Since the early 1990s, the Korean economy has undergone a transition from the state-led toward the market-led development. Structural reforms were required to make the transition smooth and successful. The government has, however, failed to accomplish much, due partly to the policy-makers’ insufficient understanding with regard to the functioning of a market economy and partly to the inherent weakness of Korea’s political system. This paper tries to explain the reasons why the government has failed to carry out the structural reforms and what are the underlying institutional deficiencies which are indeed the root causes of the Korean financial crisis