[Editorial] Lessons from the IMF’s Bail-Out a Decade Ago

On November 21, 1997, the Korean government officially announced a request to the International Monetary Fund (IMF) for bail-out funds. And on December 3, the IMF and Korea signed on the dotted line. In return for receiving the funds, the Korean economy would be managed by the IMF, which was essentially a loss of economic sovereignty.

Seventeen out of 30 large companies, incapable of paying debts amid skyrocketing interest rates, disappeared into thin air. Seventeen out of 33 banks have survived the storm. Some 10,000 people lost their jobs everyday, and around 100 peopled ended their lives.

It was a tumultuous time, but observers think that Korea overcame its financial difficulties relatively quickly. Over the past 10 years, per capital income has doubled to around $20,000 and the Benchmark KOPSI stock index has surpassed 2,000. Both quantitative and qualitative growth has been achieved: insolvent companies have been streamlined, while the ones that remained improved their financial structures and established profitable management systems. Issues related to management through excessive borrowing, window dressing, corruption, top-down management, and despotic practices by CEOs have addressed as well.

However, the government’s four initiatives to address issues in the public, finance, business, and labor markets have not completed, and uncertainties remain. Unviable elements of the financial market have not been improved much. Hostile labor management relations have not been resolved. Inefficiencies and regulations may have been exacerbated, not mitigated, over the past 10 years. Job insecurity and youth unemployment have become commonplace. The number of Koreans in the middle-income bracket has declined, and financial polarization is rising. Financial soundness has been undermined due to increasing national debts, and household debts have also grown. All these indicate that an economic crisis may be approaching us once again.

It is critical that the Korean economy become vibrant to get out of the low-growth trap in order to open a new decade of further growth after going through a decade after the Asian financial crisis. Dwindling capital accumulation stemming from lack of investment and a growth engine slowdown due to labor productivity issues need to be addressed before it is too late. Just like during the financial crisis, productivity enhancement and easing economic regulations should be carried out with determination. Voters should cast their ballots for someone who can infuse the economy with vitality; only then can entrepreneurship and those in the middle-income bracket make their comeback.