ECONOMIC CRISES AND STRATEGIES FOR OVERCOMING THEM: THE EXPERIENCES OF SOUTH KOREA AND TURKEY

Аннотация

This article analyzes the 1998 financial crisis in South Korea and the 2000s financial crises in Turkey from a historical and economic perspective, examining their recovery strategies through a comparative approach. The study evaluates the causes of the crises, the role of international financial institutions (IMF, World Bank), as well as the effectiveness of domestic policies and structural reforms. Drawing on practical experience and international literature, the article highlights the importance of post-crisis financial stability, institutional reforms, and economic diversification. The findings provide valuable insights for developing effective strategies to overcome modern economic crises for developing effective strategies to overcome contemporary economic crises. Keywords: economic crises, financial stability, macroeconomic policy, globalization process, international financial markets, inflation and deflation, state economic role, crisis analysis methodology, economic security, structural reforms, economic growth factors, international economic organizations. The response of countries to economic crises depends on various factors, including geographic location, level of development, population’s financial capacity, and currency stability. Studying such processes is particularly relevant in the cases of South Korea and Turkey, whose economies are significant globally but show different sensitivities to crises. South Korea faced severe losses during the 1997–1998 Asian financial crisis, while Turkey experienced major setbacks during the 2001 banking crisis and the 2018 currency depreciation. This study analyzes the impact of these crises on welfare, employment, 32 Synapses: Insights Across the Disciplines SYNAPSES: Insights Across the Disciplines ISSN: 3060-4737 Volume 2, Issue 8 IF(Impact Factor) 10.92 / 2024 social services, and macroeconomic indicators. South Korea’s experience highlights recovery driven by production and economic factors, whereas Turkey’s case emphasizes strategic decisions and their outcomes. The 1997–1998 Financial Crisis in South Korea In 1998, South Korea was one of the countries most severely affected by the Asian financial crisis. This vulnerability was largely due to the economy’s high degree of integration into international financial systems, the absence of a fully flexible exchange rate, the heavy reliance of the public sector and large corporations (chaebols) on debt, and the prevalence of short-term external borrowings1. Between 1994 and 1996, GDP grew rapidly, investment and exports expanded, unemployment remained around 2%, and public debt accounted for less than 11% of GDP. However, this growth was largely driven by the chaebols’ excessive leverage. Banks were also heavily exposed to the financial condition of these conglomerates, making the system highly susceptible to any financial shock2. By 1997, the crisis caused economic growth to halt sharply. Unemployment rose from 2.5% to 8.5% in a short period, the national currency depreciated by 33%, and inflation reached high levels. As a result, the South Korean economy experienced a period of severe financial instability. Annual Consumer Price Index (CPI) Inflation Rate for South Korea (Korea, Rep. –KOR) 40 30 20 10 0 Social_Consequences As a result of the crisis, millions of South Koreans approached the poverty line. The most affected group was the low-income population, whose welfare declined sharply. The middle class also faced financial pressure, forcing many households to reduce consumption expenditures. Unemployment rose from 2.5% at the end of 1997 to 6.8% in 1998 and reached 8.5% at the beginning of 1999, marking the highest level in the 1 Inhoe Kue “Social Welfare Reform Since the 1997 Economic Crisis in Korea: Achievement, Limits, and Future Prospects” 2007 // https://onlinelibrary.wiley.com/doi/full/10.1111/j.1753-1411.2007.00003.x 2 The IMF Working Paper titled "The Korean Financial Crisis of 1997—A Strategy of Financial Sector Reform" by Tomás J. T. Baliño and Angel Ubide, published in March 1999, provides an in-depth analysis of the causes of the 1997 financial crisis in South Korea and the subsequent reform strategies implemented to stabilize and revitalize the financial sector. 33 Synapses: Insights Across the Disciplines SYNAPSES: Insights Across the Disciplines ISSN: 3060-4737 Volume 2, Issue 8 IF(Impact Factor) 10.92 / 2024 country’s history. Young people, women, and temporary workers were the most affected, leading to increased social tension within the country. CHANGES IN THE UNEMPLOYMENT RATE IN SOUTH KOREA 10 5 0 From April 1996, falling semiconductor prices in international markets led to a significant deterioration in South Korea’s terms of trade. This decline continued through the end of the year, resulting in a 20% drop compared to the previous year—the largest decline in trade terms Korea had experienced in the past decade. The following graph illustrates changes in South Korea’s terms of t