The Causes of South Korea's Financial Crisis

Paper Summary:

This paper discusses the cause of the Asian Financial Crisis in 1997, and the South Korean government's reaction to monetary and financial pressures. According to this paper, the Asian financial crisis has many causes and consequences, but loans by U.S. banks to businesses in South Korea and elsewhere are an important part of the story. These loans helped create the crisis by supporting unsound investments and creating repayment obligations that Korean enterprises were unable to meet, thus undermining financial market confidence in the South Korean economy.

From the Paper:

"For thirty years prior to the Asian' financial crisis South Korea enjoyed fast growth that translated into impressive economic performance, strong fiscal positioning, and macroeconomic stability (Radelet et al). Economic indicators including decreased inflation, increased saving rates, open economies, and thriving export segments made it impossible for economists to predict what was to follow. In the summer of 1996, the Asian financial crisis erupted in Thailand after the country had just experienced an influx in economic growth."

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