Financial Crisis in South Korea Essay Example | Topics and Well Written Essays - 2250 words

Financial Crisis in South Korea - Essay Example Indonesia, South Korea and Thailand were the countries most affected by the Asian economic recession. The economic growth of Indonesia slowed down from an average rate of between 5% and 7% to 4.7% in 1997. Forecasts for 1998 and 1998 showed a negative 12% growth, and inflation rate was predicted to soar to 66%. In 1998 rupiah's value declined by 80%. As a consequence of the devaluation, the country's foreign debt multiplied.. Simple economic theories would explain how the devaluation of baht affected other economies. A devaluation of any local currency implied an increase in the cost of imports. Crane stated that in Thailand, such devaluation meant inflation in fuel and food. Reports said that overall prices soared 4.9 percent in July 1997 from the previous year. The surge in rice and flour prices was even higher, at 42%. In the Philippines, interest rates reached 33.5 percent in September 1997 from the previous week's 12 percent. This was for the peso to sustain its value or at least slow down its decline. Inevitably, interest rates on credit cards, mortgages and personal loans would also increase. Malaysian Prime Minister Mahathir Mohamad blamed the IMF for the economic decline. He believed bracing the stock market with public pension money would resolve the issue. Martin Hart-Landsberg and Paul Burkett's "Economic Crisis and Restructuring in South Korea Beyond the Free Market-Statist Debate" offers an analysis of the causes, nature and consequences of the restructuring process of post- Asian crisis South Korea. In the process of identifying the causes, the authors discussed the various aspects of restructuring and reform. The article studied the cause of the country's monetary decline from two standpoints: the... Researchers proposed financial-crisis models as long-term solutions for South Korea and as tools to forecast economic conditions. There were two models: the weak-fundamentals view and the financial-panic view. Based on the weak-fundamentals perspective, a country’s weakness in macroeconomic or financial fundamental triggers the abrupt backflow of capital. This called for radical reforms and support to see things through. On the other hand, the weak-fundamentals view predicted a slow recovery because it took a while before creditors and other financial institutions were able to complete the auditing and accounting process and recognition of losses was not made instantly. However, economists claimed that neither of the two views above proved helpful in the Asian-crisis recovery. The fast recovery of Korea since the economic recession misrepresents the observed social and political developments. The election of Kim Dae Jung to power symbolized the bureaucracy’s adoption of a politically neutral institution. The state has manifested social maturity by valuing loyalty to the institutions of governance as opposed to loyalty to the institutions of the few privileged groups.