Essay - The South Korean Economy, 1992 to 2002: Nation in Search...

The South Korean Economy, 1992 to 2002:

Nation in Search of its Place in the International Economy

In 1992, ***** Koreans could look back on 40 years of economic growth and feel confident in their future. The country that had staggered out of the smoke and misery of World War II an economic basket case, stood in 1992 as a model ***** prosperity ***** economic innovation. Only three years later, S*****h Korea followed other the rest of East Asia into an economic meltdown. Szamosszegi writes that the problems ***** been there to see, for anyone interested in looking. The countries of East Asia were running substantial current-account defic***** (they ***** importing more than they were exporting). Most *****, including South *****, were financing this deficit by borrowing heavily. (Szamosszegi)

The trouble really began in Japan, according ***** Szamosszegi, where significant ***** stagnation was being experienced. Japan's post-war economic success had ***** built on a model th*****t differed ********** from that of the West. Rather than allowing the market to lead the way, the Japan ***** put in place a national industrial policy. South Korea borrowed ***** from the *****ese model. (*****) "Former De*****y Treasury Secretary Lawrence Summers summarized 'Asian' *****s as 'an approach that favored centralized coordination of activities over decentralized ***** incentives. G*****nments targeted particular industries, promoted selected exports, and protected domestic industry.'" (Szamosszegi)

***** reason ***** investors had so much faith in ***** East Asian economies was that ***** ***** such high rates ***** investment. Throughout the 1990s, South ***** was investing almost 40 percent of its gross domestic product (GDP), as compared to a rate ***** less than 20 percent in the United States. (Szamosszegi) But like too much of anyth*****g, too ***** investment can be a bad thing. "In South Korea, over investment in steel manufactur*****g pushed three of the country's conglome*****s into bankruptcy in 1997." (*****)

Szamosszegi writes ***** ***** Asian emph*****is on exports also proved to be *****o much of a good thing. "G*****nment industrial policies - ignoring the dictates ***** free-market forces - encouraged many manufacturers to build factories with excess capacity, under the assumpti***** that what ***** not be sold at home would be exported." (Szamosszegi) He writes that ***** strategy worked for Japan until other countries in the region entered the picture. But ***** *****n, too many export-driven economies in the ***** began flooding ***** market, forcing down prices and ********** to a regional collapse. (*****)

In terms of the financial component, most Asian countries had their currencies pegged to the U.S. dollar, providing stability and inter***** confidence, ***** to Szamosszegi. This system ***** well between approximately 1985 and 1995, when the ***** was relatively weak ***** goods priced in dollars looked like a good bargain. (Szamosszegi) But as the dollar strengthened, so too did the currencies ***** to it. Investment capital began flooding in***** countries that, according to Szamosszegi and others, had *****developed financial institutions that were unable to handle this flood of capital. "In sum, industrial ***** in *****