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In the next episode of our series on the Asian financial crisis, we spoke with Changyong Rhee, the Director of Asia Pacific Department at the IMF. Changyong is a well-respected economist who has worked as an academic, an advisor to the Korean government, and at a variety of international institutions. He brings along many years of experience covering economic and financial developments in Asia.

Some of the key takeaways of our conversation with Changyong include:

• Korean policymakers were aware of the risks of opening up financial markets and pursued a gradual and indirect approach to capital account liberalization.

• Financial liberalization prioritized indirect borrowing by financial institutions, rather than more stable FDI, making Korea susceptible to capital outflows during the crisis. 

• Although strong cooperation between the government, conglomerates, and banking sector was critical to South Korea’s growth, it also created large moral hazard problems.

• The IMF program helped Korea restructure its economy and become more resilient to financial shocks, but some of the policy recommendations created domestic backlash.

• While Asian economies are in a far stronger position compared to the past, there are still significant economic risks stemming from high leverage and rapid demographic aging.

The views expressed are not necessarily those of the Federal Reserve Bank of San Francisco or of the Federal Reserve System