resistance to its austerity policies on the part of the governments and financial institutions which it assists.
Matthews (1997) claims that IMF austerity policies are often viewed by analysts as demanding too much, too soon, from borrowers. Critics of the IMF charge that it often misses obvious signposts on the road to economic crises and fails to objectively assess macroeconomic conditions. Pyun (1999), for example, believes that economic austerity programs tend to impose excessive tax increases, overly high interest rates, and call for slow or no economic growth. Pyun (1999) also maintains that with tight monetary and fiscal policies, the IMF tends to place too much emphasis on demand and money flow and not enough on supply and capital formation. Conversely, Dean (1999) suggests that in the case of South Korea, the IMF's unprecedently large role was justified and effective. At issue in this debate is the question of whether or not South Korea represented a case in illiquidity or insolvency. Dean (1999) takes the position that if South Korea was indeed insolvent, the IMF bailout strategy would have been inappropriate, but that since South Korea was merely illiquid, the IMF response was appropriate. It is this issue which will be examined in the proposed study.
Kang (1998) explored the causes of the South Korean financial crisis of 1997. He argues that internal and external factors both contributed to the crisis. A lack of international competitiveness stemming from high cost and low efficiency business problems, moral hazard problems, and the failure of government to cope with the opening of the economy to the world constituted internal factors leading to the financial crisis. Kang (1998) states that the external factors leading to the crisis included the growing turbulence in the global financial market, especially in Southeast Asia and the absence of an effective international cooperative system to counter specul...