But the latest rescue package seems to show desperation more than anything. Since the Asian crisis in 1997, Seoul has been trying hard to show that it is dedicated to true reform. But after a good start, it strayed from that path. Foreign investors have lost patience and fled in droves. The risk of net outflow is rising.
Investors are right to be worried.
Korean exports, a major economic growth driver, have fallen sharply since the last quarter last year. With domestic demand also weakening, economic restructuring will become more crucial to putting the country back on track after some initial pains. The government's requests of banks to sustain the chaebol, notably the Hyundai bailout in March, have compromised the health of the banking sector balance sheet with that of the corporate sector's. With reform stuck and the domestic financial system impaired, Korea's asset prices and the exchange rate will continue to experience downward pressure in the coming months. The Japanese inertia Japan has announced similar measures to prop up stock prices and encourage its banks to write off bad debts.