Looking Forward: Korea after the Economic Crisis
Lee, Chung H., Journal of Southeast Asian Economies
Looking Forward: Korea after the Economic Crisis. Edited by Heather Smith. Canberra: Asia Pacific Press, 2000. Pp. 206.
The volume under review is the outcome of a conference on financial reform and macroeconomic policy management in Korea held under the auspices of the Korea Economy Program at the Australian National University (ANU) in 1998. The contributors to the volume are from Australia and South Korea, and the editor, Heather Smith, has done an able job in putting together diverse papers on macroeconomic policy, the financial system, corporate governance, and the labour market around the theme of Korea's economic crisis of 1997-98.
The first chapter, "Lessons from Korea's Crisis", by Heather Smith and Sandra Eccles, offers a comprehensive coverage of the various issues relating to the crisis. Its discussion of the causes of the crisis, government responses to the crisis, lessons from the crisis, and future challenges is comprehensive and well balanced, and the reader will get a good bird's-eye view of the Korean crisis.
The second chapter, "Macroeconomic Origins of the Korean Crisis", by Peter G. Warr, is more narrowly aimed at showing that by 1997, the Korean economy became vulnerable to crisis but could have avoided the crisis if correct macroeconomic policies had been used. As he sees it, the Korean crisis was a collapse of a boom that was caused by erroneous macroeconomic policies such as a more or less fixed exchange rate system. The boom was fuelled by foreign capital inflow, which brought about a "Dutch disease" phenomenon in the Korean economy, undermining the competitiveness of its traded goods sector.
A lengthy chapter by Heather Smith then follows, in which she analyses the impact of the crisis and the International Monetary Fund (IMF) policy prescriptions on Korea's real economy. It thus deals with the highly controversial issue of whether the IMF adjustment programme that was initially adopted in Korea was appropriate and whether it in fact worsened the situation in Korea. An overall verdict she seems to reach is that although the orthodox stabilization policy was warranted at the beginning of the crisis, it went on too long, given the depth of the domestic downturn and weak external demand.
The next two chapters are on Korea's financial system and capital market liberalization. The chapter by Sungsoo Koh and Donghyun Ji provides a brief history of Korea's financial system and then discusses and evaluates the reforms that have been undertaken since the crisis. Although the chapter makes it clear that the reforms are all in the right direction, one is yet to be convinced that they will in fact lead to the establishment of a strong financial system in Korea. Only time will tell.
In his chapter on Korea's capital market liberalization, Sunho Kim basically makes the point that developing long-term capital markets is essential for the future economic growth of Korea. Although one can hardly disagree with this point, it is nevertheless ironic that doing so would require, as the author points out, the growth of the government bond market and government borrowing. …