Lessons from the crisisExactly 20 years ago today, the Kim Young-sam administration requested that the International Monetary Fund (IMF) bail out Korea after our foreign exchange reserves shrunk to a perilous level. Grief-stricken Deputy Prime Minister for the Economy Lim Chang-yuel signed a bill presented by Michel Camdessus — who was managing director of the international financial institution at the time — to help rescue our insolvent state from an unprecedented financial crisis. After signing the deal, the Korean people had to go through the IMF’s tough austerity program.
The foreign exchange crisis inflicted a deep trauma on the Korean people. Since that shameful deal, low growth and high unemployment have wreaked havoc on our economy, with all economic players showing a tendency to avoid risks instead of taking the kind of challenges that produce world-class winners. The crisis also forced a countless number of struggling companies to end the practice of hiring full-time workers. They instead turned to part-time or contract workers to save costs. As a result, individuals became obsessed with finding jobs in the relatively stable public sector, while enterprises were bent on maintaining their status quo rather than embarking on what Joseph Schumpeter called “creative destruction.” That caused our economy to lose dynamism.
The Korean economy has changed a lot compared to two decades ago. It boasts of foreign reserves amounting to $384.5 billion as of October, the world’s ninth largest. Korea’s sovereign credit rating, which currently stands at AA, is higher than even Japan and China after a precipitous fall to B+ at the time of the crisis. Financial analysts expect a repeat of such a crisis for South Korea is highly unlikely.
But a crisis can hit our economy at any time. Korea is wrestling with chronic problems such as alarmingly low labor productivity, irksome regulations and ever-deepening income inequalities.
According to a survey by the Korea Development Institute, a whopping 88 percent of analysts compared our economy to a “boiling frog” — who doesn’t realize the water is getting hotter until it’s too late — while 63 percent say our economy has only one to three years left to escape a bad tipping point. The government must listen to advice from the IMF that our economy needs structural reforms, including in the labor sector. When a drive for economic reform is apathetic, the foreign media use the word “complacency.” That’s the big danger. We all must stay alert to the possibility of catastrophe.
JoongAng Ilbo, Nov. 21, Page 34