The opening of the movie Default is a montage of decades-old media coverage trumpeting milestones on South Korea’s path from post-war backwater to economic tiger: the opening of a highway connecting the country’s two largest cities; the designation of the world’s 32nd-largest economy; admission to the OECD.

The sequence is narrated by news anchors, who speak in tones of pride and awe at how far their country has come, and how it is winning global kudos.

In 1997, Seoul seemed to believe that such “zero-to-hero” achievements would insulate South Korea from the financial contagion spreading across Southeast Asia, where foreign investors were fleeing in panic as economies imploded and currencies plummeted.

Policymakers acted as if South Korea’s economic foundation was strong enough to withstand contagion. Meanwhile, they propped up their own banks and conglomerates that had overspent and overborrowed. South Korea’s progress had instilled ample confidence in investors abroad, they believed.

They were wrong.

A perfect storm of mismanagement and complacency sets the stage for the story of how the economy crumbled in 1997 as part of the worst economic crisis in the country’s history – an event that is recalled by Koreans today as “The IMF Crisis.”

A trailer for the film Default, with English subtitles. Source: YouTube

A national trauma

CJ Entertainment’s Default, a drama based on this saga, has been the number one movie in Korea since its November release, raking in about US$20 million.

It is resonating with audiences not only because it is a sharply told tale of an important phase of history, but also because the lessons of two decades ago provide insights into how today’s economic landscape came to be.

The film is mostly a story of how mismanagement at the top and middle rungs of government and business ignited a street-level crisis as credit dried up and countless firms and individuals went bankrupt: The Korean-language title of the movie translates as “The day the country went bankrupt” and touches on the sense of national failure and humiliation that went with the crisis.

Many present-day South Koreans view the crisis, and the terms of the record-breaking bailout the country accepted from the International Monetary Fund – notably, opening previously closed sectors of the economy to foreign players, allowing them to buy distressed Korean assets and altering labor laws – as having paved the way for the economic problems plaguing the country today, most notably rising inequality and a dearth of stable, well-paid jobs.

The filmmakers make clear that, while based on real events, Default is a fictional story told through imagined characters. But for many viewers, the story is all too real.

In 1997, the truth dawns on a shocked nation. Image from "Default." Photo: YouTube
In 1997, the truth dawns on a shocked nation. Image from Default. Photo: YouTube

IMF: Hero or villain?

Kim Mi-sook, a 62-year-old woman who watched Default this week in Seoul, said the movie brought back memories. “It was such a tough, scary time,” she said. “We were lucky in that my husband didn’t get laid off from his company, but I had friends who lost everything. And after a while, I would lose touch with them; they would disappear because they were so embarrassed.”

While Default is a story with no hero and no triumph, the movie’s most upstanding character is a central bank official who foresaw the less equal world the IMF bailout would create and fought valiantly against it.

Amid resistance from her colleagues, and ultimately to no avail, she pushes back against the terms presented by the IMF on the grounds that the imposed reform measures would push merchant banks out of existence, eliminate huge numbers of full-time jobs and decimate the country’s middle and working classes.

Throughout Default, the one character who comes out ahead is a slick young man who has the foresight to quit his job at a financial institution and invest his severance pay toward investments that bet on the economy’s collapse, such as exchanging large sums of South Korean won for US dollars just before the currency lost much of its value.

He uses those spoils to take advantage of a sudden abundance of inexpensive apartments in Seoul’s south, today the most expensive area of the capital, after debt-ridden households unload properties to pay off loans.

In one scene, he struts into one of his new properties, only to find the previous owner hanging from the ceiling after an apparent suicide. He shrugs off the discovery, saying: “This is my apartment now.”

And in a tense scene, the IMF’s lead negotiator smugly points out that Seoul is negotiating from a place of weakness, telling his South Korean counterparts: “You’re not in a position to make a deal.”

But while there are varying interpretations of the long-term legacy of the IMF in South Korea, the fact is – at least on the macro front – the bailout worked as intended. It injected sorely needed liquidity and confidence into the economy, while Seoul’s weakened currency sent exports surging.

International observers were stunned at the national bounce back: By 1999, the economy was back near double-digit growth. The $68 billion in IMF loans were paid back in record time and the country was adequately future-proofed: it has not suffered an annual recession since – even during 2008.

A disputed legacy

As a result of that fast turnaround, some now argue that the post-crisis reforms did not go far enough.

“Seoul stabilized the economy, encouraged chaebol restructuring and recapitalized banks,” said William Mako, a former World Bank advisor and a lecturer in macro-economics at Kyunghee University in Seoul.

“But by discouraging more foreign investment in banks, it missed opportunities for a more competitive financial sector and institutional investors to further improve corporate governance. So financial innovation and chaebol corporate governance remain issues.”

However, the measures did create a less even business landscape.

Kim Yong-ha, a professor of economics at Soonchunhyang University, says that the mid-sized companies that were eliminated in 1997-98 were never replaced and that dominance by blue-chip conglomerates is a legacy of the crisis.

“Companies that could compete internationally survived, whereas those that couldn’t disappeared,” Kim said.

What irks many South Koreans were the more “flexible” labor laws that were instituted in the wake of the crisis. While it is still harder in South Korea than many other countries for employers to dismiss workers, before the crisis, “jobs for life” were taken for granted.

Today, the country has a two-tier employment system. Full-time employees, who enjoy major benefits, and contracts employees – positions, usually short-term, that pay less than permanent jobs and don’t offer benefits such as paid vacations or employer contributions to pension plans.

The Korea Development Institute carried out a survey last year to mark the 20-year anniversary of the crisis. It found 89% of respondents said the biggest problem caused by the IMF bailout was the new prevalence of irregular jobs.

A central banker implores officials not to go to the IMF, a move that would cost Korea its economic sovereignty. Scene from "Default." Photo: YouTube
A central banker implores officials not to go to the IMF, a move that would cost Korea its economic sovereignty. A scene from Default. Photo: YouTube

Promises of equality, fairness

President Moon Jae-in was elected last year on promises to usher in an era of evenly distributed growth and create thousands of decent jobs.

So far, he hasn’t made progress toward that goal. Moon’s popularity has been on a steady downward trajectory in recent months as discouraging job data continues to pile up. The left-leaning president’s approval rating peaked at close to 80% in the spring at the height of the heartwarming rapprochement with North Korea, but slid below the 50% mark for the first time in the last week of November.

Pollster Realmeter attributed to drop to the weak economy, saying: “Expectations for economic recovery have plunged as economic indicators such as unemployment and investment remain sluggish.”

And the grim employment picture is hitting those at the start of their careers the hardest: The youth unemployment rate has hit 10%, the highest since the crisis of the late 1990s.

This lack of opportunity has created a climate of extreme competition among youths, who put in endless hours of study, while learning foreign languages and taking part in extracurricular activities to boost their marketability.

More than 20 years later, some still blame the IMF for creating an unfair, dog-eat-dog society.

“We still haven’t moved past the IMF, and now our country exhibits the effects of its neoliberalism,” poet Noh Hye-gyong wrote in a column published in the Hankyoreh, a left-wing newspaper. “Through the IMF, our leadership has created a country where money is everything, where students are so stressed about exams that they fight and kill each other.”

Cambridge University economist Ha-joon Chang, however, offered a different perspective in a recent interview with South Korea’s Joongang Ilbo newspaper.

“Over the past 20 years, South Korea’s main industries have collapsed, but there hasn’t been investment in new technologies. In the 1970s and ’80s, cars, shipbuilding and semiconductors drove the economy, and in the 1990s it was semiconductors, [but] Korea hasn’t made anything new since then,” Chang said.

Default’s implication seems to be the IMF intervention killed a kinder, gentler South Korea, with a model of shared growth, enabled through jobs for life at family-like companies. In its place, the crisis ushered in an individualistic era where only the most shrewd and aggressive prosper.

In this sense, the film offers clues into the economic beliefs of Koreans: a people who have constructed one of the world’s most successfull capitalist economies – but whose thinking may verge on the socialistic.