The purpose of this study was to investigate how Korea adjusted successfully to the combination of low growth, high inflation, and unsustainable current account deficits. The study shows that the factors that contributed most to the successful adjustment were the restoration of the macroeconomic fundamentals and a favorable external environment. Financial reforms and measures to increase domestic competition facilitated the restructuring of the economy, and flexibility in the labor markets made adjustment possible without massive unemployment. Important lessons emerge from the study concerning structural adjustment of the Korean economy. The study highlights five specific lessons: 1) avoid major disequilibria in the macroeconomic variables, 2) if a drastic reduction in the current account is called for, it is important to avoid import controls, 3) in an integrated and open system of world trade the only way to provide a sustainable and credible framework for export expansion is to avoid both the anti-export bias and any artificial appreciation of the export currency, 4) a competitive domestic economy and a flexible labor market facilitate the restructuring of the economy, and 5) government commitment to a strategy of controlling inflation, improving competition in the domestic market, and improving the competitiveness of exports will facilitate the response of economic agents to the structural adjustment measures.