This paper tries to draw out some policy implications for restructuring the Korean economy by reviewing the experiences of economic crisis resolutions in the past.
The Republic of Korea has experienced about four episodes of economic crisis since the 1960s. This paper has examined each crisis and found out that the same factors that caused one previous crisis later brought about another crisis, and that this pattern repeated itself. This implies that the measures taken to resolve the previous crises were ultimately ineffective. Most of the past crisis resolution measures focused on disposing of the losses incurred by firms and banks through such instruments as bail-out loans. As far as macroeconomic policy is concerned, stabilization measures were introduced just when the economy had begun to stagnate after a long period of boom, and seldom contributed to preventing recurrence of crisis; rather they amplified the crisis intensity.
These results contain lessons for the currently ongoing structural adjustment policy, being promoted as a means to prevent recurrence of economic crisis. First, it should be designed in such a way as to encourage private agents to take initiative, with the government abstaining from direct intervention such as bail-out loans. This would eventually strengthen private sector capacities to overcome adverse shocks. Second, if a stabilization policy is to be used, it should be implemented in a preemptive manner, so that it can prevent an exceptional boom or wide-spread speculation.
- Korean experiences of economic crisis resolution
- Lee, Jong Kyu
- The Bank of Korea
Korean experiences of economic crisis resolution
Seoul:The Bank of Korea
|Series Title; No||BOK Working Papers|
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Macroeconomics
Economy < Financial Policy
|Holding||The Bank of Korea|