Tobin (1998) argued that heavily borrowed short-term loans of banks and businesses were the biggest trap once the local currency became plummet, which resulted in the Asian financial crisis.
So, I extracted detailed data of the external debt component from the Bank of Korea database. Even though long-term debt is more than the short-term loan in terms of the value, the growth of short-term debt appears to fluctuate more than long-term debt.
Data Source: Bank of Korea http://ecos.bok.or.kr
Since the banking sectors are the most severely crushed due to the crises, I wondered about their debt components. The data allows me to separate by the ownership of Bank, Domestic and Foreign Branch.
Data Source: Bank of Korea http://ecos.bok.or.kr
Interestingly, most of the external debts owned by domestic branches of foreign banks are "short-term' loans.
The data below supports the argument of Kang (2002) that the domestic branches of foreign banks were a major conduit of channeling unprecedented growth of short-term foreign borrowings while taking advantage of overly lax supervision for foreign banking operations in Korea. Kang (2002) pointed out that such conditions added financial vulnerability once foreign investor's deleveraging starts.
Cho and Kalinowski (2010) explained the IMF's persuasive reasons for its encouragement of foreign ownership of the banking system and branch operations. The IMF believed that inflow of foreign capital into a stringent financial market would facilitate its recovery from the crises; therefore, financial market liberalization is the top-priority in the reform model (Cho and Kalinowski, 2010).
By transforming financial sectors regulations and the foreign exchange system to more foreign investor-friendly, in addition to the IMF's believed to be 'right' guide, Korean financial market became the free field for foreign investors.
(For more detailed historical information of how the Korean foreign exchange system has changed, please click Here.)
Cho, H., and Kalinowski, T. (2010), Bank Nationalization, Restructuring and Reprivatization: The Case of Korea since the Asian Financial Crisis, Korea Observer, 41(1), 1-30.
Kang, M.K (2009), 'Global Financial Crisis and Systemic Risks in the Korean Banking Sector', Korean Economic Institute Academic Paper Series, 4(5).
Tobin, J. (1998), 'Asian Financial Crisis', Japan and the World Economy, 10, 351-353.
So, I extracted detailed data of the external debt component from the Bank of Korea database. Even though long-term debt is more than the short-term loan in terms of the value, the growth of short-term debt appears to fluctuate more than long-term debt.
Since the banking sectors are the most severely crushed due to the crises, I wondered about their debt components. The data allows me to separate by the ownership of Bank, Domestic and Foreign Branch.
Interestingly, most of the external debts owned by domestic branches of foreign banks are "short-term' loans.
The data below supports the argument of Kang (2002) that the domestic branches of foreign banks were a major conduit of channeling unprecedented growth of short-term foreign borrowings while taking advantage of overly lax supervision for foreign banking operations in Korea. Kang (2002) pointed out that such conditions added financial vulnerability once foreign investor's deleveraging starts.
Cho and Kalinowski (2010) explained the IMF's persuasive reasons for its encouragement of foreign ownership of the banking system and branch operations. The IMF believed that inflow of foreign capital into a stringent financial market would facilitate its recovery from the crises; therefore, financial market liberalization is the top-priority in the reform model (Cho and Kalinowski, 2010).
By transforming financial sectors regulations and the foreign exchange system to more foreign investor-friendly, in addition to the IMF's believed to be 'right' guide, Korean financial market became the free field for foreign investors.
(For more detailed historical information of how the Korean foreign exchange system has changed, please click Here.)
Cho, H., and Kalinowski, T. (2010), Bank Nationalization, Restructuring and Reprivatization: The Case of Korea since the Asian Financial Crisis, Korea Observer, 41(1), 1-30.
Kang, M.K (2009), 'Global Financial Crisis and Systemic Risks in the Korean Banking Sector', Korean Economic Institute Academic Paper Series, 4(5).
Tobin, J. (1998), 'Asian Financial Crisis', Japan and the World Economy, 10, 351-353.
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