The Korean economy is under turmoil. It was hit by the
outbreak of a currency crisis and a financial crisis in 1997. Since
then, as with other episodes of crises, financial markets have
remained vulnerable and activities of the real sector been
shrinking sharply. Seen in the light of the past track that the
Korean economy had followed, recent development are, to say
the least, quite dramatic and raise two questions immediately: 1)
What caused it? 2) How can it be resolved? We are set out to
address these two questions in this paper.

As will be further explained in the paper, the Korean crisis
is the twin crises of a currency crisis and a financial crisis.
Concerned with finding out their causes, this means that it is
gravely important to understand the inter-dynamics between the
two: namely, which one was the first and what caused the first
crisis? To elaborate the questions more specifically and put them
in the context of the literature, we briefly survey existing
studies on the financial crisis. By the survey, we identify a list
of potential causes discussed in the literature, and draw out two
competing views on the causes of twin crises, which we term
as weal fundamentals view versus panic view. with the
preparation, we examine the potential causes in the list: whether
they were present in Korea prior to the crisis. We find evidence
that some factors indeed existed in the Korea economy before
the crisis. Upon the finding, we discuss whether those factors of
fundamentals were weal enough to result in a financial and a
currency crisis. Out tentative conclusion is that in view of the
actual evolution process of the crisis, they were less than
sufficient. We emphasize the roles of policy missteps given the
external shocks originated in Southeast Asian crises and inherent
instability in the international markets as further causes for the
Korean crisis.


Next we move to address the second question of the paper:
resolution of the crisis. Given the twin crises occurred, we think
that there are three main challenges to the policy makers. First,
stabilizing the foreign exchange market, which is tantamount to
stopping capital outflow. Second, restructuring the financial
sector where dealing with insolvent institutions and recapitalizing
viable institutions are main tasks. Third, reforming the existing
regulatory and supervisory framework to eradicate underlying
causes that resulted in the crisis and improve competitiveness
and soundness of the financial system. We discuss measure to
cope with these challenges consecutively.

Other than introduction and conclusion, the paper consists of
two parts in accordance to the two major questions above. Part
1, where causes of the Korean crisis are discussed, has three
sections. In Section 1. we provide the first look on the Korean
crisis and survey of the existing literature on causes of a
financial crisis accompanied by a currency crisis. In Section 2,
we examine the existence of factors in Korea. Which have been
discussed as potential causes in the literature. In Section 3, we
discuss whether these causes or development in fundamentals
were sufficient enough to explain the outburst of the crisis. We
also provide two additional factors, not related to fundamentals,
as key causes of the Korean crisis. Part 2 is composed of five
sections. Section 1 contains basic information on the resolution
task. In Section 2, we describe the measures to restore stability
in the foreign exchange market. In Section 3. we discuss the
restructuring process of the financial sector including recent
progress in the banking sector reform. Finally in Section 4 and
5, we discuss policy directions in reforming regulatory and
supervisory settings.

(※ 본 보고서의 Introduction 부분을 요약으로 대체)

Ⅰ. Introduction

Ⅱ. Causes of the Korean Financial Crisis
　1. Definition, a Sketch of the Korean Crisis and the Frameworks
　2. Causes of the Korean Crisis
　3. Were the Fundamentals Weak Enough?-Further Causes of the Crisis

Ⅲ. Resolution of Financial Crisis in Korea
　1. Imperatives of the Financial Sector Restructuring
　2. Overcoming the Foreign Exchange Crisis
　3. Restructuring of the Financial Sector
　4. Strengthening the Competitiveness of Financial Industry
　5. Establish of Sound Financial System