Korea made a mistake by tilting in the wrong direction. Foreign exchange reserves are important. Modern international financial markets are not perfectly efficient, though we are better off with them than without them. The magnitude of the recession in Korea and other emerging markets seems disproportionate to the policy sins committed. In the first place, openness may be one of the sources of high long-run growth in East Asia over the preceding three decades.
Contagion also suggests imperfect efficiency.
The August 1998 spillover from Russia to Brazil and other markets suggests that pure financial contagion, unrelated to real economic fundamentals within the countries, is possible. Moral hazard at the domestic level instead was a primary problem in the East Asian case. Bank loans based on personal connections or government guidance rather than investments prospects for high returns, implicit government guarantees, empire-building, etc. I give equal weight to the flaws in the economic fundamentals, on the one hand, and to excessive swings in speculators' enthusiasm, on the other hand. I see no need to choose between blaming the countries and blaming the speculators.