IntroductionSouth other than North Korea.Since 1980, South Korea has

IntroductionSouth Korea is presently a mixed economy dominated by large industrial,family-owned conglomerates called Chaebols. Geographically, it is a country inEast Asia occupying the Southern portion of Korean peninsula. South Korea'stroubled past start from the period of Korean war, a war between North Korea(with the support of China and the Soviet Union) and South Korea (with thesupport of the United States) which began in June 1950 when North Koreainvaded South Korea, following a series of clashes along the border with about10%of Korean population killed in the war. The fight ended in July 1953 with anagreement (the Korean Demilitarized Zone) to separate North and SouthKorea, and ordered the return of prisoners. However, no peace treaty wassigned between the two Koreas. The war left South Korea as a poor countrywith a gross domestic product (GDP) per capita of $79.The recovery of the country, however, has been remarkable with atransformation of a primarily agricultural based economy into the world's11th-largest economy. Soon after the Korean war, South Korea was referred toas the Miracle on the Han River, coined by Chang Myon, Prime Minister of theSecond Republic of South Korea, in his New Year's address of 1961. During thisperiod, South Korea transformed from a developing country to a developedcountry. The rapid reconstruction and development during the latter half ofthe 20th century was marked by events such as the country's successfulhosting of the 1988 Summer Olympics and its co-hosting of the 2002 FIFAWorld Cup, as well as the rising of chaebols, such as Samsung, LG, andHyundai. In addition, in 2009, South Korea officially became the first majorrecipient of Official Development Assistance (ODA) from OECD to havepromoted to the status of a major donor of ODA. During 2008-09, South Koreadonated economic aid of $1.7 billion to countries other than North Korea.Since 1980, South Korea has advanced into a developed economy to eventuallyattain a GDP per capita of $30,000 in 2010 compared to $2,300 then (one-thirdof its developed neighbours), almost thirteen times the figure thirty years ago.The whole country's GDP increased from $88 billion to $1,460 billion in thesame time frame.3Graph of South Korea’s GrowthAs observed in the above graph, GDP per capita of South Korea has been risingsince 1960s with a small drop during the 1997 Asian financial crisis.Driving towards growthIn 1960, the growth of the industrial sector was the driving principle foreconomic development, benefiting from strong domestic and foreign aidsupport. Seoul's industrialists (the capital of South Korea) introduced newmodern technologies which increased the production of commodities(especially those for sale in foreign markets) and ploughed the seeds forfurther industrial expansion. As a result, industry brought about a change inthe demography of the country, drawing millions of labourers to urbanmanufacturing centers. The economy underwent a tremendous transformationas a result of rigorous schooling, hard work, high domestic savings rates,imported technology and export-led economic growth.4There was a surge in South Korean exports over 1960 to 1997, rising from $33million to $130 billion. This was facilitated by a strong association between thegovernment and the banking sector. Lending by banks was taking place atnegative interest rates to strengthen the development momentum. Significantfactor in rapid industrialization was the adoption of an outward lookingstrategywhich was well suited for a country like South Korea with low natural resourceendowment, low savings rate and small domestic market. Since the level ofpopulation in the country was high, it developed a comparative advantage inpromoting economic growth through labour intensive manufactured exports.As the industrialization in South Korea was export driven, subsidies andinvestment support was provided by the government to producers, toencourage development of technology for higher competency in globalmarkets. Foreign capital flows were stimulated to cover up any shortfall indomestic savings. These efforts led to rapid increase in growth, followingincrease in income.However, this largely export oriented strategy left the rural parts of SouthKorea underdeveloped mainly due to increase in income disparity fromagricultural and industrial sectors. To reduce such differences, Seoul expandedinvestments in public projects and promote farm mechanization. Thesemeasures helped South Korean economy to achieve an average of 9.2% realgrowth between 1982 and 1987 and 12.5% between 1986 to 1988.1997 Asian Financial Crisis andPath thereofThe chaebol dominated the economy and were fuelled by easy money byborrowing and expanding recklessly, without regard for adequate returns. Thetop five conglomerates were involved in an average of 140 different businesseach. The top four conglomerates (Hyundai, Daewoo, LG and Samsung)account for over half of the country’s exports, making minimal profits.Even though large conglomerates grew at an accelerated pace, prices ofcommodities fell down due to excess supply in domestic and internationalconsumer markets. Of the top 30 chaebol, 25 had debt-to- equity ratios ofmore than three-to- one, and ten of more than five-to- one, against the one-to-5one in an ordinary economy. Many Korean firms started having trouble raisingthe cash needed to make their interest payments. Soon corporate debtincreased to nearly double the annual GDP. Thirteen of the top 30conglomerates were losing money, including four of the top ten.Two major conglomerates, namely Hanbo Group and Kia motors, wentbankrupt in 1997. Hanbo group had total debt of about $6 billion and collapsedin January 1997. It was followed by a collapse of Kia motors in July 1997. Non-repaymentof loan to Korea First Bank also led to its failure. This delay in payment of loansposed a great threat to the South Korean Banking system. Eight big chaebolswere protected by their creditors. Nearly 18% debts given by the banks couldturn bad without intervention by the government. Many Korean merchantbanks had borrowed US dollars from American banks at relatively low interestrates and used the funds to expand their parent corporations and to buy high-yield bonds in Thailand. These banks now must deal with a sharply devaluedWon (South Korean Currency).South Korea’s government approached the International Monetary Fund (IMF)for a loan of $20 billion to keep a possible collapse at an arm’s length. IMFgranted the loan along with certain conditions. Considerable reforms in thecorporate structure, financial markets and labour markets were introduced.These severely impacted the workers in South Korea. IMF also demanded shutdown of poorly performing banks and conglomerates. IMF also instructedSouth Korea to reduce import tariffs. The government went ahead withreforms in the financial sector. Over 700 insolvent financial institutions weremerged or shut by June 2003. Foreign investment rose leading to an increasein unemployment. Reduction in import tariffs also meant inflow of foreigncommodities. Domestic conglomerates faced stiff competition.From a centrally planned, government-directed investment model, SouthKorea became a market-oriented open economy. These economic reforms,pushed by President Kim Dae-jung, helped Korea maintain one of Asia's fewexpanding economies, with growth rates of 10.8% in 1999 and 9.2% in 2000.Conclusion6South Korea’s is by far the biggest economy to have successfully managed tosuccumb to East Asia’s current crisis. After recovery from the crisis of the latenineties, the economy showed strong growth in 2000 with a GDP growth rateof 9.08%. However, the South Korean economy was affected by the 9/11Attacks in the United States. The global economy slowdown, fall in exports,and the perception that corporate and financial reforms would work hadcaused growth to fall back to 3.8% in 2001, but, timely responses of thegovernment and strong domestic consumption compensated such fall inexports and avoided a situationof recession in the country which many industrial economies face soon aftereconomic crisis. More recently the economy stabilized and maintain a growthrate between 4-5% from 2003 onwards. Over these years, South Korea enteredinto a number of free trade agreements with United States of America in 2007,European Union in 2009, Australia, Canada in 2014, China in 2014 and so on.In June 2012, South Korea was entitled to become the 7th member of the 20-50 club (with the population crossing 50 million and maintaining per capitaincome of US$20,000), after Japan, United States of America, France, Italy,Germany and United Kingdom. South Korea today is known as a hub of adeveloped mobile market, where developers can reap benefits of a marketwith very few technology constraints, utilizing the 4G and 5G internetinfrastructure in South Korea. South Korea has todaythe infrastructures to meet a density of population and culture that has thecapability to create a strong economy. South Korea sets an example for variousdeveloping countries by not only proving who the back-ages of the past can beovercome, but also how strong economic steps and by channelizing thepotential of the agents of the economy at the right place, can help theeconomy to prosper. The country followed inclusive growth, with not only theeconomy but also the people of the economy are growing.7References per-capita facts-and- history-195724 history-of- korea/