AN EXERCISE IN WORLDMAKING 2009 - ISS

8 Benevolent Makeover Or Insidious Takeover? The Case Of South Korea 91
reforms that appeared to be counterintuitive to the pressing needs of the
South Korean economy (Stiglitz 2003: 206-213).
For all the praise that the IMF, World Bank as well as western nations
lavished upon the country prior to the crisis, the quick about-face was
nothing less than astonishing. Almost overnight, conventional wisdom
necessitated the emendation of a structural flaw assailing the economic
and political system (Crotty and Lee 2006: 381). Hence, a thorough market-oriented
overhaul was in order or so the IMF believed.
It was no secret that South Korea had strong macro-economic fundamentals:
high domestic savings and investments rates, high rates of
output growth, strong export performance, low inflation (Hardy 1998).
However, private debt had amplified astronomically fueled by rapid financial
and capital market liberalization. South Korea was a casualty of
the unfettered short-term capital flows as continual speculative raids on
the won had brought the economy to its knees as international capital
exited at an alarming rate (Raghavan 1997). However, the IMF verdict
held that speculation and hedge funds played no role in the crisis (indeed,
“speculation was a healthy activity”) and good governance, democracy
and free markets were inseparable. The tiger had become wayward.
Crony capitalism and heavily regulated, inefficient political and financial
systems thus became red herrings for the further involvement of international
financial institutions in the affairs of the nation.
Loans did not come unattached to conditionalities. In selling the neoliberal
counter-revolution, Margaret Thatcher famously remarked “there
is no other alternative”. In a similar vein, the IMF predictably urged the
South Koreans to swallow the bitter antidote which it prescribed, though
it be painful in the short run, it would indubitably lead to a recovery. A
beleaguered government whose coffers were ransacked by merciless
speculators and in desperate need for replenishment, weakened in bargaining
power and reluctantly accepted . The conditionalities entailed
drastic measures discussed here in turn.
Capital Flows: Further opening up of the capital account was agreed
upon in order to stem the outflow (this is ironic, in light of the fact that
it was the root cause of the problem). This only furthered the speculative
attack on the won which further devalued the currency (Chossudovsky
2003, Crotty and Lee 2006).
Austerity Measures: A thriving economy (the South Korean government
did not have a deficit problem) prior to a speculative attack was