This chapter argues that Korea's financial crisis had both long-term and short-term causes. Weaknesses in both the financial and corporate sectors, especially inefficient management and imprudent lending among financial institutions, coupled with over investment and low profitability in the corporate sector, made them vulnerable to external turbulence. The Korean crisis also illustrated the fact that, although the alliance between the government, the chaebols and the banks had been in place since the 1960s, it was no longer compatible with Korea's integration into the global financial market. The Korean form of democratization most closely followed what Samuel Huntington had called 'transplacement', where the sitting government would make a concession and the opposition groups would accept the compromise in order to avoid the political gridlock or civil disorder. The president-elect cooperated with the outgoing government and the ruling party to get legislative backing for several important reform measures.
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