Over the past three decades, Korea has enjoyed an annual average economic growth rate of 8.6 percent and has emerged as the world's 12th largest trading nation. In less than two generations, the nation has established itself as one of the world's leading shipbuilders and manufacturers of electronics, semiconductors, and automobiles.
International financial markets positively regarded Korea's economic achievements, including sustained high growth, moderate inflation, high national savings, nominal external deficits, and significant government budget surpluses. Recently, however, these impressive accomplishments have been overshadowed by the difficulties of several major conglomerates and financial institutions. These failures raised doubts among foreign investors, which led to a serious liquidity crisis in late 1997. The crisis also created a serious unemployment problem.
However, following the change of government in 1998, Korea renewed its resolve to work with the IMF to fully implement comprehensive reform measures. As such, Korea was determined to adopt stringent adjustment measures to overcome the economic crisis.
The new leadership took steps to promote reform in the financial, corporate, public and labor sectors with a view to restoring and strengthening foreign investors' confidence as well as maintaining a commitment to a free-market economy, restructuring of the jaebeol-based system, and increasing flexibility in the labor market.
The nation's foreign currency reserves that totaled a mere US$3.8 billion as of the end of 1997 rose to $199.7 billion as of January 2005 and the nation has been able to repay all the US$13.5 billion rescue loan from the International Monetary Fund (IMF). The IMF Executive Board on December 16, 1999 declared that the foreign exchange crisis in the Republic of Korea was completely resolved. Korea¡¯s credit rating, meanwhile, was restored to investment grade.
OUTLOOK FOR THE ECONOMY
Korea has been rapidly integrating itself into the world economy since the onset of the 1997 crisis. The government has advanced a new paradigm that involves upgrading business practices to international standards, promoting human resources and technology development and enhancing institutional efficiency.
The timing and strength of the economic recovery will depend largely on the pace of corporate sector restructuring, household adjustment to reduced job security and investor confidence in Korea. The government remains strongly committed to reform and will continue to implement financial and corporate restructuring while pursuing flexible macroeconomic policies conducive to growth.
Korea's goal is to solve the problems rooted in its past and create an economic structure suitable for an advanced economy meeting the challenges of the 21st century.
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