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IN THE FIRST THREE decades after the Park Chung Hee government launched the First Five-Year Economic Development Plan in 1962, the South Korean economy grew enormously and the economic structure was radically transformed. South Korea's real gross national product (GNP) expanded by an average of more than 8 percent per year, from US$2.3 billion in 1962 to US$204 billion in 1989. Per capita annual income grew from US$87 in 1962 to US$4,830 in 1989. The manufacturing sector grew from 14.3 percent of the GNP in 1962 to 30.3 percent in 1987. Commodity trade volume rose from US$480 million in 1962 to a projected US$127.9 billion in 1990. The ratio of domestic savings to GNP grew from 3.3 percent in 1962 to 35.8 percent in 1989.

Today, according to the 2007 Index, South Korea's economy is 68.6 percent free, making it the world's 36th freest economy. Unfortunately, however, a closer look reveals that South Korea's level of economic freedom is neither as comprehensive nor as concrete as it should be. For example, although its regulatory process has improved, bureaucracy and lack of transparency still hinders entrepreneurial activities. Interventionist government policies still linger. South Korea's labor freedom is also shackled by restrictive employment regulations that hamper employment and productivity growth. Militant labor unions make the situation worse, disrupting the rule of law and undermining productivity.

Financially, South Korea is more integrated into the world economy now than it was in 1994. Foreigners are major players in the capital markets, accounting for nearly 40 percent of stock market transactions, and South Korean residents have greater opportunities to move their funds abroad. The use by South Korean financial firms of off-balance sheet transactions and financial derivatives, which did not exist in 1994, is expanding rapidly. While it is true that the South Korean stock market actually rose during the last crisis, the expanded role of foreign participants and the increased complexity of the financial transactions mean that the market today is far less susceptible to political intervention than it was a decade ago.