Seoul Journal of Economics - Vol. 11 , No. 4

[ Article ]
Seoul Journal of Economics - Vol. 11, No. 4, pp. 351-380
Abbreviation: SJE
ISSN: 1225-0279 (Print)
Print publication date 30 Nov 1998
Received Nov 1998

The Korean Currency Crisis and the IMF Program: An Insider's View
In-June Kim ; Yeongseop Rhee
Seoul National University
Sookmyung University

JEL Classification: F41


When the Korean currency crisis broke out, the IMF and many scholars blamed the whole crisis on Korea's internal problems. This paper, however, takes different stances form others towards the current crisis in several respects. We argue that both external and internal causes of the crisis should be equally addressed in explaining the current crisis. As external causes, we list the boom-bust cycle generated by the capital liberalization and asymmetries of financial liberalization policies. For the triggering factors of the Korean crisis, we emphasize sudden outflow of foreign capital, Southeast Asian crisis, as well as use of foreign reserves to support overseas branches of Korean banks. Regarding the IMF program, we criticize the IMF's macroeconomic policy and the complete financial opening policy. But unlike critics of the IMF program, we argue that the policy of structural reforms is necessary to strengthen the Korean economy and we should take this opportunity to implement it although such policy may exacerbate the severity of the crisis.


The authors thank Chulsoo Kim, Atsushi Miyauchi, Chang-Yong Rhee, the Bank of Korea conference participants, and the IFRF (International Finance Research Forum of Korea) members for their productive comments.

1. Bank of Korea. Monthly Report. Various issues.
2. Bank of Korea. Financial Statement Analysis. Various issues.
3. Bergsten, C. “The Asian Monetary Crisis: Proposed Remedies.” Washington, D. C.: Institute for International Economics, November 13. (1997)
4. Bernanke, B., and Mishkin, F. “Inflation Targeting: A New Framework for Monetary Policy?” Journal of Economic Perspectives 11 (No. 2 1997): 97-116.
5. Calvo, G., and Mendoza, E. “Mexico's Balance-of-payments Crisis: A Chronicle of a Death Foretold.” Journal of International Economics 41 (1997): 235-64.
6. Cha, D. “The Korean Economy at a Crossroad.” Mimeograph, Korea Development Institute, 1998.
7. Chung, U. “IMF Bail-out and Macroeconomic Policies.” Presented at the Annual Meeting of the Korean Money and Finance Association, 1998 (in Korean).
8. Economist. “Banking in Emerging Markets.” April 12, 1997.
9. Economist. “Of Take-offs and Tempests.” March 14, 1998.
10. Eichengreen, B., and Bayoumi, T. “Is Asia an Optimum Currency Area? Can It Become One?: Regional, Global and Historical Perspectives on Asian Monetary Relations.” In S. Collignon and J. Pisani-Ferry eds., Exchange Rate Policies in Emerging Asian Countries. London: Routledge, 1996.
11. Eichengreen, B., and Rose, A. “Staying Afloat When the Wind Shifts: External Factors and Emerging-Market Banking Crises.” NBER Working Paper No. 6370, 1998.
12. Eichengreen, B. and Wyplosz, C. “Contagious Currency Crises.” NBER Working Paper No. 5681, 1996.
13. Financial Times. January 12 - 16, 1998.
14. Fisher, S. “The Asian Crisis: A View from the IMF.” Mimeograph, International Monetary Fund, 1998.
15. Garber, P., and Svensson, L. “The Operation and Collapse of Fixed Exchange Rate Regimes.” In G. Grossman and K. Rogoff eds., Handbook of International Economics, Vol. 3, Ch. 36, 1995.
16. Goldstein, M. “Comments on Early Warning Indicators of Financial Instability in Emerging Economies.” Presented at the Federal Reserve Bank of Kansas City's Economic Symposium on Maintaining Financial Stability in a Global Economy, August 28-30, 1997.
17. Goldstein, M. and Reinhart, C. Forecasting Financial Crises: Early Warning Signals for Emerging Markets. Washington, D. C.: Institute for International Economics, 1997.
18. Hu, F. “Who Ate South East Asia's Lunch?” Asian Wall Street Journal October 22, 1997.
19. Institute of International Finance. “Capital Flows to Emerging Market Economies.” January 29, 1998.
20. International Monetary Fund. “The IMF's Response to the Asian Crisis.” September 1, 1998.
21. Kaminsky, G., and Reinhart, C. “The Twin Crises: The Causes of Banking and Balance-of-Payments Problems?” Mimeograph, Board of Governors of the Federal Reserve System, 1996.
22. Kim, In June. “The Korean Crisis: Causes and Policies.” Presented at the seminar held by the School of Social Science, Seoul National University, March 27, 1998 (in Korean).
23. Kim, In June. and Rhee, Yeongseop. “Currency Crises of the Asian Countries in a Globalized Financial Market.” Presented at the Bank of Korea conference on The Implications of Globalization of World Financial Markets, June 22-23, 1998.
24. Kim, Y. “The Status of the East Asian Crisis.” Presented at the conference on World Capitalism and the East Asian Crisis held by Korea Economic Daily, Hyungbook University, and Kyoto University, May 15, 1998 (in Korean).
25. Krueger, A. “Asian Currency Crises: What Had Changed?” Mimeograph, Institute for Global Economics, 1998.
26. Krugman, P. “Currency Crises.” Mimeograph, 1998a.
27. Krugman, P. “Will Asia Bounce Back?” Mimeograph, 1998b.
28. Krugman, P. “Saving Asia: It's Time to Get Radical.” Fortune, September 7, 1998c.
29. MacKinnon, R., and Pill, H. “Credible Economic Liberalizations and Overborrowing.” American Economic Review 87(No. 2 1997): 189-93.
30. Mishkin, F. “The Causes and Propagation of Financial Instability: Lessons for Policymakers.” Presented at the Federal Reserve Bank of Kansas City's Economic Symposium on Maintaining Financial Stability in a Global Economy, August 28-30, 1997.
31. Mishkin, F. and Posen, A. “Inflation Targeting: Lessons from Four Countries.” NBER Working Paper No. 6126, 1998.
32. Motoyama, Y. “What the Recent Turmoil over Asian Currencies Tells Us.” Presented at the annual conference held by the Korea International Economic Association, November 21, 1997.
33. Radelet, S., and Sachs, J. “The Onset of the East Asian Crisis.” Mimeograph, 1998.
34. Rhee, Yeongseop, and Song, Chi-Young. “Exchange Rate Policy and Effectiveness of Intervention: The Case of Korea.” In S. Collignon and J. Pisani-Ferry eds., Exchange Rate Policies in Emerging Asian Countries. London: Routledge, 1998.
35. Sachs, J. “Alternative Approaches to Financial Crises in Emerging Markets.” Development Discussion Paper No. 568. Harvard University, 1997.
36. Sachs, J. “Fixing the IMF Remedy.” Banker (February 1998): 16-8.
37. Sachs, J. Tornell, A., and Velasco, A. “The Mexican Peso Crisis: Sudden Death or Death Foretold?” Journal of International Economics 41 (1997): 265-83.
38. Stiglitz, J. “The Role of International Financial Institutions in the Current Global Economy.” World Bank Group, February, 1998.
39. Svensson, L. “Inflation Forecast Targeting: Implementing and Monitoring Inflation Targets.” NBER Working Paper No. 5957, 1997.
40. Wyplosz, C. “Globalized Financial Markets and Financial Crises.” Presented at the conference on Coping with Financial Crises in Developing and Transition Countries: Regulatory and Supervisory Challenges in a New Era of Global Finances, organized by the Forum on Debt and Development in Amsterdam, March 16-17, 1998.
41. Yam, J. “Asian Monetary Cooperation.” The Per Jacobsson Lecture. Hong Kong, September 21, 1997.