A tale of two reforms: Korea vs Greece - Political economy of reform under crisis and bailout

Abstract

Greece became the first developed country to miss a payment to the IMF aid. So far, Greece was given the total of EUR 326 billion through the three rounds of bailout with EUR 40 billion of debt reduction. In the sixth year from the first bailout, reform is still a mission incomplete in Greece. Yet, Greece demands more financial support with less stringent reform. Unfolding Greek drama is in sharp contrast with the Korean case of the 1997 financial crisis. Within the three years of bailout, Korea paid back the entire loan of USD 21 billion and completed the requested reform, even going beyond the IMF conditionality. Why are they so different? How do we explain two opposite outcomes of reform under the crisis in Korea and Greece? Based on a dynamic model of the reform game, we present the analysis of the effectiveness of reform effort through the interplay of the reformers and stakeholders.