Impacts, Transmission and Recovery
KDI/EWC series on Economic Policy
Edited by Maurice Obstfeld, Dongchul Cho and Andrew Mason
Chapter 9: Macroeconomic Policies of Korea to Cope with the Crisis
Hyeon-Wook Kim INTRODUCTION The global financial crisis that began in 2008 has been characterized as the greatest economic turmoil since the Great Depression of the 1930s. Amid this crisis, the Korean economy experienced a period of sudden contraction followed by fast recovery. A severe credit squeeze shook global financial markets, causing a contraction of every economy in the world. Korea was no exception, due to its high dependency on the export sector. Consequently, Korea’s financial markets, including the foreign exchange market, were thrown into a state of near panic, and the growth rate for the fourth quarter of 2008 plunged to 24.5 percent. The Korean economy successfully bottomed out from the recession triggered by the crisis, and the pace of recovery was faster than anticipated. The assessment of Korea’s recovery, both in Korea and abroad, was remarkably positive within a year of the onset of the crisis, and subsequently the economy entered a stabilization phase, normalizing the pace of recovery. It became obvious that the recovery was based on the stabilization of the global financial market and the improvement of the world trade environment, as each country implemented unprecedented expansionary policies to respond to the recession. In Korea, the process of restructuring, which had been carried out steadily since the financial crisis of 1997–98, gave the economy enhanced capacity to respond to the crisis sector by sector and prevented a prolonged recession. In addition, the Korean government’s comprehensive and timely implementation of policies contributed to making the recovery faster...
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