Korean Bank
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What role did the Korean government play in creating the 1997 crisis?
President Kim Young-Sam played an essential role in creating Koreas 1997 crisis. The Korean government advised many investors to finance large chaebols (industrial conglomerates), exporting-oriented industries. President Young-Sam hoped these actions would the enhance the economy and pull South Korea out the recession they were experiencing. The chaebols became heavily reliant on borrowing, this lead to very large debts and eventually resulted in the weakening of the won.
What role did Korean enterprises play in creating the 1997 crisis?
The second largest cause of the 1997 Korean crisis was the role of the enterprises. They blindly succumbed to political advise without proper research, continuing a downward spiral of a failed economy. Through the lack of planning and proper research, the Korean enterprises made poor investment decisions, became reliant on excessive monetary borrowing, and placed themselves and South Korea in a worse economic state. With the increasing debt coupled with the decline of the won the enterprises found it more and more difficult to make payments on the money the borrowed. The Korean enterprises, eventually, were overcome in debt and forced into bankruptcy.
Why was the Korean central bank unable to stop the decline in the value of the won?
The Korean Central Bank was unable to stop the decline of the won because the corporations excessive debt was never addressed. The bank was focused on the decline of the won instead of the root problem, the excessive debt. The main concern for the banks was to halt the decline of the won, the increase supply of won in the market decreased its value, 90 won = 1 US dollar. The banks ongoing effort to revitalize the Korean economy backfired causing the depletion of the banks foreign exchange reserve and a major nosedive the value of the won, 1500 won = 1 US dollar.