South Korea’s Realignment to Consumer-Led Growth
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Jan. 3 (Bloomberg) -- After the 1997-1998 Asian financialcrisis, South Korean leaders realized the country’s heavydependence on exports made it vulnerable to internationalshocks. To spur domestic spending, the government granted taxbreaks to credit-card users.
This was a noble experiment because South Korea probablyhas the biggest middle class of any of the more populous AsianTigers. As a result, consumer spending led the economy in theearly 2000s, but consumers got carried away: Delinquencies oncredit cards reached 30 percent, restrictions were imposed, andcredit-card-issuing companies had to be bailed out by thegovernment. Household outlays fell in 2003, and real economicgrowth dropped sharply.