Restructurng "Korea Inc.": Financial Crisis, Corporate Reform, and Institutional Transition

Restructurng "Korea Inc.": Financial Crisis, Corporate Reform, and Institutional Transition

Restructurng "Korea Inc.": Financial Crisis, Corporate Reform, and Institutional Transition

Restructurng "Korea Inc.": Financial Crisis, Corporate Reform, and Institutional Transition

Synopsis

The 1997 South Korean financial crisis not only shook the country itself but sent shock waves through the financial world at large. This impressive book critically assesses the conventional wisdom surrounding the Korean crisis and the performance of the IMF-sponsored reform program.

Excerpt

The 1997 financial crisis and its aftermath

In the previous chapter we defined the key characteristics of the traditional Korean economic system - or 'Korea Inc.', based on the nexus between the state, banks, and the chaebols - and discussed its strengths and weaknesses as a catching-up system. This was done from a historical-comparative perspective, which allowed us to evaluate the relative merits and demerits of the Korean model in a more balanced way than is possible under the common practice of benchmarking it against some theoretical ideal or an idealised version of the Anglo-American model.

In this chapter, we discuss the 1997 financial crisis and its aftermath, which is essential in understanding the post-1997 corporate sector reform, which is the focus of our book. in the first part of this chapter, we chart the evolution of the 1997 crisis. We then critically discuss the alleged causes of the crisis, which informed - or, rather, misinformed, in our view - the short-term crisis management strategy and the long-term restructuring programmes of the imf and the Korean government (section 3.2). Then we discuss the unexpected recovery of the Korean economy from the crisis, focusing on whether the imf programme was the main force behind the recovery, as the imf and its supporters claim (section 3.3). and we set out our view on the real causes of the Korean crisis, characterising it as a case of 'transition failure' (section 3.4), before we provide the concluding remarks (section 3.5).

3.1

Evolution of the crisis

The announcement by the Korean government on 3 December 1997 that it was going to call in the imf shocked the world. To be sure, the international financial market, especially the so-called emerging markets, was looking very unstable following the Thai and the

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