Limited reforms, such as opening the stock and bond markets to foreigners, are just small steps towards restoring investor confidence. But what is really needed is wholesale rationalization of the financial and corporate sectors. Until the politicians overcome their fear of a popular backlash and accept this, Korea is a market to be avoided. This is blunt. But it is the honest view of most investors I meet.
Foreign investment is a vote of confidence in a country's policies.
In Thailand, the currency crisis came about as a result of dollar-denominated credit fueling speculation in the stock and real estate markets. The problem in Thailand has been building up for some time. This made Thailand vulnerable to sudden large outflows should bad news be signaled. The central bank became reluctant to raise interest rates for fear of creating a difficult situation. Finally, the government failed to tighten its spending in 1996 when equity investors began to view the environment as risky.