Restructuring and the role of international financial institutions: a Korean view

This paper examines the role of international financial institutions (IFIs) based on Koreas experience of restructuring and crisis management.

An analysis of the Korean experience indicates that structural defects in the financial and corporate sectors played a major role in the crisis. This formed the basis for the Korean government and the IMFs emphasis on structural reforms for economic recovery. At the same time, the importance of stabilising the foreign exchange rate market was stressed.

From the discussion of Koreas experience after the crisis, the paper draws some lessons about the role of IFIs:

• The IMFs diagnosis of the crisis was accurate, and the emphasis on structural reforms was not misplaced.
• Whether there is a catalytic effect of lending by IFIs, the paper indicates mixed results, with credibility being largely associated with the Korean governments commitment to reform rather than IMF involvement.
• There is a need for an international lender of last resort in the long term. In the short term, however, strengthening the role of the IMF and other IFIs as crisis lender and manager is recommended.