The Causes of the Korean Currency Crisis: Policy Mistakes Reexamined

Abstract

The Korean economic crisis was the joint product of goverment incompetence and the moral hazard behavior of banks and private conglornerates known as chaebols. Three Kinds of policy mistake concerned the rigid exchange rate stabilization policy of the Korean goverment. The second mistake was the asyrnrnetric regulation on the inflows and outflows of foreign capital and on short and long terrn borrowings. The third and most often forgotten policy mistake was the inability to deal with the rigidity of the labor rnarket