How Korea Has Changed Since 1997 (IMF 위기이후 한국은 어떻게 변했는가)

This article covers quite a few issues I have addressed on this blog: for instance, while Korea's GDP has expanded and chaebols’ balance sheets got strengthened, the middle class has diminished and the household debt load has increased.  We have discussed the underlying causes for this troubling reality.

After the 1997 financial crisis, Korea should have taken their medicine and had it done and over with.  And yet, it hasn’t.  Thanks to the global boom and bubbles, Korea has maintained the trade surplus to keep the ponzi game going.  This time around, things are different.

Again, what kind of country Korea wishes to be? 

As Acemoglu and Robinson argue, “national success or failure is the result largely of policy decision”.

Policy undertaking should be geared toward serving the broader social interest, pursuing the broadest happiness and success for the most people.

When a nation is unbalanced on many fronts, the risks of an eventual breakdown are high.

External forces and a globalist dynamic are no excuses for policy failure.

Korea is desperate for new measures.

From: Joogang Daily:

Today is the 15th anniversary of the day the Korean government went to the International Monetary Fund for help during the financial meltdown. The IMF crisis, as it came to be known in Korea, was a turning point in the country’s history, exposing many of the weaknesses in the foundation of the “Miracle on the Han.” The chaebol borrowed too much and ran their businesses on dangerously miniscule profit margins. Corporate transparency was a joke.

Korea rose from the ashes in only three years, repaying all its debts, and became an international example of surviving an economic and financial crisis. Companies that faced extinction survived through massive layoffs and restructuring to become global competitors with dominant market shares in smartphones, computer chips, shipbuilding and automobiles.

The Fortune 500 includes 13 Korean companies. The nation’s gross domestic product, which was $345.4 billion in 1998, has expanded to $1.12 trillion as of last year. Foreign reserves, which shrank to $20.3 billion in 1997, are now over $300 billion, the seventh-largest in the world. The nation’s debt is 34 percent of its GDP, one-third the OECD average, and its credit ratings were recently upgraded while Europe melts down.

Take a look at Kookmin Bank, the bank that laid off Kim back in 1998. It used the crisis to expand through acquisition and mergers. Last year, its assets were 277 trillion won ($256 billion), five times the level of 1997. Profits were 1.77 trillion won, having grown 17-fold.

So while Korea long ago rebounded from the IMF crisis and, in many ways, has hit the top of its game, the crisis created a lost generation of Koreans that never managed to pull themselves back to the ranks of the aspiring middle class. Fathers who lost solid jobs are still struggling to make a living, and the middle class has shrunk compared to the mid-1990s. And now, some of their children are giving up hope of finding jobs.

Post-crisis Korea, with its turned-around finances and its newly competitive companies, has moved on, leaving that generation behind.


In 1995, Korea’s middle income class accounted for 75 percent of the total population. By 2010, the figure had fallen to 67.5 percent.

During the same period, the lower income class went up from 7.7 percent to 12.5 percent.

“Once they tumble into poverty, there are a lot of families that stay in poverty due to a lack of social welfare networks or programs that would help the laid off find another job,” says Ahn Sang-hoon, a Seoul National University professor specializing in social welfare.

Lee Jang-hyuk, a marketing professor at Korea University, says the unbalanced growth policies that focused all resources on major exporters only got worse after the IMF crisis.

“The gap between those with stable jobs and paychecks and those without only got worse,” Lee says.

While household incomes today haven’t increased much, debts are mounting.

The real monthly wage, which reflects inflation, was 2.22 million won in 1997, which grew to 2.97 million won in 2007, and then slumped to 2.73 million won as of 2010. That is 23 percent higher than in 1997.

But total household debt in Korea grew from 183 trillion won in 1998 to 922 trillion won as of June this year, an 80 percent increase.

The debt-to-disposable-income ratio shot up from 104 percent in 2000 to 158 percent in 2010.

“Instead of spending welfare on people who have fallen into poverty, the government has a policy to expand debt through financial programs targeted at low-income families,” says Seoh Geun-woo, senior advisor at the Korea Institute of Finance.

“It’s like the government is creating credit delinquents in hopes of keeping its fiscal balance unchanged.”

Experts like Kim Yoon-tae, a Korea University sociology professor, say the government should focus on policies that would generate jobs such as incentives to small and midsized companies to hire people, or increase welfare for people who run small businesses like restaurants.

http://koreajoongangdaily.joinsmsn.com/news/article/article.aspx?aid=2962688