Korea’s Policy Failure Since the 1997 Financial Crisis

On the surface, the Korean economy has recovered since the 1997 financial crisis. And yet, the bottom line is: how sustainable its recovery has been without significant changes in its fundamentals. Korea has delayed in addressing the core problems and kicked them into the future.

The easy monetary policy and serial bubble blowing exercises have dampened Korea’s economic fundamentals and screwed the middle class over the longer term. Korea’s seeming recovery has been fuelled in part by debt accumulation and global boom. Private debt loads are nearly as horrible as the public debts. The path of the Korean government deficits, private debts and bubble assets indicates that the Korean economy has not really recovered.

Those are in large part due to Korea’s policy actions. Korea’s policy apparatus has bolstered the short-term strength of financial structure and export engine with little regard to long-term consequences.

The difficult dimension was added when the U.S. Fed and other central banks started to engage in loose monetary policies, stoking the monetary bubbles.