Asian Financial Crisis and IMF-led reforms (1997–1999)
Amid rapidly depleting foreign-exchange reserves and market panic, the South Korean government formally requested IMF stand-by support, marking the escalation of the Asian Financial Crisis on the peninsula.
Korea delivered a Letter of Intent and memorandum outlining a three-year stabilization and reform program, including commitments on macro policy tightening, financial-sector restructuring, and structural reforms.
The IMF Executive Board approved Korea’s request for a three-year stand-by arrangement of SDR 15.5 billion (about US$21 billion), releasing an initial tranche immediately and setting reviews/conditions for further disbursements.
As part of IMF conditionality, Korea moved to raise and later remove ceilings on foreign ownership of listed equities and broaden foreign access—early measures were implemented in December 1997 with further liberalization scheduled.
To stabilize the exchange rate and restore confidence, Korea sharply tightened monetary conditions; the IMF documentation records the call rate rising to about 30% on December 24, 1997.
A labor–management–government social agreement was pursued to manage crisis-driven restructuring, including labor-market flexibility measures and expansions of the social safety net referenced in the IMF-supported program.
Kim Dae-jung took office as president while Korea was under an IMF-supported stabilization and restructuring program, providing political leadership for accelerated financial and corporate-sector reforms.
Korea concluded the restructuring of about US$21.8 billion in banks’ short-term external debt—an important step to reduce rollover risk and reopen access to international markets.
Following stabilization steps and debt restructuring, Korea returned to markets with a US$4 billion sovereign global bond issue, cited as evidence of improving investor confidence in the reform program.
To clean up bank balance sheets, Korea Asset Management Corporation (KAMCO) undertook major purchases of non-performing loans (NPLs); reporting notes that in 1998 KAMCO acquired NPLs amounting to W12 trillion (purchase value) with W33 trillion face value, including a major purchase on September 29.
Korea created the Financial Supervisory Service (FSS) as an integrated supervisory agency to strengthen prudential oversight and support crisis-era restructuring of financial institutions.
As corporate restructuring deepened, domestic creditors put key Daewoo affiliates under a debt-workout program, freezing repayments temporarily while revival plans were negotiated—an emblematic episode of post-crisis chaebol reform pressures.
Korea repaid its IMF obligations ahead of schedule; reporting notes full repayment in 2001, ending the stand-by relationship and reflecting a strong reserve rebuild and recovery in external financing conditions.
