Back to the 1997, The IMF Crisis in South Korea

IMF considered like other in the region, Korea took off from a state of the Asian poverty and stagnation and achieved the Asian Miracle. But this process of rapid growth came to a halt, temporarily, by the Asian Financial Crisis. In Short, in the mid of East Asia countries like Thailand, Hongkong, Malaysia, Philippine, Indonesia were in a period financial crisis, Korean government was in failure at controlling of foreign exchange.

During the boom years, Korean economy undertook large investments financed by large external short-term borrowing. When the economy especially exports-slowed, these large investment and borrowing caused. Traditional policy responses were ineffective in an environment of globally integrated markets, where confidence factors play a crucial role.
Korea's financial crisis deepened in late 1997.

Key events
(Dec 1996 - Nov 1997)

Dec 1996 : Korea joins the OECD. It means Korea was recognized as a international level and Korea's economy had to be open outside. Before that  Korea's company was covered by Korea government and had dept ratio over 500%~1,000%. After joining OECD, Companies in Korea had no competitiveness in the world markets. Economy crisis started.
Major companies in Korea collapsed in a row.
Jan 1997, Hanbo Steel fails with $6bn debts.
March, Sammi Steel collapsed.
April, Jinro Group became bankrupt.
May, Dainong and New Core Group collapse.
July, Kia(South Korea's third-largest car maker) asks for emergency loans.
Oct, Korea nationalizes Kia after banks refuse more loans.
Nov 21, 1997, Korea asks for the IMF assistance
Dec 4, IMF approves $21bn stand-by credit to Korea, $5,5bn disbursed.
Dec 30, Korea strengthens economic program, additional $2bn is disbursed.
                                                 

Exchange Rate
Oct 17-19 Exchange market virtually closed.
Oct 20 Exchage rate band widened to 10%
Now 17 Won(\) drops below 1000 to the dollar.
Dec 16 Abolished daily exchange rate band
Dec 23 Won falls near 2000 to the dollar.
Jan 14 1998, Won drifts around 1600-1700 to the dollar.

                                                  (Source : IMF )

As companies couldn't handle with exchange rate, they started to layoff. Dec 26, 1996, National Assembly passes new labor legalizing lay-offs and maintaining a ban on free union association. Nationwide strikes against new law. This new labor law is one of the main reason of increasing temporary workers in South Korea, which is still serious economic problem in Korea.

Which responses to this unprecedented crisis of people in Korea?
The answer was Gathering Gold Movement.  To pay for their country's debt people sacrificed their own gold. At that time, foreign debt was up to $30.4bl. Almost 3.5million people gave away their gold and was collected 227 tonnes in total. In history movement like this had a precedent, which was national debt redemption movement in 1907. This is a typical example that in the mid of economic crisis, people's sacrifice for restoring national economy(I'm not sure that this will happen when crisis happen again in the future).

Dec 4, 2000, President Kim daejung, officially announced the end of IMF crisis, paying all of loan from IMF. Aug 23, 2001 IMF's controlling system on Korea terminated.


(After this, released official report by IMF) 
IMF supported Program.
The program aims at,first, stabilizing the exchange market, and then, preparing the ground for resuming rapid growth, by maintaining appropriately tight financial policies and implementing comprehensive structural reforms.
- The exchange market stabilization depends crucially on the restoration of confidence through on appropriate external financing strategy(debt rollovers, IMF borrowing, etc.) and by maintaining the market determined exchange rate combined with high interest rates. Strong commitments to reform and other program policies are also crucial.
-Financial policies will have to be appropriately tight to maintain macroeconomic stability. But the automatic fiscal stabilizers will be permitted to work, and interest rates can be lowered on stabilization objectives area achieved.
- Reforms include financial sector restructuring, improvements of corporate governance, greater flexibility in labor relations and accelerated liberalization of capital controls and some remaining trade restriction.
  

Under the program, liberalization of the capital account and some remaining trade restrictions has been accelerated. Also, improvements are being made regarding the traditional government corporate relationship, inter-enterprise arrangements and even the management style of each corporation. These improvements will lead to the strengthening of the Korean and the east Asian approach to rapid economic growth.  


+There is also Wikipedia article on 1997 Asian Financial crisis (https://en.wikipedia.org/wiki/1997_Asian_financial_crisis#South_Korea) also in Korean.