The Asian economic crisis: Ten years later (I)

The Samsung Economic Unit Research Institute( http://www.seriworld.com) has published a review of the situation focused on the South Korean economy ,after ten years of the Asian economies crisis(1997).
First of all, some background .The Asian economic crisis started off in 1997 in Thailand, when those economies could not get over with the effect of economic growth, based on serious unbalances and disequilibrium. The exchange rate policy applied was Asian currencies pegged to the US dollar, such that while the dollar started to appreciate in 1995,the Asian currencies also had a real appreciation ,which led to current account deficits . On the other hand ,interest rate differential and low exchange rate risk, led to huge amount of capital inflow which prevented currency depreciation. By the beginning of 1997, it was clear that several Asian currencies were overvalued, and that such overvaluation was a factor in the worsening of the current account deficits in many countries of that area (www.rge.monitor.com ). This current account unbalances ignited a series of depreciation in local currencies, which pressed the financial sector ,governments and firms which had huge amount of debt in such foreign currency. At the same time, this depreciations were self reinforced because all of those economies shared the same markets, so they had to protect their exports competitiveness .
At that time ,on November 21st ,the South Korean economy requested assistance from the IMF because of the effect of such a crisis on its own economy, which was not possible for them to carried over. South Korea economy was heavily hit by their neighbourhoods countries, because of the different adjustment of its exchange rate policy. While at the end of September 1997 the average rate of depreciation of Thailand, Malaysia, Indonesian and Philippines currencies, were roughly 33%,the Korean won was depreciated only by 8%,which means that the won was appreciate in real terms. This meant an important loss of competitiveness for Korean economy.
Ten years after the crisis , South Korea economy has fully recovered with some impressive figures. It holds U$$ 260 billion in foreign currencies reserves, and it has a per capita national income of almost U$$ 20.000.Exports has surpassed U$$ 300 billion, specially important the fact IT industry has become much more important on total exports.
The score card for the Korean economy ,according to the SERI report, indicates that in the last ten years firms were reluctant to invest more, reducing capital accumulation. Qualitative growth improved somewhat, because firms enhanced their management models focusing on higher profit.
Some of the challenges which lies ahead includes more labour market flexibility, innovation in small and medium sized business to make them more resilient to markets fluctuations, softer regulations and additional investment in the services industry.
This case illustrate how important is to take the right lesson from crisis time. In fact the South Korean economy, made out an opportunity of that painful crisis, to make deep corrections specially on the financial sector, which otherwise were next to become severe restrictions on growth .-