Korea's Financial Crisis: Causes and Restructuring Tasks

Kwack, Sung Yeung
September 1999
Multinational Business Review (St. Louis University);Fall99, Vol. 7 Issue 2, p55
Academic Journal
This paper deals with the sources of Korea's financial crisis and restructuring of banks and corporations. The contagion effect, worsening current account, weakening finance of banks and corporations, large external debts and the small amount of international reserves provided conditions for a speculative attack on the Korean won. The existing financial institutions and supervisory agency did not fit well in the era of global capital markets. The crisis is an evolving process of Schumpeterian destructive creation, which brings in a sound institutional basis for better economic performance. The corporate's high debt to equity ratios resulted from the belief that the government would not permit companies to fail. Excessive lending by banks and little attention to the quality of their loans were a result of industrial policy. Improving the balance sheets of banks and corporations determines whether the end of the present crisis is sustainable. JEL Classification: F3; Key Words: Korea, Financial Crisis.


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