In the preceding chapters, we discussed how various structural aspects of chaebols made chaebols resist the shifts to their environment and become dysfunctional. Our results suggest that chaebols' creation of operational synergies was wasted in ill-conceived diversification strategies. Vertical integration resulted in inefficiency and massive subsidization. Chaebols' in-house financial services and mutual debt guarantee practices contributed to high debt levels. We pointed out, however, that the fundamental problems of chaebols are instead attributable to chaebols' weak corporate governance systems and the distortions in Korean financial markets. We thus concluded that the restructuring of chaebols should address these fundamental weaknesses. In this chapter, we will examine the restructuring efforts by the Korean government and chaebols after the foreign exchange crisis in 1997. This chapter will also discuss the further restructuring of chaebols.

THE RESTRUCTURING POLICY OF THE KOREAN GOVERNMENT

When Korea applied for emergency funds from the IMF, it was nearly bankrupt. The Bank of Korea's foreign reserves were almost depleted. Foreign creditors demanded the redemption of loans from both local banks and companies. Under such circumstances, the Korean government had no leverage against the IMF and IBRD in bargaining conditions of loans. The guidelines imposed by the IMF and the IBRD greatly influenced the Korean government's subsequent restructuring policies.