South Korean Financial Crisis Case Study Example | Topics and Well Written Essays - 1500 words

South Korean Financial Crisis - Case Study ExampleKorea was progressing fountainhead in 1996 and had become a part of the Organisation for Economic Cooperation and Development (OECD). As people celebrated, nought knew of the impending disaster about to strike. During the latter part of 1996, the current account deficit increased to 5% from previous years 2%, a decrease attributed to lessened competition among Korean industries. The gross national product declined from 14.1% to become 7.1% and irrelevant debt rose to a high 100 billion dollars. These and various other debt related indicators were showcasing the upcoming crisis for Korea. The first half of 1997 surfaced a few more indicators of the disaster. Foreign investors in Korea were starting to depress wary of the market and lacked confidence in investing because of long recessions, large deficits in current accounts and maturement short-term external debt. In January 1997, Hanabo Steel, the 17th largest Korean seller went in to bankruptcy. Soon the Sammi Group, another steel company, failed and study affiliates of the Jinro Group went bankrupt. In July 1997, another major automobile manufacturer, Kia motors failed. With the downfall, foreign capital began to flow out of the country. In July 1997, the Southeast Asian crisis broke out first in Thailand, followed by Indonesia, Malaysia and in Hong Kong in October as the stock market crashed. Within October to December, the Korean economy crashed by 112% compared to the US Dollar. ... Within October to December the Korean economy crashed by 112% compared to the US Dollar. From October 1997, the yield spreads of the global bonds of Korean Development Bank (KDB)3, Koreas indicators of the sovereign pretend premium, started to jump. By early December, Koreas bonds were reassessed by Moodys and Standard & Poors and were demoted to junk bonds from their A1 status. Soon the banks could not renew the maturing loans and needed to ingest from the Korean markets. Foreign lending crashed from the $100 from January to October 1997, to minus $20 billion by the end of the year. The won plunged unhorse to 50% in a span of two weeks in the month of November. As of November 1997, foreign reserves were seen to stand at 24.2 billion dollars, of which only 9.3 billion dollars was finally available. The figure was much lower than the required foreign reserve level of 36 billion dollars. Korea did not have enough silver to repay back its 10 billion dollars short-term borrowings. At the edge of sovereign default, foreign debt touched(p) highs of 119.7 billion dollars and the whirlpool of the crisis was pulling in Korea.The Causes and effects of the CrisisThe causes that led up to the crisis were many and experts state that a single cause cannot be pinpointed as the culprit. While the economy crashed along with that of other nations, many experts in any case state that the currency crisis in Korea is quite different from other traditional situations. This crisis had little to do with the misdirection of monetary and fiscal policy. The macroeconomic fundamentals were also good. The effects were as diverse too, but poached down to the financial destruction of Korea. However like every failure or