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Praise for Dangerous Markets
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On January 1, 1997, South Korean President Y.S. Kim proudly announced
that the nation’s economy had grown by 7.1 percent in 1996. While
slightly less than the growth rate in 1995, the new numbers confirmed that
this Asian tiger—the world’s eleventh largest economy with such powerhouses
as Hyundai, Samsung, and Daewoo within its borders—was still a
formidable financial contender in the global economy.
To be sure, Korea’s currency was stable. It benefited from a slight
budget surplus. Unemployment was only 2.5 percent. Korea’s average debt
rating by Moody’s was A-1. Yet, on the sunny day of Kim’s pronouncement
few observers realized that the dark clouds of a financial storm were already
looming on the horizon. There were problems in the real economy, where
industry-wide value destruction—companies unable to earn their cost of
capital—had been increasing since 1994. The storm clouds billowed, with
weaknesses apparent in Korea’s banking sector, which earned very low
returns, lacked real risk management skills, and was loaded heavily with
destabilizing nonperforming loans (NPLs) to the country’s family-owned
conglomerates, with many of the loans directed by Korea’s Ministry of
Finance and Economy.
By that fall, Korea had become engulfed in the throes of a full-blown
financial storm. Growth slowed to 5 percent for the year, tumbling to a negative
6 percent the following year. Unemployment rose to 8 percent in 1998.
The banking system melted down, forcing the government to intervene, first
in the merchant banks and then the commercial banks, initially costing 15
percent of its gross domestic product (GDP) to recapitalize the banking system.
The Korean stock market lost half its value from one year earlier. The
International Monetary Fund (IMF) and the World Bank intervened with
massive funding, policy mandates, and technical assistance
Dominic Barton, Roberto Newell, and Gregory Wilson - Personal Name
1st Edition
0-471-22686-6
NONE
Praise for Dangerous Markets
Management
English
John Wiley & Sons, Inc.
2003
USA
Canada
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