1. SHOCK AND AWE:
THE SOUTH KOREAN RESPONSE TO THE ASIAN FINANCIAL CRISIS
By Michael Joy
ECONOMICS 3323 SECTION 003
DR. ELSAWAF
DECEMBER 9, 2013

2. Shock and Awe: The South Korean Response to the Asian Financial Crisis
The rise of South Korea into an advanced economy was nothing short of miraculous. In
less than fifty years, South Korea grew from a struggling, impoverished authoritarian society to a
blossoming democracy and the world’s fifteenth largest economy. However, the 1997 Asian
financial crisis threatened the remarkable gains made and endangered the economies of East
Asia. The 1997 crisis would be a bellwether for the need to improve worldwide financial
oversight that would again fail during the 2008 financial crisis. First, this paper investigates the
actions that lead to the crisis and the actions undertook by the South Korean government and
other actors to strength Korea’s financial sector. Furthermore, the paper analyzes the possible
lessons learned to avoid future economic failure by examining the history of South Korea and
theories regarding what caused the crisis. This paper concludes that the 1997 crisis was due in
part to several factors. First, the failure to decrease links between government, chaebols, and
banks. Second, the loss of Bretton Woods that increased instability in international markets.
Finally, the Korean government and IMF undertook actions that may have led to further crisis.

3. Extended Outline
I) Introduction 1
- A brief introduction to the “four tigers” with emphasis being placed on South
Korea and why this topic is important.
II) The roaring tiger – South Korea’s transformation 1 - 6
A) In this section I want to briefly discuss the history of South Korea and how it
developed into an economic powerhouse before the crisis.
B) Briefly talk about so called “Asian values” and chaebol (South Korean form of
business conglomerate)
III) What caused the financial crisis? 6-12
A) Facts and figures of the crisis
- The discussion in this paragraph will focus on what made South Korea’s
financial system so fragile. Emphasis will be on chaebols and financial
liberalization policies of the South Korean government.
B) Krugman’s Myth of the Asian Miracle
-I plan to discuss Krugman’s argument that South Korean (and Asia’s) economic
problems are due to a strategy of export orientated growth. I will consider the pros
and cons of this argument.
C) Wade’s “Wheels within Wheels”.
-Here I plan to discuss Wade’s argument that while South Korean economic
problems are partly to blame, they occurred due to other outer economic variables

4. occurring in other parts of the world. I will consider the pros and cons of this
argument.
IV) How to heal a wounded tiger. 12-14
A) This section details the response by the IMF to restore confidence in the South
Korean Market. The errors caused by the initial plan and the unusual step the IMF
and U.S. government took to maintain exposure and reschedule of short term
debt. Also I will look into the effect these plans had and why Korea was able
rebound more effectively than other nations.
B) This section will deal with where Korea is now in terms of several key economic
facts and events. I plan to touch briefly on the2008 financial crisis and the effect it
had on the Korean economy.
V) Conclusion 15
- Here I plan to summarize my main points and try to infer some examples for
other nations.
In the aftermath of the Korean War, South Korea remained an incredible poor and
underdeveloped nation. It was poorer than such nations as Bolivia and Mozambique. Korea’s

5. economy grew by an average of seven percent. Today South Korea is richer than countries such
as Spain. Korea for its economic prowess, technological advancement, and democratization
earned the nickname, “Miracle on the Han River”. Yet South Korea would be embroiled along
with several other Asian nations in financial crisis that would threaten worldwide economic
meltdown. However, Korea would bounce back to continue its powerful economic growth today.
This paper examines the economic rise of South Korea, her role in the Asian financial crisis, and
its response. By taking a closer look at South Korea’s past and present this paper seeks to find
possible lessons for other nations to learn how to create such a dynamic, vibrant democracy.
Furthermore, by looking at the South Korean response to the Asian financial crisis this paper
seeks to determine the causes of the crisis and response. This will help provide further solutions
for other nations to regain footing and return to economic growth.
The roaring tiger – South Korea and East Asia’s transformation
After the liberation from Japanese occupation at the end of World War II, Korea was in
shambles. The Japanese occupation forced resources to be fed to the Japanese war machine.
Furthermore, the Japanese authority and American military government continuously issued
bank notes. As author John Kie-Chiang Oh notes, “The total amount of currency in circulation
grew from 4,698 million won in July 1946… to 30,500 million by July 1948 – a whopping 649
percent increase in just three years” (Oh 24). Divided by the politics of the Cold War, South
Korea was removed from its industrial base in the north. The result creating a dramatic reduction
in food production. Furthermore, South Korea faced a humanitarian crisis as refugees flooded the
country from places such as North Korea, Manchuria, and China (Oh 25). Oh describes, “The
South Korean population in August 1945 was slightly over 16 million… to 21 million in 1947”

6. (Oh 25). The American response during this period was to provide aid. The U.S. during this
period provided $409 million to South Korea. This aid helped to ward off starvation and saving
thousands of lives, but South Korea was still stuck at a subsistence standard of living.
The American occupation lasted only a brief three years. However, the intent of the
American military government was to leave behind a democratic government in its wake.
However, while the constitution passed by the Korean National Assembly promised a democratic
republic it also included an emergency clause that allowed the president to exercise power in
times of crisis. The constitution was less than liberal regarding economic issues, “The principle
of the economic order of the Korean Republic shall be to realize social justice, to meet the basic
demands of all citizens and to encourage the development of a balanced economy” (Oh 30). Oh
notes, “To wit, ‘economic freedom of individuals’ was to be guaranteed ‘within the limits’ of the
national economy to meet the ‘basic needs of the people’” (Oh 30).
The national assembly would elect Syngman Rhee to be president of the new Korean
republic. Rhee was a political exile who was educated at some of the best universities in
America: Harvard and Princeton. The hope would be that Rhee’s time aboard would influence
him to be a president in the style of American presidents. Rhee, however, as Oh describes,
“…became a Machiavellian autocrat early in his presidency, was largely indifferent to the
economic plight of ordinary people” (Oh 34). His administration should be noted for two
accomplishments: the expansion of educational opportunities to more South Koreans and the
land reform act of 1949. Higher education provided social mobility to more Koreans producing a
better educated Korean public and the land reform act turned millions of sharecroppers into
landowners. Rhee would rule until 1960 when protests against his corrupt and authoritarian rule
came to a head.

7. With Rhee gone, the second republic would last just a short eight months before a
military coup d’état would establish a military junta led by major general Park Chung Hee.
Under Park’s extended military rule Korea would transform itself from a majority agricultural
society to an industrial one. Park once stated:
In May 1961 when I took over power as the leader of the revolutionary group, I honestly
felt as if I had been given a pilfered household or bankrupt firm to manage. Around me I
could find little hope of encouragement. The outlook was bleak. But I had to rise above
this pessimism to rehabilitate the household. I had to destroy, once and for all, the vicious
circle of poverty and economic stagnation. Only by reforming the economic structure
would we lay a foundation for decent living standards (Gibney, 50).
Park like several authoritarian governments after it understood the legitimacy of his government
relied on economic growth. He achieved this through guided capitalism which involved central
planning and government intervention in the market. He relied on five-year plans for economic
growth and committed the full weight of his government to enact his proposals. Park created the
Korean Central Intelligence Agency (KCIA) to act as an intelligence gathering service and secret
police. In the economic arena it worked to undermine labor concerns. The Economic Planning
Board (EPB) worked to coordinate economic development. Korean Banks were nationalized and
businesses were encouraged to join associations. The Ministry of Finance sought to develop
through industrial and subsidized export (Liu, U.S. and China). Also at the heart of his economic
plans were the chaebol, family-owned business conglomerates, which were required to meet
government targets. He created zones for trade and industry which would serve as a model to
Chinese special economic zones later. Finally Park pursued a policy of export orientated growth
scouring markets for opportunities for Korean businesses and attracting foreign investors to

8. Korea with cheap labor costs. The cold war gave South Korea access an advantage in the U.S.
market due to Park’s fiercely anti-communist stance. These actions formed as Oh describes, “…a
command center for rapid economic growth” (Oh 53). Common Koreans, many who were still
struggling at a subsistence level, obeyed in hopes of gaining jobs and more prosperous lives.
The result of this authoritarian focus on economic development did indeed result in
incredible economic growth. GDP per capita growth rose dramatically (See table A). Oh notes,
“Per Capita GNP skyrocketed from $82 in 1961 to $1,644 in 1979” (Oh 56). Korean exports
would rise from $100 million in 1964 to $100 billion in 1977 (Borowiec, Conflicted Legacy).
Henry Liu describes, “Park proved that a planned economy with intelligent application of
industrial policy was a more effective system for promoting rapid industrialization and national
prosperity for a developing economy than market fundamentalism” (Liu U.S. and China). As the
economy grew so Park changed his five year plans. For example, the third five year plan focused
on heavy and chemical industries, and the fourth plan focused on high tech development. The
chaebols had little trouble entering new markets due to their large size and range of products.
The government also supported these business through incentives such as tax exemptions and
low interest loans.
Korea began to be transformed by Park’s leadership, and leadership would transform
Park. Park used the uneasiness of national security in Korea and his regime’s economic record to
ensure his grip on power. However, in 1972 martial law was declared which dissolved the
National Assembly, closed colleges, and stopped political parties from being formed. Protests
and dissent was increasingly suppressed. Park’s increasing tyrannical rule would end by
assassin’s bullet in 1979. Park would leave behind a mixed legacy. He led South Korea to
spectacular economic growth, but at the cost of repression and exploitation of the Korean people.

9. It should be also noted his daughter, Park Geun-hye, would become the first female president of
South Korea in 2013.
Another military coup took place in 1979 led by Major general Chun Doo Hwan. Hwan’s
rule was just as authoritarian as Park. However during his rule from 1979 to 1988 saw the
growing expansion of a middle class in South Korea. This is due in part for Koreans respect for
education. As Oh describes, “College-level enrollment also skyrocketed, from approximately
101,000 in 1960 to 602,000 in 1980, only to surpass the one million mark less than a decade later
- an astounding tenfold explosion in thirty years” (Oh 66). With this expansion of the middle
class came increased interest in democratization of South Korea. In summer 1987 protests
reached a boiling point. The normally angry student protestors were joined by more middle class
members of Korean society. In June 1987 President Chun named Roh Tae Woo as his successor.
Roh sought to quell protests making a “Declaration of Democratization and Reforms,” which
promised a more democratic constitution and direct presidential elections. With two opposition
parties’ running, Roh narrowly won the election. Roh had become the first South Korean
president to win in free and fair elections. He also proved to be true to his word and was
committed to democratization. South Korea had finally became the democracy envisioned in
1945.
So the transformation of South Korea into a modern industrial economy has to do with
several important factors. Park Chung Hee’s government focus on export-orientated growth
helped make South Korea competitive on the global market. The South Korean focus on
education helped produced an educated, motivated middle class. Finally, the development of
chaebols and heavy investment in Korean businesses at the expense of the Korean people.

10. What caused the financial crisis?
While the Korean economy had issues it continued to expand and grow without much
difficulty through the 80’s and 90’s. The government’s strong hold over the business sector
loosened due to democratization. Scandal also rocked former presidents Chun Doo Whan and
Roh Tae Woo. Both men were arrested for accepting contributions from chaebols. Several
chaebols executives were arrested and paid heavy fines. When Kim Young Sam became
President of South Korea, he vowed not to accept donations from businesses. Furthermore, a
labor movement emerged after so many years of oppression under authoritarian rule. The number
of strikes rose dramatically from the late 1980s to 1990s. According to Uk Heo and Sunwoong
Kim, “For example, in 1985 only 64,000 workdays were lost as a result of strikes, but in 1990 it
was 4,487,000. Over the 1990s, the average number of workdays lost to strike actions was the
second highest in Asia” (Heo and Kim 495).
However, the South Korean government continued to hold a degree of control over the
chaebols and other small and medium business. They did so by controlling banks to which
financial resources are allocated. As Jahyeong Koo and Sherry L. Kiser note, “The bond and
equity markets were relatively underdeveloped, so the banking system generally carried out
financial intermediation” (25). Obviously this triangular relationship between the government,
banks, and the chaebols produced poor financial supervision and regulation. Koo and Kiser state
“…the debt/equity ratio of the thirty major chaebols was 500 percent” (25). Table B shows the
percentage of employees in the big five chaebols and their percentage of total South Korean
Debt. International loans taken out by the chaebols were guaranteed by the government. This was
common practice during Park’s regime to ensure South Korean businesses were credit-worthy.
As Heo and Kim note, “By the 1990s, the government no longer guaranteed most of these loans,

11. although international lenders for the most part continued to assume the government would do
so” (495). Furthermore, chaebols that exported goods were given favorable borrowing terms than
smaller business that produced local consumer goods. According to Heo and Kim, the rapid
growth the South Korean economy enjoyed was due to input growth (496). The South Korea
government created a moral hazard problem which would end up costing the dearly.
When investors learned of the weakness of the Korean economy it triggered a second
crisis. The crisis began with the problem of liquidity of Korea’s merchant banks. A merchant
bank (called investment banks in America) instead of providing loans to companies provides
capital in form of share ownership. As Koo and Kiser describe, “Since early 1997, Korean
merchant banks were having difficulty rolling over their short-term dollar loans. This difficulty
was more profound in Korea than in any other Asian country” (26). Meanwhile the government
encouraged development by businesses by taking out loans in foreign currencies. This created a
problem of “severe maturity and currency mismatches: The foreign borrowings were short-term,
while the domestic loans were for long-term investments, and the foreign borrowings were in
foreign currencies” (Koo and Kiser 26). Japanese banks would be the catalyst to the start of the
second crisis. As Japanese banks, burden with their own economic problems at home and aboard,
began withdrawing their loans from Korea. The Korean currency markets dropped dramatically
in response. According to Koo and Kiser, “The Korean won began a free fall and depreciated 25
percent in late November from its precrisis level against the U.S. dollar” (26).
Signs of the economy slowing down started in 1996. Heo and Kim note, “Industrial
output growth slowed down from an annual growth of 14% in 1995 to 10% in 1996. Growth in
manufacturing sales declined from 20% annually in 1995 to 10% in 1996” (496). Hanbo Iron
and Steel, Korea’s second largest steelmaker, was forced to declare bankruptcy (Koo and Kiser

12. 25). Several financial institutions followed Hanbo’s lead and declared bankruptcy. The Korean
stock market dropped dramatically by 35% in value (Heo and Kim 496). The declining economy
also hit workers hard. Heo and Kim estimate, “50,000 workers in manufacturing industries alone
lost their jobs in 1996” (496). Panicos Demetriades and Bassam Fattouh note, “Unemployment
increased from 2.6 percent in 1997 to 6.8 percent in 1998” (780). Korea had a real GDP growth
of 5% in 1997 only to decline to -8% in 1998 (Demetriades and Fattouh). The Asian financial
crisis that started in Thailand had spread to several other Asian nations. The crisis would also
affect confidence in stock markets around the world and push Russia and Brazil’s economies to
falter.
However, there are some critics who disagree with that analysis. Nobel Prize winning
economist Paul Krugman challenged the popular notion that Asia’s growth was miraculous in his
article, The Myth of Asia’s Miracle. Krugman makes the analogy that the worries of Asian
economic prowess burying America is similar to the threats of Soviet economic prowess between
mid-1950 to the early 1960s. Many Asian nations and the Soviet Union shared similar
characteristics: increased inputs of machinery, infrastructure, and education. Krugman’s
argument was that these increases failed to translate into productivity. Productivity is defined as
the efficiency of production. So the numerous number of inputs Russia produced did not over
time decrease the number of inputs to produce output. The Soviets were able to mobilize, but
could not over time increase the efficiency of their inputs. Thus the theoretical superiority of
planned economies was rejected. Krugman also suggests another lesson, “…input driven growth
is an inherently limited process, Soviet growth was virtually certain to slow down” (Krugman,
Myth).

13. Krugman relates the example of the Soviet Union to Asia by giving the example of
Singapore. Singapore is one of the four Asian Tigers (along with South Korea, Hong Kong, and
Taiwan) that had high growth rates and were able to rapidly industrialize and turn into advance
economies. While the country produced amazing results in investment and educational standards
Krugman notes it’s impossible to increase or double these results again (Krugman, Myth). As
Krugman notes, “A half-educated work force has been replaced by one in which the bulk of
workers has high school diplomas; it is unlikely that a generation from now most Singaporeans
will have Ph.D.s” (Krugman, Myth). Similar conclusions can be used to justify the growth in
other Asian nations as well.
Krugman thus rejects three ideas expressed that many considered a foregone conclusion:
diffusion of technology that is leading to Western nations “losing their traditional advantage”,
the economic center shifting from the west to the east, and Asian governments with less civil
liberties are superior (Myth). He notes that all three of these conclusions do not reflect reality.
In the case of technological flight, “in spite of a great deal of rhetoric about North-South capital
movement, actual capital flows to developing countries in the 1990s have so far been very small
- and they have primarily gone to Latin America, not East Asia” (Krugman, Myth). It would
seem the secret to Asia’s miracle is just the willingness of the community to sacrifice for growth.
Krugman’s argument and the subsequent crisis that occurred in 1996 and 1997 would
indicate some legitimacy to his argument. Certainly the idea that America would be buried by
Asia’s might has been discussed before with Russia in the mid-1950s and Japan in the early to
mid-1980s. However, many of the four tigers actually did not falter as Krugman predicted. On
the contrary, South Korea recovered fairly quickly from the Asian financial crisis. This,
however, is due to a number of efforts that the IMF and governments created. Krugman’s

14. argument only focuses on internal factors that affects an economy. In an increasingly
interconnected world it would be prudent to consider outside factors that could lead to such a
crisis.
Such an argument would be described by Robert Wade. In his work “Wheels Within
Wheels: Rethinking the Asian Crisis and the Asian Model” he puts a failure of both core
governments and international markets. The outer international wheel and the inner Asian wheel
creating the crisis due to conflicting events. Wade rejects the common argument that a lack of
transparency, weak regulation, poor exchange rate oversight, and moral hazard were the cause of
the Asian crisis. As Robert Wade describes, “Investors were ignorant not mainly because
information was falsified or unavailable but because they were not paying attention to what was
available” (Wade 92). Furthermore, Wade rejects the argument of weak regulation of banks. He
points to the strength example of Malaysia and Indonesia’s banking systems. Wade says, “If
weak prudential regulation was a major cause, we should find that the banking systems of the
crisis countries were in worse shape than those of non-crisis countries and became worse during
the 1990s” (Wade 92).
Wade explains the re-occurrence of these crisis is due to the rejection of the Bretton-
Woods system in the 1970s. Because the U.S. now sells its debt it creates a lack of discipline
that further increases the United States’ external deficits. Wade gives the example of Japan and
the United States under the Bretton-Woods System (100). According to Wade U.S. a fall in the
contraction of gold reserves would eventually affect demand for imports and increase demand in
exports (100). Concurrently Japan’s external surpluses would have increase demand for imports.
According to Wade, “…and the resulting price level and aggregate demand changes would have
produced a reverse flow of reserves and an elimination of persistent imbalances” (100). Without

15. the stability of Bretton Woods, increases in economic growth cause the financial system to
become more fragile due to increased investment in relation to the GDP of a country. The cost
of this overinvestment is the creation of a credit boom. However, when investors start to pull out
it increases the depth of a crisis.
Wade then creates a timeline of events that show the stages of the Asian financial crisis.
Stage 1 started with financial opening of Asian markets. Asian banks in the 1980s and 1990s
financially became more liberalized both domestically and internationally. This allowed for more
capital mobility. These Asian nations with their impressive growth drew investors to their
markets. Wade describes, “Private inflows to Korea, Thailand, Malaysia, Indonesia, and the
Philippines amounted to $40 billion in 1994 and over $100 billion in 1996, twice as high as the
consolidated current account deficit” (102). Thus the financial systems in these countries
became increasingly fragile. As mentioned previously, high corporate debt to equity was an area
of concern. The second area of concern was banks lending against bubble inflated assets (Wade
102). Finally, the international investors’ claims were often short term. As Wade describes, “This
is the condition for a panicky pullout and a forced devaluation” (Wade 103). Eventually this led
to conjectural shocks. However, Wade places the blame of those shocks on several factors: the
U.S. returns on investment rose, East Asian exports dropping, and slow world growth (Wade
103). The crisis was further amplified by political elites in fear that devaluing currency would
jeopardize their careers. Thus foreign investment continued until as Wade describes, “…small
shocks could trigger a gestalt shift from ‘miracle Asia’ to ‘meltdown Asia’. In closing, both the
inner wheel of the Asian governments contributed to the crisis by not creating the mechanisms
for proper governance of financial markets. However, the outer international wheel created a
system that increased the financial fragility of markets around the world. Globalization is

16. believed to promote economic growth in part by creating economies more adaptive to shocks.
However, Wade notes, “The globalization champions underplay the tendency for the
globalization process itself to generate instabilities that bring the surge in liquidity, capital flows,
and trade to a temporary end” (112).
Wade’s argument does have some merit especially from the prism of the recent 2008
financial crisis. The original Bretton Woods was put in place to avoid the 1930s economic
disasters that would led to the problems in several nations that caused World War II. However,
Bretton Woods was effective in part because of the power the United States had after World War
II. With the U.S. running such high trade deficits it’s unlikely that such a system would benefit
the United States. As “The Economist” stated, “Capital mobility was limited, so that countries
had control over their own monetary conditions. The system collapsed in 1971, mainly because
America would not subordinate its domestic policies to the gold link” (“Beyond”) However,
former French president Nicolas Sarkozy noted, ““The prosperity of the post-war era owed a
great deal to Bretton Woods, to its rules and its institutions. That is exactly what we need today;
we need a new Bretton Woods” (“President”).
How to heal a wounded tiger.
This paper has examined possible causes of the crisis, but has not yet review the response
to the crisis. The first priority was to begin stabilization policy to correct Korea’s currency
markets. With two ongoing crisis in South Korea, the IMF responded in December 1997 with
$58.4 billion plan on the condition of reforms within corporate and financial industry and the
government to follow a stringent monetary policy. Koo and Kiser note, “At 13 percent of

17. Korea’s GDP, the size of the IMF standby loan to stop a self-reinforcing cycle of capital outflow
was unprecedented in the IMF’s history” (26). The market response to the plan was minimal.
The won continued to depreciate until the U.S. Treasury decided to step in with a non-market
solution. This unprecedented move sought creditors to agree to control exposure and
rescheduling short-term debt. Finally, as Koo and Kiser explain, “The Korean government
converted $24 billion of short-term private debt (mostly by commercial and merchant banks) into
claims of one- to three-year maturities with government guarantees. The new arrangements
halted the won’s fall” (27). The South Korean economy was also helped because of the drop of
domestic demand. With consumption and investment lower it allowed Korea’s foreign liquidity
position to rise. Which, according to Koo and Kiser, “…reduce the net foreign debt (foreign
debt minus foreign loans) from $54.1 billion in December 1997 to $20.2 billion in December
1998” (28).
The logic behind IMF plan and tight monetary policy was to stop the bleeding of the
foreign currency market and stop investors from pulling money out of South Korea. However,
the monetary policy also “…reduced economic activity” (Koo and Kiser 27). Several observers
criticized the IMF for their role during the crisis. As Demetriades and Fattouh note, “critics argue
that not only did the IMF fail to predict the crisis, it also failed initially to understand its causes,
ascribing it to macroeconomic imbalances. As a consequence, the IMF prescribed the ‘usual
package’ of fiscal and monetary austerity, which proved costly for the Korean economy” (791).
The policies that the IMF wanted enacted also took a heavy burden on the people of South
Korea. By reducing government spending, the South Korean people had less of a safety net to
protect them while unemployed. Finally Demetriade and Fattouh note that critics accuse the IMF
that its policies aggravated the crisis. They state, “Higher interest rates generated a further series

18. of bankruptcies which in turn led to deterioration in the health of the financial sector and caused
capital flight. They also exacerbated the credit crunch in an economy already starved of credit”
(791).
Amazingly, South Korea bounced back from its dual crisis in about a year. Korean
businesses benefitted from the lower labor cost and increased lending. Korean Banks were able
to lend more thanks to several government initiatives: capital injection, deposit insurance, and
intervention into capital and equity markets. The IMF urged Korea to change its currency from a
crawling peg system which allows a currency with a fixed exchange rate to appreciate or
depreciate gradually to float freely. As Koo and Kiser note, “Many economists believed that to
prevent future currency crises, there were only two exchange rate regime choices, a floating
exchange rate or a fixed exchange rate (currency board or dollarization)” (33). Korea continues
to transfer from the planned economies that dominated early Korea to a free market economy.
Korean industries continue lead in several areas including shipbuilding, cars, electronics and
armaments. Companies such as Kia automotive and Samsung are known around the world.
While the Korean economy was hurt by the 2008 financial crisis, but was able to rebound
quickly. However, chaebols continue to be a source of weakness in the Korean economy. As
Table C shows, debt of the chaebols continues to be a source of concern. Korea’s continued
growth depends on returning these chaebols to reducing their debt and returning them to
profitability.

19. Conclusion
What worked so well in turning Korea into modern industrial society was due to several
factors: President Park’s unrelenting focus on economic development, Koreans focus on
education, and development of chaebols. However, the chaebols heavy debt burden and Korean
government‘s failure to transition faster from a planned economy to a free market economy. This
led to the government creating a moral hazard. Furthermore, Wade’s argument suggests
international factors as losing the stability of the Bretton Woods system lead to more financial
crisis. The IMF also may have further aggravated the crisis and human costs because of their
insistence on tight monetary policy. However, despite this the Korean economy has shown
miraculous progress returning to economic growth. For Korea to continue this and be a
successful democracy it must further increase economic liberation.

20. Tables
(Table A) South Korea’s GDP per capita during Park’s regime (1961-1979)
(Table B) The big five chaebols and their percentage of employees and debt as a
whole of the South Korean economy.

21. (Table C) Chaebols and their debt.

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