This article discussed interlinked global economies, the causes of the Korean crisis
and its policy responses. Perhaps the biggest contributor to the Korean financial
crisis of 1997 is its gross misallocation of capital and human resources, combined
with a flagrant disregard for the bottom line. This misallocation of capital and
human resources caused by the lack of corporate
governance had resulted in the widespread value destruction by Korean companies,
which in turn had led to a lower value for the overall economy and weakened the
banking sector.
Economic reforms--more transparency, accountability, clear disclosure, more power
for professional managers, and labor market reforms--strengthened corporate
governance in Korea and made the Korean economy more competitive in the global
market place. The final step toward real reform would require chaebol owners to
accept diversified ownership structures with management-sharing concessions, voting
rights, and corporate transparency.
Those actions taken by the government and the private sector restored market
confidence of both consumers and investors. The fast rebound in exports, stock
market prices, and capital investment began to take place in the second half of 1999
as a result of these policy responses to the Korean crisis
