South Korea’s government system is republic with the chief of state as president and the prime minister as the head of the government.
Its economic system is a hybrid that includes a variety of private freedom paired with centralised economic planning and government regulation. Moreover, South Korea is also part of the Asia-Pacific Trade Agreement (APTA) and the Asia-Pacific Economic Cooperation (APEC).Over the last 40 years, South Korea has become a highly technological industrialised economy, demonstrating astounding economic growth and global integration.
During the 1960s, the GDP per capita had been comparable with the levels found in poorer countries of Asia and Africa. In 2004, however, South Korea joined the trillion-dollar club of world economies which was made possible by a system of close government and business ties, including directed credit and import restrictions. At the expanse of consumer goods, encouraged savings and investment overconsumption, the government promoted the import of raw materials as well as technology. However, long-standing deficiencies in the country’s development model were exposed in the years of 1997-1998 during the Asian financial crisis. This includes the high debt to equity ratios and substantial short-term foreign borrowing. The GDP plummeted by 7% in 1998 but managed to recover between years 1999-2000 by 9%. Following the crisis, South Korea assumed greater openness to foreign investment and imports as part of the acceptance of new economic reforms.
As a result, between 2003 and 2007, growth moderated to approximately 4% per year. Yet, in 2008, the export focused economy was severely set back by the global economic downturn, but managed to rebound quickly in the years following, wherein 2010 there was a growth by 6%. In 2011, the US-Korea Free Trade Agreement was mutually ratified and went into effect in March of 2012.
However, the economy’s growth slowed to an estimated 2% – 3% annually between 2012-2015 due to sluggish domestic consumption and investment. Balancing heavy reliance on exports with developing domestic-oriented sectors, such as services, became a problem faced by the administration in 2015. Some long-term challenges South Korea’s economy faces are the rapidly aging population, inflexible labor market, dominance of large conglomerates as well as the heavy reliance on exports, comprising approximately 50% of the GDP. In an effort to tackle these long standing challenges as well as retain the economy’s growth, the government has prioritised deregulation, promotion of entrepreneurship, structural reforms and creative industries, and the competitiveness of small to medium sized enterprises.