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KoreaInKorea,IMFsurveillancefailedadequatelytoidentifytherisksposedbytheunevenpaceof
capitalaccountliberalizationandtheextentofbankingsectorweaknesses,owingtotheadoptionofa
conventionalapproachthatfocusedonmacroeconomicvariables.Thereweregapsinthedataneededto
makeafullassessment,thoughavailabledataonshorttermdebtandfinancialmarketindicatorswerenot
fullyused.WhileconcernsoverKoreasweakbankingsectorhadpromptedinternationalbankstoreview
theirlendingtosomeKoreaninstitutionsevenbeforetheonsetoftheAsiancrisisinJuly1997,theIMF
wasoptimisticuntilvirtuallythelastminute.ThefirstKoreanprogramwasclearlyunderfinanced,butthis
wasdueprimarilytotheunwillingnessofmajorshareholdergovernmentseithertotakeconcertedactionto
involvetheprivatesectorortoprovidethenecessaryfinancingupfronttoresolvewhat,ofallthethree
cases,wasmostclearlyaliquiditycrisis.Whenthisstrategyfailed,themajorshareholdergovernments
movedquicklytoinitiateconcertedactiontoinvolvetheprivatesectoranapproachthateventually
workedwell.Itcouldbearguedthatthefirststrategyneededtobetriedandproventohavefailedbefore
therolloveragreementofDecember24,1997couldbesecured.TheIMFplayedausefulroleascrisis
coordinatorindrawingattentiontotheproblemandlaterfacilitatinginformationexchangeamongmajor
governmentsandhelpingtosetupamonitoringsystemtoensurecompliance.

" The IMF and Recent Capital Account Crises - Indonesia, Korea, Brazil,
Report by the Independent Evaluation Office (IEO), September 2003 Main Report (n.d.): n. pag. Ieo-imf.org. Web. 14 Sept. 2016.
<http://www.ieoimf.org/ieo/files/completedevaluations/07282003main.pdf>.
Journal Article

Korean banks began to experience some difficulty in rolling over their

short-term credit lines with international banks, causing the Bank of
Korea (BOK) to provide advances of foreign exchange to their overseas
branches. Nevertheless, the crisis conditions that hit Thailand and
other Southeast Asian economies starting in June 1997 did not
immediately spread to Korea, at least in a visible way.

The Korean economy this notwithstanding was strong in many

areas compared to its other East Asian counterparts. The Korean
government responded in time to prevent the downward spiral of
economic decline and with IMF's bailout package revived the
economy with the following major steps:
Immediately after the announcement of the IMF bailout, two of
the country's main Korea First Bank and Seoul Bank were
nationalized by the government rather than letting them die.
This was followed with the nationalization of several other
commercial banks. Korea then had a debt/GDP ratio of under 20
percent, it was in a position to generate capital in the global
markets through government bonds. The government taking
advantage issued a blanked guarantee on all commercial
deposits. This both prevented a bank run and boosted investor

a
b
c

confidence in the Korean economy. Further crisis curtailed.

IMF Bailout Package: The IMF quickly approved a $60 billion
bailout package for Korea conditional on many structural
reforms of the banking and financial sector and very tight
monetary policy to prevent further capital from leaving the
country. The most prominent structural reforms included,
Increasing the transparency with regards to governments
financing of chaebols and the banking sector as a whole.
Breaking the nexus between chaebols and the government. This
resulted in over 14 large chaebols going bankrupt and taken over
by their healthier counterparts.
Liberalization of the financial sector, primarily restructuring
bank debts. The government restructured bad debts of most of
the banks, used the bail out money to write off most of them,
made the Korea Asset Management Corporation buy off most of
the bad loans to be repaid later, increased the working capital of
the banks to restart the lending cycle and the economic activity.
Temporarily adopt a tight monetary policy with high interest
rates to prevent capital flight. This stabilized the foreign
exchange market and the Won (the Won had depreciated to over
7 percent of its pre-crisis levels so there was not much further to
go down anyways, the floor had already been reached).
There were other subtle economic reforms as well. What is
interesting here is not the reforms required by the IMF per se,
the IMF has bailed a lot of countries in the past, bailouts have a
sketchy history of success and face a lot of domestic opposition
from politicians, what is interesting is the pace with which South
Korea implemented these seemingly non-populist reforms. The
then President-elect of South Korea while approving the
structural reforms said, "Making them [reforms] sooner is the
best way to restore confidence".