The Korean Currency Crisis and the IMF Program: An Insider's View

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 from 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-and-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.