November 3rd, 1997
– Daehung Securities, Yeouido.
Inside the trading floor, around forty individual investors stood in small groups, their eyes fixed on the large electronic market board mounted on one wall.
Following the previous trading day's rebound, nearly all stocks were surging again today, and the mood was visibly upbeat.
"Look over there! Saseong Electronics is on the move!"
"Hyunwoo Motors is up too. If ST Securities keeps going like this, it might hit the upper limit!"
"Wow, look at all that trading volume."
Unlike the cautious optimism of the previous day, today's market opened with a strong wave of buying pressure that forcefully pushed the stock index upward.
In addition to the IMF, the International Bank for Reconstruction and Development (IBRD) and the Asian Development Bank (ADB) had pledged $10 billion and $4 billion, respectively. On top of that, 13 countries, including the United States, Japan, Germany, France, and Australia, announced a combined support package of a staggering $23.3 billion.
This sparked growing optimism in the market that perhaps the worst of the crisis was finally over.
Amid this atmosphere, the government announced a major follow-up measure from the IMF negotiations—raising the foreign investment cap in domestic stocks from 26% to 50%—further boosting expectations for a market rally.
"This won't do. I need to grab a few more shares before prices rise again."
"Hey, wait up! I'm coming with you!"
As the market board glowed bright red with soaring prices across most stocks, one man in a jumper, growing anxious, rushed toward the trading window. The man beside him followed quickly, eager to buy more shares.
Others soon joined in, crowding around the windows again to place their orders.
It looked much like it had a few days ago—but the atmosphere this time was completely different.
Inside the Office
As Na Seong-mi opened the door and stepped aside, Choi Ho-geun entered the room. Seok-won, seated at his desk, looked up to greet him.
"Ah, welcome."
Choi Ho-geun stepped closer, bowed politely, and straightened up.
"You called for me?"
"Yes. Don't just stand there—let's sit down and talk."
Seok-won stood up, walked around his desk, and took the seat at the center of the sofa set.
Choi Ho-geun followed and settled on the sofa to Seok-won's left. Watching him, Seok-won spoke.
"The market's looking pretty good again today."
"Yes. With the IMF deal finalized and the announcement of a significantly increased foreign investment cap, investor sentiment, which had been frozen stiff, has really come back to life."
Seok-won gave a small nod.
"Given how much capital had left the market, it makes sense that expectations are high for a major rebound if foreign investors return."
"Historically, every time foreign investment increased, the market tended to surge. That kind of track record naturally builds confidence."
"Indeed."
Leaning back against the sofa, Seok-won continued speaking.
"The belief that buying now could yield huge profits has reawakened the beastly instincts lying dormant in the hearts of retail investors."
Indeed, as the stock market revived, buy orders poured in indiscriminately—not only for brokerage firms, which would benefit directly, but even for construction companies and general trading corporations, which had taken direct hits from the foreign exchange crisis. It was as if people were investing blindly.
Because of this surge in demand, even stocks that had previously collapsed in price and were being offloaded through debt-clearing sales were now being actively traded and absorbed by the market.
"Even foreign investors, who had been consistently selling off their shares, stopped dumping and turned net buyers in the last session, scooping up about 20 billion won."
"A shift to net buying is a clear signal that foreign investors are returning. No wonder retail investors are cheering."
Despite the widespread excitement, Seok-won remained calm.
"The index is rising much more sharply than expected. Wouldn't it be wise to resume buying gradually, even if in small amounts?"
"No. On the contrary—sell."
"Pardon?"
At that, Manager Choi Ho-geun, who had asked cautiously, blinked in surprise.
With the market rebounding hard after hitting rock bottom, the instruction to sell—rather than buy more—was shocking.
"I called you here to tell you to start selling."
The tone was so composed that Choi Ho-geun couldn't answer immediately. He swallowed dryly.
He couldn't quite grasp what line of thinking had led to this decision.
Watching the startled expression on Choi's face, Seok-won calmly offered an explanation.
"You remember I told you this rally wasn't the real deal—it's a fake-out."
"Ah, yes."
"You probably heard that the total bailout package announced by the government exceeds 58.3 billion dollars."
"I read in the newspaper that it's the largest rescue package ever, even surpassing what Mexico received from the U.S. and IMF during last year's crisis."
"That's right. But there's a serious catch."
"What is it?"
Seok-won clasped his hands together and continued.
"More than half of that announced amount is second-line funding—money that will only be released if the crisis doesn't subside and continues to worsen."
"…!"
"The only foreign currency that's actually in our pocket right now is the IMF's $21 billion aid—and even then, we've only received the first tranche of $5.5 billion."
With a skeptical look, Seok-won turned to Manager Choi Ho-geun and asked,
"Do you really think that alone will completely resolve our foreign currency shortage?"
"…It's unlikely."
Choi replied in a low voice.
"Even if the full $21 billion from the IMF does come in, like I mentioned before, once we repay the short-term foreign debt maturing early next year, it'll all drain right back out."
"In that case, even if it's second-line funding, there will be additional financial support. So while the exchange rate might not recover immediately, the situation shouldn't worsen from here, should it?"
At that, Seok-won gave a bitter smile.
"It would be nice if that were true, but there's one big variable."
"What do you mean…?"
Choi looked puzzled, and Seok-won replied in a slightly subdued voice.
"The presidential election, scheduled for the end of the year."
Choi furrowed his brow, as if to say, "Why is that a problem?"
"The general consensus was that the ruling Gongjeong Party's candidate would win comfortably. But the IMF crisis has made the outcome unpredictable. I'm sure you're aware of that."
Choi gave a small nod in agreement.
"Considering this is the worst national crisis since the Korean War, it would be stranger if the ruling party just walked away with a victory."
In fact, what had once seemed like a one-sided race in favor of the ruling party had become an unpredictable dead heat.
There were now growing whispers that this might mark the first-ever transfer of power.
Seok-won had even heard through Secretary General Woo Chun-il that as Kim Jae-chun, the New Era National Council candidate, suddenly became a frontrunner, politicians and business leaders were scrambling to align themselves with him.
"It's quiet for now, but once the official campaign season begins, the opposition will aggressively target the Blue House and the ruling party, blaming them for the IMF crisis."
"There's no way they'll pass up such an effective vote-getting weapon. You can be sure it'll dominate the entire election cycle."
"If that happens, it'll spark a political firestorm over who's to blame for the currency crisis. And this, even though the foreign exchange meltdown hasn't been resolved yet."
Choi's expression turned rigid as he listened.
"Because of the election, during what may be the most critical moment, the already lame-duck Blue House—and even key economic institutions like the Ministry of Finance and the Bank of Korea—will be paralyzed and unable to respond."
With a cynical shrug, Seok-won added,
"How can the IBRD or ADB justify releasing funds when there's no one left to negotiate with, no decision-makers to take responsibility?"
Realizing the gravity of the situation, Choi swallowed dryly and asked,
"This… is the major shake-up you warned me about, isn't it?"
Seok-won nodded and elaborated,
"The moment high hopes turn to disappointment, fear will grip the market even more than before—and the crash will be worse. That's why I'm telling you to sell off all the holdings before it happens."
"I understand."
Choi replied stiffly, his face hardened.
"After it plunges again and the election passes, that's when we'll see the real rebound—from the true bottom."
Choi's eyes glinted with understanding, and he nodded firmly.
After finalizing the bailout agreement with the South Korean government, IMF Managing Director Paul Townsend flew to Tokyo, Japan, where he descended into the lobby of his hotel to meet with Yukio Kajiwara, the Governor of the Bank of Japan.
As Townsend exited the elevator with his aides, a crowd of waiting reporters surged toward him.
They quickly surrounded the IMF chief, thrusting cameras and microphones at him while firing off questions.
"What do you plan to discuss with Governor Kajiwara today?"
Asked a young reporter with a press armband on one arm. Townsend responded with a calm and confident demeanor.
"We're planning to talk about how the Bank of Japan and the IMF can cooperate in response to the currency crisis sweeping across Asia."
A sharp-looking reporter immediately followed up with a pointed question.
"There's been criticism that the conditions attached to South Korea's bailout are far harsher than those given to Mexico. What's your response to that?"
Though the question was somewhat sensitive, Townsend didn't flinch and offered a textbook response.
"The IMF does not act unilaterally or coercively toward sovereign nations. We simply ask that the recipient country present its own recovery program to overcome the crisis."
Any officials from the Ministry of Finance who had recently endured the intense pressure and threats from the IMF delegation would have found the statement laughable.
"There's talk that the next government, after the presidential election, might demand a renegotiation of the terms due to how severe they are. If that happens, would you be open to it?"
To this, Townsend's expression immediately turned stern.
"We've already received written commitments from both the ruling and opposition candidates that they will honor the agreement with the IMF after the election. So there will be no renegotiation."
He looked squarely into the microphones in front of him and emphasized his words.
"If South Korea fails to implement even a single clause of the agreed terms in good faith, we will immediately suspend all financial assistance."
This explicit warning to the Korean government prompted the reporter to ask again.
"Are you saying that if Korea violates the agreement, even the aid already provided could be reclaimed?"
"That's correct."
Townsend answered without the slightest hesitation, then offered a diplomatic smile.
"But I trust that the Korean politicians and people will not make such a foolish choice. I also believe that although the Korean people—who have grown accustomed to high economic growth—have been deeply shocked by the wave of corporate and financial institution bankruptcies, they are a courageous and resilient nation who will overcome this challenge."
Having said his piece, Townsend took no further questions and made his way outside, where a luxury sedan was waiting to pick him up.
His statements were headlined across Korean newspapers the following day.