Department of Economics. University of Melbourne. Parkville Victoria 3052 Australia
ABSTRACT
Korea came to a 'suddden' financial crisis in November 1997 and since then has suffered from its sequels and implemented a vigorous structural reform in compliance with the IMF. The financial crisis erupted when the foreign investors and creditors suddenly started together to withdraw their investment and to cut back their short-term loans to Korea. There are many explanations and theories attempting to explain the underlying causes of Korea's financial crisis, but there is no consensus. Drawing the analogy between the economy's financial system and the human circulatory system, this paper introduces a 'stroke' hypothesis of Korea's financial crisis. That is, the Korea's crisis was similar to the human stroke, which happens with the sudden blockage of an artery in the brain by a blood clot or other debris carried in the bloodstream. The 'stroke' hypothesis synthesizes most of the appealing explanations and theories of the financial crisis and shows how the numerous factors were systematically intertwined in causing the financial crisis. In line with the 'stroke' hypothesis, this paper also evaluates the consequence and the performance of the IMF's structural reform porgram. Finally, this paper discusses the prospects for the Korean economy. Even though this paper centers on Korea, the 'stroke' hypothesis could be applied to the similar financial or currency crises of other countries like Thailand, Indonesia, Brazil, etc.
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