Crisis in a Divided Korea by James Matray

Author:James Matray [James I. Matray]
Language: eng
Format: epub
ISBN: 9781610699938
Publisher: ABC-CLIO

A far more serious blow to Kim Young-sam’s presidency than partisan politics came in the economic arena, where a steady decline became a complete collapse in response to the East Asian Financial Crisis beginning in the middle of 1997. A speculative attack on the Thai baht led to sharp declines in currencies, stock markets, and other asset prices in several Asian countries. When the crisis spread to South Korea, the world’s 11th largest economy, the possibility of the ROK defaulting on its huge international debt obligations created a threat to the international monetary system. In South Korea, the onset of recession brought massive layoffs that shattered the soaring confidence of people previously enjoying the benefits of seemingly never-ending economic expansion. During the summer and into fall, a succession of loan defaults exposed the financial weakness of many over-extended South Korean companies. The Kim government displayed incompetence in its slow response, while labor was inflexible in refusing to lose any of its recently won wage gains. Interest rates rose precipitously as hard currency became scarce, reaching a high of 30 percent and making it impossible for companies to refinance their debts. In 1998, some 20,000 firms went bankrupt. The value of South Korea’s currency plunged to a low of 1,640 won to the dollar. In December 1998, unemployment reached almost 9 percent. National income contracted 7 percent and average wages experienced a 10 percent decline. South Korea’s growth rate went into a free-fall, ultimately bottoming out at a negative 5.8 percent.35

Facing economic catastrophe, Kim Young-sam turned to the International Monetary Fund (IMF) for a bailout. When the public learned that negotiations for a loan had begun, a newspaper editorial called it a “day of national humiliation” and a “loss of economic sovereignty.” Another declared that South Korea was entering a new era of “IMF trusteeship,” reflecting the emotional revulsion of accepting a dependent financial status resembling Japanese colonial rule. Moreover, the $57 billion rescue package came at the price of mandatory reforms that dictated changes in government economic policy, reform of banking and accounting practices, and the restructuring of industry. For Koreans, this was yet another intervention in Korean affairs to advance outside interests. U.S. participation in this intrusion inflicted major damage on the U.S.-ROK alliance. In November 1997, Washington informed a shocked Seoul that it would provide no assistance, even though the ROK government believed that the United States had helped to create the crisis. U.S. insistence on opening its markets had resulted in a trade deficit and increasing debt. Even more infuriating for South Koreans, when their government asked the IMF for the emergency bridge loan, the United States successfully lobbied for the imposition of conditions to force open the ROK’s financial and commodities market as well. Although Seoul satisfied the U.S. demand for it to replace “state-led growth with market transparency and accountability,” South Korea’s economic crisis deepened because Washington refused to make explicit its firm support for the IMF deal that called for world governments to fund $20 billion of the loan.

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