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At the beginning of the millennium, South Korea experienced an unprecedented financial storm, with pillar companies declaring bankruptcy one after another, and the entire country was on the verge of economic collapse. The stock market collapsed, the exchange rate plummeted, and the international market was turbulent. To tide over the economic crisis, South Korean President Kim Dae-jung called on people to donate gold jewelry from their homes to replenish foreign exchange reserves. The call sparked patriotic fervor among the population, and millions rushed to banks to donate their gold jewellery, worth billions of dollars, free of charge. However, these efforts were only a drop in the bucket for South Korea, which eventually had to agree to the strict demands of the International Monetary Fund and Western countries.
The outbreak of the financial crisis was affected by both the international market and domestic reasons. Since the collapse of the Soviet Union and the end of the Cold War between the United States and the Soviet Union, the world has entered an era of economic globalization, and countries have engaged in fierce competition. South Korea has also joined the race, however, its financial markets have become vulnerable driven by economic liberalization. An influx of foreign money and loans to family businesses can trigger economic turmoil once this external capital is withdrawn. Coupled with excessive investment of international funds, high debt has become a common phenomenon in the economic growth of Southeast Asian countries. South Korea's external debt is as high as $45 billion. With the development of globalization and the increasingly fierce international competition, South Korea's overseas market is gradually eroded by lower-cost countries. The fall in the prices of South Korea's exports led to an imbalance in the balance of payments, and the deficit widened sharply, at one point exceeding $20 billion. This has a direct impact on South Korea's domestic economy.
In addition, South Korea's internal financial market model also contributed to the outbreak of the financial crisis. For a long time, the government led economic growth, directing banks to lend to specific businesses in a tilted manner. This approach weakens the regulation of financial institutions and companies, and takes the South Korean market out of normal rules. The chaebol family group, in cooperation with the central bank, has expanded its businesses and used short-term external debt as long-term loans. This economic model of over-reliance on government policies has led to insolvency. The corporate debt ratio is as high as 400%. Until the beginning of 1997, some large enterprises declared bankruptcy, and the political and financial circles were also involved in scandals, which triggered a serious financial crisis.
With the collapse of businesses, South Korea fell into a financial crisis. Foreign exchange reserves fell sharply, the stock market plummeted, and the country was on the verge of bankruptcy. South Korea urgently sought financial support from the IMF, which imposed a series of harsh conditions. These conditions seriously interfered with South Korea's economic policy, but South Korea had no choice but to accept the IMF's "traitorous" conditions. After signing the aid agreement, South Korea received loans totaling more than $50 billion, including $23 billion from developed countries. However, the loan was not gratuitous, and the IMF aid cost South Korea some of its economic autonomy.
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