Economy & Business

Financial Crisis and Korea’s Economy: An Interview with Professor Stephen Harris

Korean financial crisis

Today I have the pleasure of sharing with you a short interview I conducted with Carleton University professor Stephen L. Harris. Professor Harris specializes in finance and economics, and has taught public policy, international finance, and macroeconomics in Canada, the U.S., Singapore and Georgia, among others.

Stephen Harris portraitProfessor Harris did a good amount of research on the Asian financial crisis of 1998-99, and did some field work in Korea both during the crisis, when he was Principal Administrator at the Organisation for Economic Co-operation and Development (OECD), and during the post-crisis period.

I hope you’ll enjoy the interview, and if you have any questions do not hesitate to let us know in the comments section below. For your convenience, I’ve also included the recorded interview at the bottom of this post.

Interview

1) Dr. Harris, you’re a scholar with extensive teaching and policy work experience in North America, Asia, and Europe. Could you tell us briefly about what got you interested in Korea’s economy and the country’s financial regulation and governance?

Well my interest in Korea started when I was working at the OECD. I became friendly with the Korean ambassador to the OECD, and Korea was going through a number of problems as a consequence of the [Asian financial] crisis. So that was my primary interest and once I came back to Canada I wanted to continue my research in that area.

2) Could you tell us a bit about your experience doing field work there during the 1998-99 financial crisis, among others? 

Because of the language problem I needed intermediaries to help me make contact. So I did use my Korean OECD contacts to get interviews with a number of government people. I also used our own Canadian embassy representatives in Seoul to make some appointments for me, and I contacted some academics on my own who I had run into from time to time, and they helped me out as well.

What I did find is that most people were rather open and willing to talk frankly about what was going on in Korea, what led up to the crisis, and the politics involved—some of it not totally rational, but Korea was an emerging democracy at the time and it’s probably not surprising that they went through the problems that they did.

3) You have written extensively about Korea in the post-crisis period. What is your opinion of the path that the Korean economy has taken since the end of the crisis, and are there important lessons that others could take from Korea’s experience?

I think Korea has done reasonably well in the post-crisis period. They had a number of stumbles as they tried to get a handle on the regulatory apparatus. They introduced the new regulatory institution but just migrated the people who had been at the central bank earlier into this new regulatory agency. The problem was that the quality of the regulation—if you move the same people into the new regulatory agency, their behavior is going to be the same. You can’t change attitudes overnight. So that resulted in a number of stumbles, but they did recover from that reasonably well.

Part of the unfolding of the crisis was politically related. The OECD, backed by the US, wanted Korea as a member, and Korea wanted to be a member of the OECD, they thought this would put them in the club and give them some recognition in the global political economy. And it was in the aftermath of the Seoul Olympics, which came off pretty well. So I would say that the government was feeling rather cocky, and the OECD was making demands on Korean public policy that they really weren’t prepared to manage properly—put again in the finance and regulatory side—and that contributed to the problems they subsequently experienced. In fact, my own work suggests that the OECD bears a big deal of the blame for the unfolding of the crisis because they encouraged Korea to liberalize prematurely, and the country wasn’t ready to play in the big leagues, so to speak.

4) The Korean themselves refers to the Asian financial crisis as the “IMF crisis”, because the package that the IMF gave to Korea was substantial and tied to strict conditions. What do you think of these conditions, and how Korea dealt with them more specifically?

In the course of my research I did spend some time in Washington at the IMF, and I’ve been critical in my own assessment of what the IMF advised. At the time the IMF had this policy of “here’s the answer, what’s the problem.” I think they exacerbated the problem. They were dealing with the public sector when it was a private sector crisis, and that was a problem. I think they’ve admitted since that their actions and their advice at the time—one of the conditionalities they imposed on the Koreans was probably inappropriate. And that was the stance I took in my own writings.

5) What, in your opinion, are some of the remaining challenges that Korea will have to tackle regarding its economy and financial governance, among others? 

I must admit I can’t give you a robust answer on that. Certainly their manufacturing sector has done quite well and their heavy machinery and shipbuilding has done quite well too. I know their shipbuilding has expanded into Ukraine, because I had done some work there and they had tried to develop a shipbuilding enterprise in Mykolaiv in Ukraine.

I think that they certainly have matured, and given the short period since General Park [Chung-hee] and Kim Young-sam were in power, they’ve really come a long way. My impression—I don’t follow the wiggles in the economy as closely as I used to—is that they’re doing reasonably well and in fact that’s reflected in what has been happening to the Korean won in recent months.

6) Canada has been negotiating a Free Trade Agreement with Korea in recent years, and we’ve heard about an almost concluded treaty. What is your opinion about the signing of such an agreement? Do you believe it would be mutually beneficial for both countries to further promote bilateral trade and investment?

I guess in principle all trade is welfare improving. But it is the case—I don’t want to appear to be a protectionist—but our industrial heartland in Canada has certainly been hollowed out in recent years, and if we look south of the border we can see the ultimate effects of that hollowing out.

I certainly have some reservations about the consequences of an FTA with South Korea, but I think that in the global political economy it’s kind of inevitable. We’re not going to necessarily change our consumption habits in the short to medium run, so eliminating price obstacles is certainly beneficial.

I still certainly do think that Koreans do, in certain non-tariff barriers, in their own public policy supply—that hasn’t changed dramatically over the year. I’m not sure I know what’s in the FTA that would eliminate these non-tariff barriers, but I would say the Koreans are really good at putting in place these barriers.

Audio Interview

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Sam Gendreau is a passionate language learner and traveler, and the founder of www.lingholic.com, a blog that helps language learners acquire foreign languages as smoothly, quickly, and effortlessly as possible. He has lived and traveled in Oceania, Southeast and East Asia, and across North America, and he has learned French, English, Korean, Spanish, Portuguese, and Mandarin Chinese to varying degrees of fluency.

 

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