The Korean Crisis Ten Years Later: A Success Story

Abstract

In late 1997, Korea was engulfed in a financial crisis that became the country’s most traumatic event since the Korean War. The crisis in Korea was largely unexpected. The world had long admired Korea’s success in transforming what had been an economic basket case into a member of the exclusive club of advanced countries of the Organization of Economic Cooperation and Development (OECD). Although some macroeconomic weaknesses had emerged early in the year, for most of 1997 the economy still appeared to be doing relatively well. Growth had slowed a little amid a cutback in consumption and investment. Export prices had fallen sharply reflecting world semiconductor prices (one of Korea’s main exports), but export volumes were still growing strongly. Other macro indicators, such as inflation, the exchange rate, and the fiscal position, were sound.

Hubert Neiss is a former director and Wanda Tseng a former deputy director in the IMF’s Asian Department, and James Gordon is a division chief in the Asian Department. The authors are very grateful to Sharmini Coorey, Ken Kang, Christian Thimann, and Jong-won Yoon for helpful comments, and to Pihuan Cormier for research assistance.