Transformation Theory and Korea’s Rise After the Asian Crisis
PART 3 TRANSFORMATION AND THE RELATIONS BETWEEN EXTERNAL AND INTERNAL INSTITUTIONS – INSTITUTIONAL CHANGE IN KOREAN MONETARY POLICY AFTER THE EAST ASIAN CRISIS
143 Chapter 9: Central Bank Independence and Monetary Policy After the Asian Crisis – the Case of South Korea 9.1 Introduction – monetary policy debates Monetary policy was one of the most contested fields of economic policy during the financial and economic crisis of 1997 and 1998 in South Korea. After the plunge of the Southeast Asian currencies, beginning in Thailand in July 1997, in the autumn of 1997 the South Korean won also came under pressure. Previously, several Korean conglomerates (chaebol), especially Hanbo Iron & Steel and Kia Motors, had with their bankruptcy added to the economic uncertainty. In December 1997, two aid packages from the IMF with the record size of 58 billion USD were concluded. The deep plunge of the won exchange rate posed a difficult challenge to mone- tary policy in Korea (Chopra et al., 2001: 20-26). On one hand, the heavily indebted chaebol and the small- and medium-sized companies producing intermediate products for chaebol were interested in low interest rates. On the other hand, a large part of the debt was foreign debt, and the depreciation of the won made the interest payment and principal repayment more difficult. The cooperation with the IMF led to a policy of temporarily high interest rates, which was heavily criticized as causing the deep recession of 1998, where the South Korean GDP fell by around 6 percent. However, the goal of this policy was achieved, namely the restoration of trust in the South Korean currency. Already in mid-1998 the level of interest...
You are not authenticated to view the full text of this chapter or article.
This site requires a subscription or purchase to access the full text of books or journals.
Do you have any questions? Contact us.Or login to access all content.