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Was the IMF's Imposition of Economic Regime Change Justified? A Critique of the IMF's Economic and Political Role in Korea During and After the Crisis

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Kang-Kook Lee
James Crotty

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Abstract

As late as October 1997 the IMF declared that the Korean economy was experiencing a temporary liquidity squeeze, not a solvency problem. Yet in December 1997 Deputy Managing Director Stanley Fischer declared that Korea suffered from a systemic “breakdown of economic relations” so complete that only radical economic restructuring could restore prosperity. The IMF attached what it called “extreme structural conditionality” to its loan agreements with Korea, demanding a complete and rapid transition from Korea’s traditional East Asian economic model to a globally integrated neoliberal model. We subject the IMF’s assertion that the allocative efficiency of the Korean economy had collapsed by 1997 to a number of empirical tests, including time series and cross-section analyses of capital productivity and corporate profitability, and firm and industry level econometric tests of the proposition that investment spending was excessive and misallocated in the pre-crisis period. This evidence does not support the IMF’s systemic breakdown claim. We conclude that the IMF’s imposition of “extreme structural conditionality” on Korea is best understood as an illegitimate and antidemocratic exercise of power designed to meet the needs of the IMF’s key constituents rather than those of the majority of Korea’s people.

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Paper provided by Political Economy Research Institute, University of Massachusetts at Amherst in its series Working Papers with number wp77.

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Date of creation: 2004
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Handle: RePEc:uma:periwp:wp77

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  1. Pomerleano, Michael, 1998. "The East Asia crisis and corporate finances : the untold micro story," Policy Research Working Paper Series 1990, The World Bank. [Downloadable!]
  2. Wurgler, Jeffrey, 2000. "Financial markets and the allocation of capital," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 187-214. [Downloadable!] (restricted)
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  3. Dieter Ernst, 1998. "Catching-Up, Crisis and Industrial Upgrading. Evolutionary Aspects of Technological Learning in Korea's Electronics Industry," DRUID Working Papers 98-16, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies. [Downloadable!]
  4. Nehru, Vikram & Dhareshwar, Ashok & DEC, 1994. "New estimates of total factor productivity growth for developing and industrial countries," Policy Research Working Paper Series 1313, The World Bank. [Downloadable!]
  5. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Dani Rodrik, 1997. "TFPG Controversies, Institutions, and Economic Performance in East Asia," NBER Working Papers 5914, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  7. Love, Inessa, 2001. "Financial development and financing constraints - international evidence from the structural investment model," Policy Research Working Paper Series 2694, The World Bank. [Downloadable!]
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  8. Claessens, Stijn & Djankov, Simeon & Xu, Lixin Colin, 2000. "Corporate Performance in the East Asian Financial Crisis," World Bank Research Observer, Oxford University Press, vol. 15(1), pages 23-46, February. [Downloadable!]
  9. Chang, Ha-Joon, 1998. "Korea: The misunderstood crisis," World Development, Elsevier, vol. 26(8), pages 1555-1561, August. [Downloadable!] (restricted)
  10. Kang-Kook Lee & James Crotty, 2001. "Economic Performance in Post-Crisis Korea: A Critical Perspective on Neo-Liberal Restructuring," Working Papers wp23, Political Economy Research Institute, University of Massachusetts at Amherst. [Downloadable!]
  11. Timmer, Marcel & Ark, Bart van, 2000. "Capital formation and productivity growth in South Korea and Taiwan: realising the catch-up potential in a world diminishing returns," CCSO Working Papers 200003, University of Groningen, CCSO Centre for Economic Research. [Downloadable!]
  12. Ajit Singh, 1998. ""Asian Capitalism" and the Financial Crisis," SCEPA Working Papers 1998-15, Schwartz Center for Economic Policy Analysis (SCEPA), The New School. [Downloadable!]
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