Outside Forces: Significant Challenge Since the 1997 Financial Crisis

One of the significant challenges Korea has had to deal with since the 1997 financial crisis is outside forces.

IMF has introduced an austerity program, mainly financial liberalization: for example, opening Korea’s equity market and banking to foreigners and allowing real estate ownership.

It is debatable whether IMF-induced austerity program has brought about a genuine reform Korea needed and whose interest the IMF has served most.

Korea had been in austerity mode even before the 1997 financial crisis. Much research on Korea’s development path doesn’t pay attention to this.

For better or worse, globalization has intensified since the 1997 financial crisis. Increase in FDI was notable.(Unlike other developing countries, Korea didn’t rely on FDI as a main source of finance in the early days of industrialization) It is important to point out that FDI was perceived as more attractive in service sector than in manufacturing sector. Meanwhile, the major Korean high-tech firms have shifted its manufacturing operation overseas.

Global forces have been blowing bubbles worldwide. Bubbles in Korea are just part of their bigger game.

One has to recognize these outside forces in understanding the overall picture of the Korean economy as well as its political environment.

And yet, as noted many times, outside forces are no excuse for policy failure. Policies could have been formulated in such a way that it fosters organic growth and protects its citizens.