North Korean nuclear threat is not the only crisis on South Korea’s horizon
Lee Jong-Wha says Seoul should focus on more than just North Korea, given its domestic economic weaknesses and the need to strengthen relations with both the US and China
In November 1997, South Korea faced a sudden withdrawal of foreign capital, coupled with its financial institutions’ inability to borrow from abroad, depleting the country’s international reserves.
The following month, Seoul turned to the International Monetary Fund, and launched painful structural reforms. Millions of jobs were lost and, in 1998, the economy contracted 5.5 per cent.
But government-led reforms made progress addressing structural weaknesses, so the economy weathered the 2008 global financial crisis better than most.
Today, however, South Korea is beset by rapid population ageing, labour market inefficiency, institutional weakness and low service sector productivity. As the labour force shrinks, the economy loses vitality.
Externally, South Korea is highly vulnerable to the North Korean nuclear threat. The United States is now attempting to pressure China to curb the threat. While China has agreed to enforce economic sanctions more actively, it doesn’t want the regime to collapse.