This essay will provide a discussion on the role played by the IMF in resolving the economic difficulty experienced by Korea in the mid 90’s. The essay will begin with the internal working dynamics of the IMF, then move on to describe the conditions leading to financial difficulty in Korea and then lastly how the IMF intervened and alleviated the matters.
The IMF (International Monetary Fund) is an independent organization. Even though, it is officially a United Nations specialized agency. The IMF began in 1946 with the basis that a lot of countries encounter monetary problems because of flawed domestic policies . The main focus of the IMF is to monitor and regulate economic and financial programs of their members. The IMF also possesses a large sum of financial resources that can be used to help countries experiencing balance-of-payments difficulties. Generally if a country wishes to receive financial aid from the IMF, that country is required to alter their domestic economic and financial policies as the IMF sees fit, this is referred to as the “stand by” arrangement.
The lending process of the IMF is quite different from that of a traditional loan. Basically instead of just providing money to a country, the IMF

This conference was different compared to most financial crisis conferences in the sense that there was a wide variety of authors which contributed papers, ranging from economists who were critical of IMF policies to staff of the IMF and the World Bank and also Korean government officials who participated in the design/development and implementation of economic policies. The submitted papers were written half by Korean economists and the other half by foreign economists these two arrangements were intended to allow a balanced perspective as well as enhance synergy between studies of foreign experts with a comparative advantage of looking at the Korean crisis from a global perspective and also by the Korean economists with a comparative advantage in understanding the Korean economy, culture, politics and so on.

The IMF in cooperation with a few other organizations including the World Bank and the Asian Development bank quickly came to their aid providing a total of US$58 billion this was the largest recovery package in the history of the IMF. This financing was provided with a few conditions. The Fund recommended to the Korean government a short-term macroeconomic policy focused mainly on short term high interest rates to restore the confidence of overseas investors during the early months of the crisis. On top of this the IMF also advised that Korea make a concerted effort to persuade foreign creditors to roll over short-term debt, an action plan was launched in late December of 1997, followed by a more comprehensive rescheduling of maturing debt. Lastly the IMF advised the government to implement various policies to restructure and reform the heavily indebted corporate sector dominated by the chaebol and the financial sector saddled with non-performing loans.

When a request for assistance is received, a “briefing paper” or program proposal is drawn up by the IMF; this paper usually consists of the ideas recommended by the IMF to the member country in order to qualify for the stand-by (loan). An IMF team is then required to fly over to the member country to finalize the “letter of intent”.

The meeting addressed each policy implemented by the IMF and the experts commented on the policy’s overall effectiveness. First was the discussion on increasing the interest rates during the early months of the crisis. Some experts believed that in doing so, it would result in a destabilization in the exchange rate due to the increase in corporate bankruptcies. Using retrieved data of interest rates during 1995-98, it was proven that the increased interest rates induced depreciation for a few days but then showed substantial appreciation for the next three months. These findings suggest that the high interest rate policy recommended by the IMF indeed aided in the stabilization of the exchange rate.