Korean economic Crisis

Korean economic crisis: The intervened Banking system

This paper is divided into 2 parts. The first part seeks to validate that government intervention on the banking system in Korea as a primary cause for the collapse of the economy in 1997; the second part examines the intent and rationale behind the intervention.

Causes for the collapse of the Korean economy
Currency crisis is commonly cited as a main result of improvident macroeconomic policies (Hong, p.206-207). However, economic indicators on Table 1 reveal no indications of imprudent macroeconomic policies by the Korean government.
Table 1

The GDP growth rate though faced a slow down from 1995’s 8.9% to 5.9%, it generally remained a steady positive growth rate though the 5-year period. The Domestic Savings rate hovered around an average of 36.3. Since there was no drastic increase or decrease in the domestic savings rate, it reflected that the outlook of the economy was stable and that the economy was...