Korea has suffered much throughout its history, bullied by more powerful neighbors and torn apart by the Korean War, which ended in an armistice in 1953. The country was subsequently left divided and deeply impoverished.
But in the 60 years since then, South Korea has worked to rebuild not only its infrastructure, but its economy and financial status. The country now stands among the world’s 20 largest economies.
This is why Korea, to this day, is approached by under-performing countries eager to learn how all this was possible.
The formula for success involved diverse ingredients: several powerful dictators, companies aching to carve out international fame and a passionate people who are among the most educated workforces in the world. Planned growth and Saemaul Movement
One essential driver of Korea’s rapid industrialization was a series of government-led plans to boost the nation’s GDP by investing in key industries, securing necessary resources, and building up the nation’s trade.
“Five-year Economic Development Plan” campaigns were launched sequentially, starting in 1962 and ending in 1986 to coincide with Korea’s hosting of the Asian Games.
The first plan was mainly to secure more sources of fossil fuels, create a trade surplus and cultivate bedrock industries such as petrochemicals, mining and engineering.
The second phase, initiated in 1967, involved concrete figures, with the aim of achieving exports of $700 million, increasing national income, creating the chemicals and steel industries and, last but not least, keeping down the population, a far cry from the fears related to an aging population today.
In the third phase, the government sought to solidify economic growth and set its sights on even higher goals, but the “Nixon Shock” of 1971 that eventually brought about free-floating currencies took a toll. In 1973, it was followed up by the first Oil Shock. The Korean economy, however, prevailed and managed to achieve more than 10 percent growth during this period.
In the fourth phase, starting in 1977, the country was finally able to achieve exports of $10 billion while per capita GNP reached $944. But another oil supply crisis, exacerbated by the side effects of a real-estate and industry-centric policy initiative, drove the economy into recession.
In the final stage, the economy started to pick up again and laid the foundation of what the Korean economy looks like today.
Another element of Korea’s fast growth was the Saemaul Movement initiated in 1970 by late President Park Chung-hee, the father of incumbent President Park Geun-hye. It was one of the first steps the country took to piece together an economy ruptured by war and subsequent poverty.
The movement aimed to promote self-sustainability in the country’s villages, with the central government providing raw materials so that the towns could be rebuilt, chiefly in the rural areas the former president believed were most needy.
The campaign brought about modernized facilities such as bridges and roads, while replacing traditional homes with modern ones.
The Saemaul Movement achieved great success in reducing poverty and modernizing many of Korea’s rural regions.Financial market expands with GDP
Korea’s financial industry also has undergone both rapid growth and full-fledged debt rescheduling over the past 60 years.
Buoyed by a speedy expansion in gross domestic product and manufacturing industry (or corporate clients), the financial sector saw continuous growth in the domestic market and attracted global investment banks.
The market began taking on its fundamental shape with the establishment of the Bank of Korea in June 1950 and Korea Development Bank in April 1954.
Korea was accepted as a member of the International Monetary Fund and International Bank for Reconstruction and Development (currently the World Bank) in 1955.
The first main bourse, a precursor of the Korea Exchange, opened in 1956. Shares of 12 companies were traded on the exchange.
In 1967, the U.S.-based Chase Manhattan with its Seoul branch became the first foreign bank to make inroads into the local market.
In the 1970s, the state-run Export-Import Bank of Korea was set up and the Korea Stock Exchange was opened in Yeouido, Seoul, in 1978.
The floating exchange rate system was introduced in 1980 and the annual IMF/IBRD conference convened in Seoul in 1985.
The stock market was fully opened to foreign investors in 1992 and Korea made its entry into the Organization for Economic Cooperation and Development in 1996.
The Asian foreign exchange crisis hit Korea in the late 1990s, leading the IMF to bail out the nation with $57 billion.
The government declared Korea First Bank and Seoul Bank insolvent and ordered 12 commercial banks to seek management normalization. Five other banks, including Donghwa and Chungcheong, and four life insurance firms, including Kukje and BYC, were driven out of the market.
The financial crisis led to the establishment of the Financial Supervisory Commission (which was later renamed the Financial Services Commission) in April 1998.
The Financial Supervisory Service also made its debut in January 1999. It resulted from the merger of four former regulatory bodies in four sectors ― banking, securities, insurance and credit guarantee funds.
The FSC and its executive arm, the FSS, are considered to have played a significant role in increasing the soundness of financial companies and cracking down on market irregularities over the past decade.
Meanwhile, the market saw huge capital outflow due to buyout funds in the 2000s. Three banks ― Korea Exchange Bank, KorAm Bank and Korea First Bank ― were put under the management of Lone Star Funds, Carlyle and Newbridge Capital, respectively.
Reckless money-spinning business in the credit card sector produced some 1 million credit defaulters and triggered a household debt crisis.
Currently, financial authorities are pushing financial firms to actively tap the overseas market.Permanent side effects
As seen, the side effects of Korea’s economic policies in both the corporate and financial sectors were evident and permanent.
On the upside, with a skilled workforce and people’s passion for a better life, the government was able to build an economy that had strengths in exports and high-tech industries such as IT, engineering, shipbuilding, chemicals and textiles.
Per capita GDP soared, along with the country’s economic status. Korean companies began garnering international attention and trust for their reliability and advanced technology.
Samsung, LG, Hyundai, SK, Hyosung, Hanjin, Ssangyong, Daewoo, Lotte, Kumho and Hanwha are only some of the Korean firms that built a reputation both at home and abroad thanks to the extensive government leg-up.
But there was a darker side, and that involved the real estate bubble that eventually popped in late 2000, causing many to become “house-poor.” Another was the severe polarization between the metropolitan areas and the rural regions, which continues to this day.
Companies, mainly conglomerates, were led to believe they were “too big to fail” due to their close ties with the government, which had its fingers in every corporate pie. Banks and financial institutions doled out loans to the corporate sector without thinking twice, with the financial regulators ignorant of global standards or governing guidelines.
Eventually, the firms did fail, wreaking havoc on the country and the people, with Daewoo most dramatically representing the fall of the conglomerates.
Corruption among officials also was rampant, and the public rapidly lost its trust in the system.
The prevailing distrust has culminated in the adoption of policies seeking the extreme opposite: economic democratization.
Despite the downsides, however, Korea’s spectacular growth rightly earned its reputation for creating the “Miracle of the Han River.”
The people are still vibrant, persistently passionate about their work and lives, and cannot stand being left behind. This is why many believe the country remains one of the most dynamic and fast-paced economies in the world, one global firms and governments compete to enter.
By Kim Ji-hyun and Kim Yon-se