2001b). More analysis is needed to determine the explanatory power of these competing views, but many observers will agree that all three sets of factors played some role in Korea’s crisis. The Korean government approached the International Monetary Fund (IMF) for assistance in November 1997 when it was unable to stem the outflow of capital and the depreciation of the won. Since the IMF considered structural weaknesses to be at the root of the country’s crisis, it made the provision of assistance conditional on structural reform. In concert with the Fund, the Korean government implemented a wide range of reforms, including financial and corporate restructuring and further deregulation of the capital...

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