(DP 1999-12) The Crisis in South Korea

Ma. Claret M. Mapalad


After its impressive growth in 1960s and 1970s and successful foreign debt management, stabilization and structural adjustment in 1980s, South Korea’s foreign debt crisis in late 1997 was indeed a puzzle. This paper is an attempt to answer this puzzle in Korea’s development experience. First, an analytical framework is used to isolate the nature of the crisis as a transfer or liquidity problem. Then, how domestic and international players interacted to shape events in the 1990s are discussed. The paper points to premature and excessive financial liberalization as the ultimate cause of the 1997 crisis in Korea.

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