ABSTRACT
This chapter analyzes the causes of the financial crisis in South Korea and assesses policy imperatives and future prospects. It proposes the establishment of an International Finance Insurance Corporation as a multinational institution to cover the private risk of short-term international capital flows on a voluntary basis and the creation of a supplementary Asian Monetary Fund within the International Monetary Fund (IMF) facilities with Japan playing a due leadership role. IMF programs designed to solve such a financial crisis usually mandate domestic austerity programs and further liberalization of the financial sector. A careful reexamination of the drastic changes in global economic fundamentals and domestic social and economic fundamentals provides a relevant anatomy of why the South Korean crisis happened. The Korean model of economic development is one of monopolistic competition across industries where the government acts as both competition promoter and project monitor.
