South Korea: One Big Step Backward

The good news is that South Korea is rebounding from Asia's deep economic crisis faster and stronger than anyone anticipated. Growth in 1999 could hit 5.5%, just about compensating for last year's decline. The bad news is that the recovery is taking the steam out of the government's reform movement. The effort to revive the economy by reducing the role of the giant conglomerates and increasing foreign ownership of banks is faltering badly. Without breaking the close ties between the chaebol and banks that finance them, Korea will run the risk of building excess capacity all over again. Its industries will have difficulty moving quickly enough in the digital age. And its young entrepreneurs and engineers will increasingly flee to Silicon Valley.

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