ABSTRACT
The November 1997 financial crisis and its severity came as an unpleasant surprise to the general public and to most government officials. This chapter explains the causes of the crisis, including the early warning signs, the sharp worsening of the economy from July 1997, and the November 21 request for International Monetary Fund (IMF) assistance. The initial IMF/government program proved ineffective in December and a second rescue effort—spearheaded by the United States—had to be undertaken in late December 1997 to forestall a moratorium on Korea's external debt. Most Korean financial institutions at the time lacked expertise in credit analysis and risk management as well as experience with foreign exchange trading and international banking in general. The December 3, 1997, economic program basically involved immediate short–term measures to deal with the financial crisis as well as medium–term objectives to be accomplished over the three–year period of the standby arrangement.
