Korean Economic Crisis
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The Korean economy did an important role in the remarkable economic growth, which was so called ¡°East Asia¡¯s miracle¡±. At the end of 1997, however, the Korean economy fell into a crisis of default and finally received IMF¡¯s relief aid. After that, Korea has been struggling not only to reform its monetary system but also to promote drastic reforms in its economic structure in order to improve the productivity of the Korean industry.
Given this context, understanding what truly caused the Korean economic crisis is very important. Without identifying and remedying the fundamental problems, nobody can be sure that Korea will not have the similar kind of economic crisis never again. So, we need to identify what caused the crisis in 1997 and what the Korean government has to do. Therefore, this paper will examine the root cause of Korea's economic crisis in 1997 and present solutions for the stable growth of the Korean economy in the future.
2. Causes of the Korean economic crisis
On November 21, 1997, the Korean government formally asked the International Monetary Fund for stand-by loans. With this request, the Korean government admitted its inability to meet international debt payments with its own means.
The followings are three popular views about the cause of the Korean economic crisis in 1997(Cho, 1999): First, the currency crisis in Southeast Asian countries mainly Thailand and Indonesia in the summer of 1997 made Korea vulnerable to the attacks of currency speculators. So, the currency speculators turned their attention to Korea after having devoured the Southeast Asian countries. Second, the root cause of the problem was the lack of competitiveness in the domestic financial sector; the commercial banks, merchant banks, leasing companies etc. The domestic financial institutions overexposed themselves to the junk bonds issued by Southeast Asian countries, Latin America and Russia, rather than supplying scarce credit to the domestic economy. Third, corporate business strategy focused on increasing market share and diversification rather than profitability and specialization. Business practices were based on excessive borrowing of foreign capital and poor management of that debt. This created debt-laden bloated business empires with little competitiveness.
However, Woo Jin Yang (2002), professor of Hanshin University in Korea, contended that roots of the Korea¡¯s economic crisis were in post-democratization. He pointed out that the introduction of political democracy after years of military rule was a concession to the student movement, labor movement, and other resistances that fought to! gether against the previous government regime. Therefore economic reforms lagged far behind the political ones. In Yang's view the real key issues that needed to be addressed were the "deepening conflicts of capital-labor relations,...