228/YOUR MONEY OR YOUR LIFE!
The Causes of the South Korean Crisis Belong to Three
Distinct Categories
First, the country experienced a decline in the terms of trade, between
the relative value of its exports and that of its imports. In 1996-97,
the volume of South Korean exports rose by 3 7 per cent but brought
in only 5 per cent more revenue. The dollar value of South Korean
exports dropped by about 15 per cent in 1996 and 12 per cent in
- The weakening of the Japanese yen made Japanese exports
more competitive. South Korea was also confronted with competition
from China and the four 'dragons', whose competitiveness was linked
to a low wage policy. Finally, South Korea had carved out a
specialised niche for itself in the production and export of semicon
ductors, and therefore was hit hard by the fall in prices.
Second, South Korea had grown increasingly dependent on the
recent and massive inflows of foreign capital in its most volatile form
- portfolio investment and short-term loans. In order to compensate
for export losses, South Korean firms took out huge short-term loans
in expectation of an economic recovery that never came.
Third, South Korean employers failed in their attempt to make
workers pay for losses suffered in export markets. They tried to tackle
industrial workers (whose wages had risen at an annual rate of 16
per cent between 1987 and 1996), by getting the government to
rush through a reform to the labour code in late December 1996, in
the absence of the parliamentary opposition. This measure provoked
a general strike, which was victorious inasmuch as the workers
obtained a two-year moratorium on layoffs.
Under the combined effects of the Southeast Asian crisis, the
continued rise in the value of the dollar and depreciation of the yen,
the accelerated outflow of volatile capital from the country (which
had begun in earnest in the spring of 1997), the eleventh most
powerful economy in the world was plunged into a major crisis -
placing it at the mercy of the IMF and the US. The Seoul stock market
plummeted 6 7 per cent between 11 August and 17 December 1997;
the South Korean currency lost 96.5 per cent of its value against the
dollar between 2 July and 8 January 1998.
IMF-Imposed Structural Adjustment in South Korea,
Thailand and Indonesia
A thoroughgoing structural overhaul is underway. A number of
financial establishments have been shut down, there have been