SOUTH KOREA'S ECONOMIC REFORM AND ITS AFTERMATH

다국어 초록 (Multilingual Abstract)

This paper analyzes the process of Korea's recovery from the 1997 financial crisis with several policy implications. The driving force behind the better-than-expected economic recovery was the reform measures introduced by the Korean government in four major areas such as the financial, corporate, labor and public sectors. Also, Korea's strong export performance helped by the booming U.S. economy provided a favorable external condition for recovery. Internally, surging investment in the IT and venture industries, which was deliberately fostered by the government, along with the revived consumption level, enabled the rapid recovery. However, as the U.S. economy slowed and the technology bubble burst in 2000, the Korean economy went through a mild recession in 2001. Based on the experiences of crisis and recovery, the implication of macroeconomic fundamentals is re-examined. Even though the strong macroeconomic fundamentals were misleading in preventing the crisis, they later facilitated the Korean economy's recovery. As a result of various reform measures, the Korean economy as of today is in a different environment. First, the low investment rate along with the decreased saving rate will mark the end of the high growth era. Second, the substantial deterioration of income distribution will be the major task to be tackled with in the future. Third, the Korean economy is now fully liberalized both in the commodity and capital markets with some side effects and merits. Fourth, the loan and deposit structure of the financial sector is significantly altered. Lastly, more fiscal burden is placed on the shoulders of the government due to the heavy debt service burden of public funds and the generous expansion of social welfare programs.