Rebounding after Crisis: South Korea
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Case Code: ECON042 Case Length: 18 Pages Period: 2012-2013 Pub Date: 2013 Teaching Note: Not Available |
Price: Rs.400 Organization : - Industry : - Countries : Korea Themes: Opportunity in Crisis, Economic Reforms, Economic Crisis, Financial Crisis |
Abstract Case Intro 1 Excerpts
"The 1997 crisis revealed longstanding weaknesses in Korea's development model. After this crisis, Korea managed to implement broad structural reforms. The country started to build a knowledge economy and we can claim that it has been successful. Nowadays, we often hear that a crisis represents an opportunity. Korea is an example of a country that was truly able to utilize such an opportunity."
-Ludek Kouba, Faculty of Business and Economics, Mendel, University in Brno, in 2009
"We should interpret crisis as a window of opportunity for the next era. History shows us that when we overcome a crisis, a new order is created for greater development and prosperity."
-Taro Aso, 59th Prime Minister of Japan, in 2009
Introduction
After years of facing strong economic growth, South Korea (Korea) found itself mired in a deep economic and financial crisis in December 1997. To avoid a sovereign default, it accepted a USD58.4 billion bailout package from the International Monetary Fund (IMF). Along with the bailout package, Korea also had to accept tough austerity conditions laid out by the IMF. These tough IMF conditions only deepened Korea’s recession. As a result, IMF provided a leeway to President Daejung Kim (Kim), who was elected Korea’s President in February 1998, to carry out major reforms, subject to IMF conditionalities.
After the financial crisis and economic collapse in 1998, Korea made noteworthy progress, which was highlighted by its financial and the Chaebol reforms. The country, which had been forecast to show a growth rate of as low as 1% for 1999, surprised the world with a 9.5% growth. According to economists, Korea recovered rapidly due to the reforms that it undertook after the 1997-98 financial crisis. Under Kim’s leadership, importance was given to foreign investors in reforming the economy.
The post-1997 reforms which Korea undertook helped the economy become resilient and face the major crisis which arose in the following years better than most of the advanced countries. For instance, in 2008, when Korea was hit by the global financial crisis, it was well prepared and rebounded quickly. In the Q2 of 2009, its financial and foreign exchange markets started stabilizing. Many economists opined that Korea utilized the opportunity provided by the 1997 crisis and implemented much needed reforms, which left it fully prepared to face any future crisis.
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