The wave of market liberalization along with the political democratization since 1987 ignited strong and violent labor disputes as well as tremendous wage hikes which have far exceeded the rise in productivity. Entering the 1990s, wage hikes averaged 18% annually. In addition to such excessive wage hikes, high financial costs, excessive administrative regulations on business activities, and low social overhead capital investment have afflicted industrial competitiveness and entrepreneurship.

Furthermore, the sudden increase in disposable income among Koreans has induced excessive private spending and speculation. The balance of payments deteriorated and inflation soared. The current account balance, which had shifted from chronic deficit to surpluses after 1986 again reverted to a deficit in 1990. Inflation reached nearly 10% in the early 1990s.

Internationally, the 1990s witnessed growing regionalization as economic trade blocs were formed among countries of Europe and America. With the Uruguay Round, a new regime in international trade was formed that increased pressure to liberalize previously protected markets in agricultural goods and financial services. The government increasingly felt the need to change its economic strategy, as the previous strategy that promoted exports using cheap labor as comparative advantage while keeping domestic markets protected from foreign competition showed its limit.

The government began to tear old regulations apart and reform irrational procedures.

At the core of the government efforts in the early 1990s was the reform in the financial sector highlighted by the real name financial transaction system. The real name system was the government's effort to do away with corruption that was prevalent under the old system in which it had been possible to open accounts and conduct business transactions under false names, directly and indirectly fostering institutionalized corruption and illegal financial dealings.

Under the comprehensive policy theme of segyehwa (globalization), the government took an active role in participating in international economic activities through the Uruguay Round of trade talks through the launching of the World Trade Organization, and its membership in the Asia-Pacific Economic Cooperation. The government's effort culminated in Korea's accession to the OECD in 1996, which seemed to signal Korea's entry into the rank of advanced countries.

The Korean economy made a remarkable comeback in the first half of the 1990s. With increased investment and export, economic growth rate increased from 3% in 1992 to 8.6% in 1994 and 8.9% in 1995. The GNP per capita surpassed the US$10,000 in 1995, and in 1996, the unemployment rate recorded the unprecedented 2%. With such high economic growth, inflation remained relatively stable at a 4% level throughout the 1990s.