Financial Crisis and the IMF Bailout

As discussed in Chapter 3, Korea’s financial situation had become extremely fragile by the second half of 1997, but later developments plunged it into a financial abyss. The crisis started with an unprecedented number of business insolvencies (including eight of the 30 largest chaebols) and the devaluation of the Thai baht, the effect of which quickly spread to other regional currencies. During the second half of 1997 the region was afflicted by an unprecedented withdrawal of private capital, which contributed to the further downward spiral of regional currencies and stock markets. Korea managed to avoid the brunt of this until Taiwan and Hong Kong succumbed to the crisis in October.