Financial Crisis in South Korea - 2152 Words

International strategic management | South Korea, financial crisis | Melissa MactavieJodie MackayTeboho LentoSifiso MashishiKarushka naidoo | South Korea’s current account balance started to deteriorate in 1990, due to the rising inflation, appreciation of the Korean won and the recession of the world economy. In 1991 the current account recorded a deficit of $8.7 billion, which was more than four times the level of the preceding year. The Korean government encouraged capital inflows in order to finance the growing current account deficit. To achieve this objective, capital account liberalisation was accelerated in 1991by altering the Foreign Exchange Management Act. The limited capital account liberalisation implemented resulted†¦show more content†¦The asset value declined further. Many businesses failed to guarantee returns and profitability. Due to the high rates of economic growth and the booming economy, private firms and corporations looked to finance speculative investment projects. However, firms overstretched themselves and a combination of factors caused depreciation in the exchange rate as they struggled to meet the payments. The South Korean corporate governance structure was known for its technical and ethical inefficiency well before the crisis. The existence of a small number of large business conglomerates, chaebols, is widely considered to be one of the biggest problems in South Korean society. This governance system was fertile ground for inefficiency and corruption. A study shows that only 27percent of the 570 non-financial firms created shareholder value during the five years before the crises. The South Korean conglomerates were more or less completely controlled by the government and simply absorbed growing capital investment. Eventually, excess debt led to key failures and takeovers. In the midst of the Asian market downturn, South Korea’s credit rating was lowered on 28 November 1997 and downgraded again on 11 December. That contributed to an additional decline in South Korean shares since stock markets were already bearish in November. The inability of the Korean government to respond early to potentialShow MoreRelatedSouth Korea s Economic Crisis1534 Words   |  7 PagesBetween 1990 and 1996, South Korea experienced strong economic growth ever since South Korea was separated from North Korea. As the data of South Korea economy from World Bank web provides, Average growth rate was around 8 percent and inflation rate averaged 5 percent. Moreover, unemployment rate was stable below 3 percent (citation use footnote or endnote). Until 1997, Korea was one of miracle East Asian countries that grew up incredibly faster than that of other Asian countries. 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