In the face of such a devastating situation, the South Korean government is fighting back, doing everything it can to save the collapsing won.
November 19 afternoon, the South Korean government announced a series of measures to stabilize the financial situation, such as relaxing the floating limit of the won's exchange rate, the early opening of the medium- and long-term bond market, the poorly-run financial institutions to implement the reform of the restrictions and mergers.
The Deputy Prime Minister and President of Finance and Economy Lim Chang-ryeol announced that in order to improve the structure of the financial industry, improve the foreign credibility of the Korean economy, stabilize the financial market, the government will be the current 2.25% of the won's exchange rate daily floating limit, expanding to 10%; to the original plan to open in 1999 after the opening of the medium- and long-term bond market ahead of the opening of the December 1997; to protect the financial industry during the restructuring of the financial industry, the opening of the medium- and long-term bond market; and to protect the financial industry during the restructuring of the financial industry. In order to protect the interests of savers in the process of restructuring the financial industry, the Korean government will guarantee the payment of principal and interest on savings in various financial institutions until the end of 2000.
He said that in opening up the bond market, in order to prevent side effects caused by speculation by foreign investors, the Korean government will limit foreigners' investment in each project to 30 percent. At the same time, the government will increase the amount of Korean won that can be exchanged by foreign banks in Korea from $1 billion to $2 billion. The government will also proceed to raise foreign currency in large amounts from major international financial institutions.
Lim Chang-yeol said the government will limit cash borrowing by companies in good business condition to pay off debts by the end of 1997, and by January 1998, the government will complete a survey on the business conditions of various financial institutions, categorize comprehensive financing institutions such as credit unions into three grades of ABC, and restrict the B-grade financing institutions to improve their operations, and require the C-grade financing institutions to accept mergers, and if they refuse to do so, they will be forced to accept mergers. The government will also require B-grade financial institutions to improve their operations and C-grade financial institutions to accept mergers, and if they refuse to do so, the government will take coercive measures. The government will take similar measures against banks, he said.
The South Korean central bank also tried its best to intervene in the market to try to stop the won's frantic decline, but with foreign exchange reserves of only 30 billion U.S. dollars, a drop in the bucket and far from enough to meet the needs, the central bank's intervention appeared to be a bit pale and ineffective. Moreover, after the central bank failed to intervene in the market, the foreign exchange reserves left a pitiful 7 billion U.S. dollars, far from enough for the end of 1997 and 1998 maturity of 110 billion foreign debt.
Under these conditions, the Korean won continued to fall against the dollar, and its domestic stock market weakened repeatedly, bringing the country's economy almost to the brink of collapse. At this point, the Korean government had to seek emergency loan assistance from the International Monetary Fund, the World Bank, the Asian Development Bank, as well as the United States and Japan.
On December 3, 1997, the International Monetary Fund (IMF) and South Korea signed an assistance agreement, the organization to South Korea to provide 21 billion U.S. dollars in standby credit. In addition, the World Bank will provide $10 billion. The Asian Development Bank is providing $4 billion, and other countries are providing $20 billion. The total amount of aid is $55 billion. But the conditions of this assistance is extremely harsh, at this time, South Korea, have milk is mother, has not cared so much. Forced by the pressure of the International Monetary Fund, the South Korean government was forced to promise to implement a severe economic stabilization plan and abolish the important economic system and practices that made South Korea develop into an "economic tiger", including financial consolidation, tightening of loans to consortiums, and lowering the economic growth rate and other complementary measures. This program not only breaks the record of financial aid, but also requires the recipient country to make adjustments of a magnitude rarely seen. In fact, the signing of this plan is almost tantamount to recognizing the collapse of the entire economic system and the loss of autonomy of South Korea, but also marks the miracle of South Korea's economic development has become the past.
The $55 billion intervention was coupled with the South Korean government's statement that it would raise the limit on foreign ownership from 23 percent to 50 percent. In the following week, the Seoul stock market finally began a sustained upturn. The won also showed signs of stabilizing and rising. But the good times didn't last long. On December 7, Hanna Group, the 12th largest industrial group in Korea, declared bankruptcy. This news has just breathed a sigh of relief in South Korea's financial and fell into the abyss. From the 8th to the 11th, the Seoul stock market continued to slump, the won against the dollar exchange rate fell continuously.
On December 11, 1997, a South Korean television station reported that Lee Kyung-sik, the governor of the Central Bank of Korea, had expressed his intention to resign as a sign of responsibility for the country's current economic crisis. In less than one month since the financial crisis in Korea, two senior dignitaries have stepped down (on November 19, Kang Kyung-sik, the head of the Korean Finance Ministry, resigned).
On Dec. 13, South Korean President Kim Young-sam urgently met with three presidential candidates, Kim Dae-jung, Lee Hoi-chang and Lee In-jae, to consult on overcoming the country's economic difficulties. They were expected to cooperate with the government in overcoming the current difficulties and to successfully pass the financial reform bill related to overcoming the financial crisis, the amendment to tighten the 1998 budget and the proposal to issue national bonds at the interim National Assembly to be held after the election. The four unanimously said they would abide by the agreement signed between the government and the International Monetary Fund and work for the early restoration of the country's financial stability.
South Korea's economy and markets have been virtually paralyzed by the onslaught of the financial turmoil. The Korean national spirit of resilience and solidarity was on full display at this time. People helped each other and worked together to save the country. The people launched a campaign to save the country with one person
one dollar, and the people took the initiative to put their dollars in the bank to help the Korean economy out of the doldrums.
Travel agencies encouraged people to spend as much time as possible in the country, and municipalities urged people to sacrifice their own personal interests for the good of the country, such as cutting back on driving trips, saving 10 percent of their wages, lowering indoor temperatures and cutting back on shopping and eating out; other Koreans who were living abroad also deposited their money in overseas branches of the Bank of Korea in a bid to increase the country's foreign-currency holdings. At the same time, they are also actively raising money to remit back to Seoul to help the country out of its predicament.
South Korea's biggest newspapers, Dong-a Ilbo and Chosun Ilbo, decided to reduce their pages from Jan. 8, 1998, to overcome the economic difficulties and foreign exchange crisis with the nation***.
The Korean government issued a "belt-tightening" policy to all government employees, requiring them to deposit at least 10 percent of their salaries in the bank. The policy also includes a savings measure of "one day out of every 10 for civil servants not to drive".
South Korean cabinet ministers decided at a special cabinet meeting to hand over 20 percent of their salaries to the national treasury, while vice ministers at all levels also decided to hand over 20 percent of their salaries.
With the timely or even early arrival of the IMF's aid loan, the country's wildly volatile financial markets are gradually being brought under control. But as of now, the South Korean economy is still languishing in the doldrums. The black whirlwind drifting over Seoul could bring a new round of bloodshed at any time.
The financial crisis in South Korea has caused heavy losses, huge impacts and profound lessons that are mind-boggling. Since last year, South Korean companies suffered a loss of at least 3 trillion won in exchange differences, and the repayment of foreign debt principal and interest increased by 400 million won. Some big families with big money can only watch their assets shrink by billions of dollars in a few months. At the same time, a large number of enterprises have closed down, the number of unemployed people has increased substantially, and the actual unemployment rate is now as high as 11%, and this trend is still continuing. For Koreans, the prosperity of yesteryear is no more.
The economic crisis has caused political turmoil. Thailand's prime minister, Chavalit, went down in flames. The Chuan-Lai faction is at the mercy of the crisis, and in the face of the mess, there is nothing the Chuan-Lai faction can do, even if it has the power to return to power.
What about Kim Dae-jung?
Kim Young-sam said goodbye to South Korean politics with his unfulfilled dream of "fixing corruption". What's left behind is a mess that's riddled with holes. The tough economic issues are unavoidably in front of Kim Dae-jung, the 72-year-old president who was just elected. The world is waiting to see what will happen.