Edited by Duck-Koo Chung and Barry Eichengreen
14. Reform and the risk of recurrence of crisis In June Kim, Baekin Cha and Chi-Young Song INTRODUCTION A large number of studies have sought to determine the roles of domestic and international factors in the currency and banking crises experienced in East Asian countries, including Korea, in 1997. These studies can be usefully classiﬁed into three groups. The ﬁrst one stresses structural weaknesses in the corporate and ﬁnancial sectors, misguided economic policies, and deteriorating macroeconomic fundamentals (see for example Corsetti et al., 1998b; Fischer, 1998b; Lane et al., 1999). The second emphasizes the instability of international capital markets, as panicked creditors withdrew their short-term loans to East Asian borrowers (see Radelet and Sachs, 1998; Feldstein, 1998; Stiglitz, 1999). A ﬁnal group of studies emphasizes the contagious nature of the crisis as it spread from Southeast Asia to Korea (Kaminsky and Schmukler, 1999; Park and Song, 2001b). More analysis is needed to determine the explanatory power of these competing views, but many observers will agree that all three sets of factors played some role in Korea’s crisis. The Korean government approached the International Monetary Fund (IMF) for assistance in November 1997 when it was unable to stem the outﬂow of capital and the depreciation of the won. Since the IMF considered structural weaknesses to be at the root of the country’s crisis, it made the provision of assistance conditional on structural reform. In concert with the Fund, the Korean government implemented a wide range of reforms, including ﬁnancial...
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