What had happened to Korea, and why did the nation have to face the IMF crisis in 1997 all of a sudden? To see what the causes for the crisis were, analyses from six essays of scholars and experts in the field of economics will be introduced and compared. While they have similar and different views for the causes at the same time, their views can be grouped into two categories: internal factors and external factors. When the Korean currency crisis broke out, the IMF and many scholars focused the whole crisis on Korea’s internal problems. However, there are many other scholars who attribute the causes not only to internal but also to external problems. The experts who see the causes as internal problems think the crisis originated from internal factors of Korea such as policy mistakes, highly leveraged corporate sectors, and banking system. The external factors refer to the external shocks such as contagion effect from South-east financial crisis and appreciation of Japanese yen. Although all the causes for the crisis are closely related with each other, addressing the causes separately would give people better understanding of the context.
On Nov. 1997, Korea faced the IMF crisis, or also known as the financial crisis, which caused severe damage to the Korean economy. The new OECD member was reduced from being the world’s eleventh largest economy to an economy surviving on overnight loans from the international money markets. The won, the Korean currency, fell by more than 50 percent against the US dollar. Also, KOSPI (the Korea Composite Stock Price Index) fell by thirty percent, and the short-term interest rate shot up to forty percent per year. Consequently, on Dec. 1997, Korea called the IMF for rescue, owing $58.3 billion of financial aid. As shown in table 1 and 2 in the appendix 1, Korea had performed continual rapid GDP growth at the rate of 7.8 percent per year in average from 1960 to 1997.
Table of Contents
- Introduction
- I. Internal Factors
- A. Korean Banks' Structurally Unsound Method of Lending Money
- B. The Government-Bank Relationship
- C. A Highly Leveraged Corporate Sector
- D. The Development of the High-Cost and Low-profit Economy
- E. Macroeconomic Developments before the Crisis
- F. Policy Mistakes
- II. External Factors
- A. An Unfriendly International Environment
- B. Contagion Effects from Southeast Asia
- C. The Appreciation of Japanese Yen
- Conclusion
Objectives and Key Themes
This paper analyzes the causes of the 1997 IMF crisis in South Korea, drawing on multiple expert analyses. The objective is to compare and contrast different perspectives on the crisis, categorizing them into internal and external factors. The analysis aims to provide a comprehensive understanding of the contributing elements that led to the economic collapse.
- Internal Factors: The role of unsound banking practices, government intervention, and corporate debt.
- External Factors: The impact of the Southeast Asian financial crisis and international economic pressures.
- Policy Mistakes: Governmental decisions and their contribution to the crisis.
- Economic Structure: Analysis of the high-cost, low-profit economic model prevalent in South Korea.
- Contagion Effect: The spread of the financial crisis from other regions.
Chapter Summaries
Introduction: This introduction lays out the context of the 1997 IMF crisis in South Korea, highlighting the dramatic economic downturn and the subsequent need for international financial aid. It sets the stage for the analysis by introducing the two main categories of factors contributing to the crisis: internal and external. The authors then outline their approach of comparing and contrasting expert opinions to identify the root causes.
I. Internal Factors: This section delves into the internal weaknesses within the South Korean economy that contributed significantly to the 1997 crisis. It covers a wide range of factors, including the structurally unsound lending practices of Korean banks, the problematic relationship between the government and banks, the highly leveraged corporate sector, the high-cost and low-profit nature of the economy, macroeconomic trends leading up to the crisis, and significant policy mistakes made by the government. The analysis emphasizes the interconnectedness of these factors and their combined effect in creating a vulnerable economic system.
II. External Factors: This section examines the external pressures that exacerbated the pre-existing vulnerabilities within the South Korean economy. It explores the unfriendly international economic environment, the contagion effect of the Southeast Asian financial crisis, and the appreciation of the Japanese yen. These external shocks acted as catalysts, triggering the crisis and accelerating the economic decline. The section highlights the interaction between internal and external forces, illustrating how external pressures amplified the impact of internal weaknesses.
Keywords
IMF crisis, South Korea, financial crisis, internal factors, external factors, Korean banks, government intervention, corporate debt, Southeast Asian financial crisis, contagion effect, policy mistakes, macroeconomic developments, high-cost low-profit economy, Japanese yen.
Frequently Asked Questions: Analysis of the 1997 IMF Crisis in South Korea
What is the main focus of this document?
This document provides a comprehensive analysis of the causes of the 1997 International Monetary Fund (IMF) crisis in South Korea. It examines both internal and external factors that contributed to the economic collapse, drawing on multiple expert analyses and comparing different perspectives.
What are the key internal factors discussed?
The internal factors analyzed include: structurally unsound lending practices of Korean banks; the problematic relationship between the government and banks; a highly leveraged corporate sector; the development of a high-cost, low-profit economy; macroeconomic developments preceding the crisis; and significant policy mistakes made by the government. The document emphasizes the interconnectedness of these factors.
What are the key external factors discussed?
The external factors explored include: an unfriendly international economic environment; the contagion effect stemming from the Southeast Asian financial crisis; and the appreciation of the Japanese yen. The analysis highlights how these external shocks acted as catalysts, accelerating the economic decline and interacting with the pre-existing internal weaknesses.
How is the analysis structured?
The analysis is structured around two main categories: internal and external factors. Each category is explored in detail, with individual sections dedicated to specific contributing elements. The document also includes an introduction setting the context and a conclusion summarizing the findings. Chapter summaries provide a concise overview of each section.
What is the objective of this analysis?
The objective is to provide a comprehensive understanding of the contributing elements that led to the 1997 South Korean economic collapse by comparing and contrasting different expert perspectives on the crisis, categorizing them into internal and external factors.
What are the key themes explored in the document?
Key themes include the role of unsound banking practices, government intervention, corporate debt, the impact of the Southeast Asian financial crisis and international economic pressures, governmental policy mistakes, the structure of the South Korean high-cost, low-profit economy, and the contagion effect of the financial crisis.
What keywords are associated with this analysis?
Keywords include: IMF crisis, South Korea, financial crisis, internal factors, external factors, Korean banks, government intervention, corporate debt, Southeast Asian financial crisis, contagion effect, policy mistakes, macroeconomic developments, high-cost low-profit economy, Japanese yen.
What is included in the Table of Contents?
The table of contents includes an introduction, a section on internal factors (covering Korean banks' lending practices, the government-bank relationship, the corporate sector, the economic model, macroeconomic developments before the crisis, and policy mistakes), a section on external factors (covering the international environment, contagion effects from Southeast Asia, and the Japanese yen appreciation), and a conclusion.
- Quote paper
- Juhyuk Park (Author), 2011, The causes of the IMF crisis in South Korea. What Experts Say, Munich, GRIN Verlag, https://www.grin.com/document/985466
