(The) IMF conditionality for South Korea during the financial crisis : financial, corporate sector restructuring and labor market reform

다국어 초록 (Multilingual Abstract)

During the Asian financial crisis, the International Monetary Fund provided Republic of Korea with a loan of US$ 21 billion, recording the largest ever financial assistance package in the International Monetary Fund’s history. Korea was able to reimburse the $21 billion Stand-By loan in full on August 23, 2001. The rapidity of Korea’s resurgence from the financial crisis was truly remarkable, especially given the fact that the international community doubted Korea’s ability to return to pre-crisis economic levels. Since structural problems were one of the underlying causes of the financial crisis, the IMF’s conditionality of the rescue loan included the immediate reshuffle of the financial sector as well as corporate sector reform. The government-led economic development resulted in unique interlocking between financial and corporate sectors before the crisis. Under this system, corporations depended chiefly on the banking sector for their external funding and were heavily leveraged as result. At the same time, heavy government intervention limited the banking sector’s ability to assess risk properly. These factors made Korea highly vulnerable to outside shocks following the accelerated capital account liberalization during the 1990s. Under this circumstance, the IMF’s conditionality of immediate restructuring of both the financial and the corporate sector was speedily implemented. Although Korea’s recovery is perceived as an achievement in the international community, there has been ongoing dispute that the pace of its restructuring still remains unrequited under Korea’s politicaleconomic situation. There is no doubt that the financial sector restructuring and corporate sector reform have to be done simultaneously.This paper, however, primarily focuses on the restructuring process in the financial sector, believing that curing vulnerabilities in the financial sector have to be the initial steps taken in the case of Korea. This paper focuses on the comparative analysis before and after the crisis, whether Korea’s financial and corporate sectors have become more transparent and have reached international standards. It has been almost seven years since Korea adopted the IMF’s conditionality and it is about time to seriously assess Korea’s financial and corporate sector reform based on IMF conditionality. This paper also reflects additional reform measures in the financial, corporate, and labor market where Korea went beyond the IMF conditionality and finishes with examining unfinished tasks and challenges ahead for Korea to resolve in order to achieve further economic growth.