Essays in Honour of J. George Waardenburg
Edited by Servaas Storm and C. W.M. Naastepad
Chapter 5: The Korean financial crisis of 1997/98 and its implications for the global financial system
5. The Korean ﬁnancial crisis of 1997–98 and its implications for the global ﬁnancial system Irma Adelman and Song Byung Nak 1. THE CHRONOLOGY OF THE CRISIS The ﬁrst overt signs of trouble in Korea became evident in 1996, when the current account deﬁcit widened from 2 per cent of GNP in 1995 to 5 per cent in 1996, the rate of growth of exports slowed down from a phenomenal 31 per cent to a merely very high 15 per cent and that of GNP declined from an exceedingly high 14.6 per cent to a very high 7.1 per cent. At the same time, foreign debt rose from 78 billion dollars (62 per cent of exports) in 1995 to 100 billion dollars (76 per cent of exports) in 1996, most of it1 short term. The slowdown in export growth was due in part to: a loss of competitiveness arising from the relative appreciation of Korea’s currency because of the drastic decline of the yen; a recession in Japan and Europe; and a precipitous drop in the world prices of computer chips, ships, automobiles and garments, which aﬀected over 50 per cent of Korea’s total exports.2 Exporters of these products were therefore losing money on their exports. Together with increases in domestic wages and high domestic interest rates, these losses put a squeeze on corporate proﬁts, which led to a surge in corporate failures. In January of 1997, despite a massive rescue attempt, Hanbo Steel, the fourteenth...
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