I am watching this kdrama featuring one of the leads’ family suffering bankruptcy due to the IMF. I have no knowledge of economics and I don’t understand how a fund can make privates sector companies go bankrupt. Also tried reading about IMF conditions and also made no sense to me. Can you please help me understand why did Korea ask for an IMF and how it affected the economy and daily lives?
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I am interested in this too. Korean people refers this as an event. But, when I look it up, IMF is an organization. What happened between IMF and Korea?
There’s actually a pretty good [Wikipedia page](https://en.m.wikipedia.org/wiki/South_Korea_and_the_International_Monetary_Fund).
The relevant aspects I suspect are that there were specific terms tied to the IMF loans that South Korea received that negatively affected South Korean workers who lost income, employment security, access to credit, and had to deal with austerity measures. The loans did actually work in the end but they definitely did hurt some Korean families.
https://en.wikipedia.org/wiki/Economy_of_South_Korea#1990s_and_the_Asian_Financial_Crisis
In the 1980s-90s, South Korea had a booming economy. It had built it’s developing economy on foreign loans, and in turn loaned that money out to companies in South Korea to build new factories, pay workers, etc. However, many of these loans were non-performing; the borrowers weren’t capable of paying them back. As long as the economy was growing rapidly, they could continue to borrow against their appreciating assets, and everything was fine.
The 1997 Asian Financial Crisis started with currency speculation in Thailand, which caused its currency to crash. This also tanked their economy, which had, like South Korea’s, been growing very well. This triggered a domino effect, where other countries in the region were similarly hit by currency speculation by people who thought that these economies weren’t nearly as good as they were believed to be. When speculators began targeting South Korea, the economic prospects suddenly went sour. The banks, fearing for their investments, started to call in these non-performing loans; the borrowers were unable to pay, leading to many bankruptcies. Some conglomerates tried to cash in by buying up these failing companies, but were themselves swamped by the debts they acquired along the way. Some of these conglomerates were broken up by the government due to their outsized debts and sold off in pieces.
In late 1997, the IMF provided a bailout package to South Korea (the IMF provided assistance packages to most countries affected by this crisis) to bolster the economy, on the condition that South Korea change they way they regulated their economy, especially the banking system. This resulted in many financial institutions and banks being closed, as they could no longer operate within the new regulations. The IMF also renegotiated South Korea’s foreign debts, but at very high interest rates, and forced South Korea to open its economy up to more foreign investment.
The IMF both bailed out the economy as a whole, but also contributed to the decline of certain companies. The renegotiation of foreign debts, while critical to preventing the entire economy from collapsing, was also predatory in its interest rates. While foreign investment is good for economic development, it also means that a lot of that growing value belongs to people/companies outside the country. In that sense, the average South Korean could see the IMF bailout as beneficial (if they got one) while also predatory, since it benefited foreign investors much more than it did South Korean investors.
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