During the last year or so the Korean economic situation has become quite difficult. Export volume stagnated in 1979 for the first time in recent history, and a large current account balance of payments deficit re-emerged. The expected rise in the Korean oil import bill has further intensified the pressure on the balance of payments. The report analyzes the causes of current difficulties and tries to put them in a longer term perspective. It concludes that the long-run potential of the economy remains good, but some fundamental structural adjustments are required, and a considerable amount of external capital inflows would be needed to support these policies over the medium-term. Chapter I reviews macroeconomic developments and examines the causes of current difficulties, Chapter II discusses some of the needed structural adjustments, and Chapter III reviews the near-term policies and prospects and notes the external resource requirements during this period.