Since the agreement on the IMF restructuring program, Korea has swiftly implemented a wide range of economic reform measures. All of the measures have been driven towards rebuilding market confidence as well as expediting the economic restructuring. Although foreign sentiment relates that Korea's restructuring process is moving toward the right direction but slowly, Korea deserves much credit for its recovery and reform efforts so far made, as it has come up with solid results. The international credit rating agencies have each upgraded Korea's sovereign credit rating from non-investment to investment, and it is among the evidences, which purport to show that Korea has been committed and will continue to commit itself to changes and improvement.

In retrospect, we can draw some lessons about the role of international financial institutions (IFIs). Certainly, the key question is whether the diagnosis of the IMF was correct and the policy prescription of the IMF was relevant and effective. Regarding such diagnosis, a balanced view regarding the root of the Asian crisis is needed. The amount of research and policy papers pouring out since the onset of the Asian crisis is understandably great, with the differing views leading to different policy implications. Academics have greater liberty to choose among different economic models or theories on which to base their views. However, policy makers have to be more cautious in implementing the policy measures by taking into account the reality and relevance of all findings and views.

The fundamental difference among the academic circles may be divided into two camps for the sake of simplicity. One camp, which focuses on the liquidity shortage of the Asian countries, emphasizes the vulnerability of the international financial market and the skittish behavior of international investors and creditors as a major triggering factor in the outbreak of the crisis. In this light, expanded financial support facilities through the IFIs, orderly capital market liberalization, and safeguards in the case of emergency could be relevant policy proposals for building the new international financial architecture. In addition, this view holds that the high interest rate policy and/or other austerity programs should be reconsidered as those policy measures may aggravate the situation rather than improve credibility in the eyes of international investors.

The other camp, which focuses on structural weakness of the country in question, and, in particular, the moral hazard problem in both the corporate and financial sectors, stresses the necessity of restructuring and growth sustainability based upon a sound economic system. In the international dimension, the practice of bailing-out international private creditors with international public funds or government debt payment guarantees has created a serious moral hazard problem. In this regard, a pre-established program for international debt workouts would help to shape market expectation in advance and thereby would reduce uncertainty in times of crisis.

The purpose of this paper is to discuss the role of international financial institutions by reviewing Korea's restructuring program and its process. Based on Korea's experience of crisis management, this paper will address four issues. First, this paper will discuss the key question of whether the root of the Asian crisis should be attributed to regional structural weakness, or must be understood in the context of inherent vulnerability of the global financial market. Second, the Asian crisis has ignited a lively debate on the necessity of the inclusion of a restructuring program in the IMF rescue package. Because both internal structural weakness and external factors combined together have caused the Asian crisis, overcoming the crisis in the true sense will not be achieved without a successful completion of restructuring. Third, as the liquidity provision by the IFIs is alone insufficient to resolve the immediate crisis, we will ask if there is a catalytic effect of lending by the IFIs. In light of Korea's experience, the credibility and capital inflows are largely associated with the perceived strength of commitment of the government to economic restructuring rather than IFI involvement per se. Finally, a short remark will be made on the necessity of an international lender of last resort.

Dr. Yunjong Wang, Director of Department of Global Economy, earned his Ph.D in Economics from Yale University. He specializes in international economics, both trade and finance. Currently, his interest covers financial cooperation in Northeast Asia, Korea's exchange rate markets and policy, and Korea's restructuring process under the IMF and IBRD program. Corresponding address: 300-4 Yomgok-Dong, Seocho-Ku, Seoul 137-747, Korea. Tel. (822) 3460-1124; Fax. (822) 3460-1212, E-mail: yjwang@kiep.kiep.go.kr.

Ⅰ. Introduction

Ⅱ. The Nature of Fund Support by the IFIs

Ⅲ. Conditionalities of the Restructuring Program

Ⅳ. The Content of the Restructuring Program
1. Financial Restructuring
2. Corporate Restructuring
3. Public Sector Reform
4. Labor Market Reform and Improving Social Safety Net

Ⅴ. Reform Gains Momentum: Do we need a further restructuring?

Ⅵ. The Role of International Financial Institutions
1. Diagnosis of the Crisis
2. Do We Need a Restructuring as in the IMF Conditionalities?
3. Is there a Catalytic Effect of Lending by International Financial
Institutions?
4. Do we need an international lender of last resort?

References