From the 1997-98 Asian financial crisis to the 2008-09 global economic crisis: lessons from Korea’s experience

East Asian countries were hit hard by the financial crisis in 1997 and have shown significant and remarkable recovery with far-reaching economic and regulatory reforms since then. A decade later, the Asian countries are suffering again from the on-going global economic crises beginning in the summer of 2007. If this current crisis is not managed effectively, the Asian economic situation could escalate into a more serious crisis mode than that of 1997-8. Due to the increased globalization of financial markets, crises tend to become more severe and contagious even if the effected countries have strong macroeconomic fundamentals. This paper focuses on the Korean economy, which experienced the hardest crisis hit as well as most successful recovery from the 1997 crisis, and discusses interrelated and general policy lessons from the 1997 and 2008 crises to help prevent from the reoccurrence of similar financial crises and economic downturns in the future. Specific lessons, among many, to be analyzed in this paper are drawn on 1) monitoring international capital flows and conducting better international debt management, 2) maintaining a competitive, efficient and well-regulated financial system to be protected from international contagion, 3) establishing an effective nonperforming asset management mechanism, such as the Korea Asset Management Corporation (KAMCO) of Korea, and 4) enhancing regional financial cooperation among the East Asian countries, like a renewed Chiang Mai Initiative, to provide a short-term liquidity support, defend Asian currencies from speculative attack, and assist long-term economic growth in the East Asian region. In deriving the main policy lessons, both the commonalities and uniqueness of the two crises-old in 1997 and new in 2008-are examined from the perspective of the Korean economy.