South Korea Hears Echoes of 1997 in US Financial Crisis

South Korea's currency and stocks have taken a beating this week
following the financial crumbling of another major US financial
institution. For many Koreans, the crisis appears quite similar to
what they experienced 11 years ago but this time, some say Washington
appears to be changing its prescribed remedy.

South Korea's main
stock index, the KOSPI, dipped to its lowest point in a year and a half
this week, amid worries over a string of major bank failures in the
United States, including the collapse of Lehman Brothers, one of the
country's largest investment institutions. South Korea's currency, the
won, plunged against the dollar as central banks around the world
pumped $180 billion worth of cash into credit-starved markets.

South
Korea's economy is the world's 12th largest, and depends heavily on
exports, especially to the United States. That makes this country
extremely vulnerable to international crises but it has also helped
Seoul build up substantial reserves of U.S. dollars as a cushion
against turbulence.

South Korea's finance minister said this
week the country has enough reserves to inject into the market as
needed. However, some economists note Seoul's reserves have dropped by
nearly ten percent since March, and may not be sufficient to deal with
a protracted period of crisis. Lee Seong-tae, governor of South Korea's
central bank, warned lawmakers this week it remains what the impact of
the global crisis will be.

Koh Yu Seon is an analyst with Daewoo
Securities here in Seoul. She says the current meltdown on Wall Street
closely parallels the economic crisis South Korea and Asia experienced
in 1997.

She says American investment banks have made excessive
loans, which created a real estate bubble and made the lenders
insolvent on bad debt. That, she says, is similar to what happened in
South Korea, where enterprises borrowed excessively to chase bad
investments.

Many South Koreans refer to that period in common
speech as the "IMF crisis, in reference to the International Monetary
Fund, which, with U.S. support, loaned South Korea about $20 billion, but, as Koh recalls, imposed austere conditions that limited
the country's economic flexibility.

She says, the U.S. viewed
bankruptcies as inevitable to get rid of inefficiencies and solve South
Korea's financial problem. We had a chain reaction of them here, she
adds. But now, she says the United States is taking a completely
different set of actions because it wants to avoid paralysis of the
entire financial system.

U.S. officials draw a distinction
between the $20 billion IMF bailout of South Korea and Washington's
more than $250 billion bailout of U.S. financial institutions. U.S.
banks and insurers do business all over the world, and their problems
can rapidly spread to the global entities that are exposed to them. By
contrast, the negative influence of South Korean bankruptcies was
confined mainly to Asia.

Many ordinary South Koreans view the
IMF rescue period as a humiliation imposed on their nation from
outside, but the country paid back the loan and recovered far more
quickly than many expected. Still, economists warn if Washington does
not draw a line in its rescue of faulty lenders, it could lose
credibility in preaching tough free market medicine abroad in the
future.