The current corporate restructuring which focuses on the securing sound financial structure of firms is well justified on the ground that the direct cause of the economic crisis of Korea is the currency and financial crisis in 1997. However, from the prospects of real economy and long-term development that the fundamental cause of the economic crisis is the weakened competitiveness as a result of structural weakness of the economy, there is a possibility of a biased restructuring. Further, it is of necessity to minimize a potential conflict between the improvement in the financial efficiency and the loss in the valuable knowledge capital which is a backbone of the knowledge-based economy, a recently adopted national agenda.

In order for the early realization of the timely adopted national agenda of knowledge-based economy, a well designed specific strategy and a careful selection of proper policies and a comprehensive approach rather than spontaneous and fragmented approach are needed. Also needed is the understanding that the transformation into a knowledge-based economy takes a substantially long period to achieve.

From the overview of the current corporate restructuring and the strategy of the knowledge-based economy, national competitiveness of Korea in 1999 is expected to increase in categories of IMD and WEF such as 'domestic economy', 'internationalization (openness)' and 'institutions'. However, it is expected to decrease in 'infra structure', 'management', 'science and technology', and 'human resources (labor)'. In other categories such as 'government' and 'finance', no much change is expected. In the long-term, the national competiveness will be strengthened in categories such as 'domesticeconomy', 'management', 'internationalizationopeness', 'infrastructure' and 'human resources (labor)' more than other categories.

APEC promotes tourism for economic development in Asia-Pacific region. However, APEC member countries have cooperated generally at level. Tourism have some characteristics make cooperation accomplish less realistic than the greater potential. Regional economic development is recognized as one of the most important value of tourism cooperation. But it could not be accomplished its potential until local governments and private sector participate actively.

Cooperation among APEC member countries in tourism sector has revealed that it has been lack of full contents and not economical. As a result, APEC member countries don't take an active interest in the cooperation. Also, cooperation agreement have made very slow progress through periodic meetings. Especially, the influence on the tourism economy of member countries have been impotent in spite of its economic, social, and cultural potentials.

The limitations of central level cooperation in tourism sector may overcome by participation of local governments. First of all, the cooperation among local governments enable to lead the multiplicity of contents by reflection of locality. Secondly, it can lead active participation of the private sector by creation of direct influences on the region. Thirdly, it can make significant effects in short term by flexible agreement process. Fourthly, it can assure the practical cooperation by ensuring personal, financial, and systemic resources on demand as necessary.

In principle, tourism cooperation among local governments of APEC member countries should direct the efficiency and practicality. APEC is in a great need of arrangement of channels for cooperation among local government of member countries. It is useful to establish "APEC Tourism Investment Forum" or "APEC Cooperation Committee of Local Autonomies" which can dealt with Asian financial crisis.

At central level, it is recommended for government to establish "International Tourism Cooperation suport center". This center will support local government by providing knowhow and information and developing training program for international tourism experts as well as trade experts. Especially, financial difficulties of local government could be subsided by existing fund(e.g. Tourism Promotion and Development Fund) or setting up a new fund(e.g. International Cooperation Fund). At regional level, it is recommended for government to supplement tourism cooperation resources such as, finance, manpower, experience, organization, and information and construct mutual supportive cooperation system for themselves.

As a result, local governments will be able to improve the tourism development and management, increase foreign capital introduction, and promote foreign visitors, employment generating and internationalization in their region.

Major Trade-related Issues on Electronic Commerce and Implications for Korea

Since July of 1997 the number of Internet users has more than doubled to over 140 million people worldwide. As a result, electronic commerce has become a major issue on economic policy agendas around the world.
Electronic commerce facilitates trade and lower transaction costs can help firms make use of the opportunities of globalization of production and markets. Electronic commerce has broad implications for future trade.These implications include the effect on trade policy making and enforcement. And it is important to ensure that the present and future trading system de jure and de facto allows electronic commerce to realize its potentials as an alternative or a complement to conventional trade.

The OECD is addressing issues related to electronic commerce through several of its Committees and Working Parties. Issues covered include access, infrastructure needs, taxation, consumer and privacy protection, crytography, authentication and certification of transactions. The OECD Trade Committee has included the trade policy aspects of electronic commerce in its agenda from early 1997.

This Committee is analyzing several trade policy aspects of electronic commerce with a view to complementing and supporting the wider OECD work program and the electronic commerce work program of the WTO. Of particular interest is the question of the extent to which products delivered entirely on-line may be said to be new or different, including the question of customization. On-line transactions need to be carefully examined whether the provision of GATT and GATS are adequate. The guiding principle should be to achieve neutrality between electronic and physical trade.

The WTO, at its May 1998 meeting attended by Ministers from all 132 member countries, reached agreement to continue the practice of not imposing customs duties on electronic commerce transactions. Also, the May 1998 Ministerial Conference asked the General Council to institute a comprehensive work program to examine all trade-related issues relating to global electronic commerce. Some of the challenges and opportunities facing the multilateral trading system can be summarized broadly as follows.

First, one of the challenges can be outlined by the components of the transaction. Electronic advertising may allow circumvention of the advertising laws of domestic legal systems. The difficulty of identification on-line reduces trust when carrying out transactions. Copyright protection will be an obstacle to electronic delivery.

Second, the major impact of electronic commerce for internatinoal trade is that it provides easy access to cheap and fast information. A big buyer would do well to organize its bidding system on a web site. A successful service provider is normally able to attract customer by providing services difficult to get or unavailable in physical shops. Electronic commerce will bring new types of middle men, which will facilitate the efficiency of all types of transactions.

Finally, the needed trade policy approach will be greatly altered as distances are irrelevant and physical borders do not exist. Both trade-related information and business on financial and econmic reliability can be disseminated via electronic forms. Also, trade facilitation and government procurement can be made efficient by introducing electronic applications and bidding systems on-line. Cross-border supply by the Internet may allow providers of education and health services to circumvent existing restrictions on the movement of persons and national local certification requirements.
In response to the questions raised in this paper, several suggestions are made.

Major issues reviewed in this paper should be constrasted by the spot research to find real problems which firms currently face. Findings could be shared among users or reflected, if possible, in the codification of global electronic commerce.
In the context of international trade rules, cross-border electronic transmssions, including digitized products, could be charaterized as trade in goods, trade in services or possibly under a newly created category. Further, research should be carried out concerning the effectiveness of WTO rules visa-vis electronic commerce.

More efforts should be devoted to incresing of activity of domestic electronic commerce. Unless electronic commerce is realized domestically, a country can not hope to compete in international trade via electronic commerce. Special support for the demand side should be strengthened because those transactions are fulfilled by the innovators who are leading and promoting the diffusion of electronic commerce.

The Evolution of US Policy towards FTA and its Implications for Korea
Since the 1980s, the US approach towards trade liberalization can be broadly characterized as a two-pronged approach; while pursuing trade liberalization under the multilateral system of the GATT/WTO, the US also searches for opportunities to realize trade liberalization bilaterally, through the establishment of FTAs. This two-pronged approach to trade liberalization has often been complementary rather than contradictory. Such a strategy was seen at work as the US declared that it would go it alone when the Uruguay Round did not show satisfactory progress in the late 1980s. This threat was seen as successful as a number of countries blocking progress appeared to cave in to the US pressure. Due to the strong direct and indirect influence the US exerts on the Korean trade environs, Korean trade policymakers must not only keep abreast of US trade policy and the strategy of its trade negotiators, but must shape policies to best capitalize on the trade position of the US.

The US signed the Israel-US FTA in 1985, the Canada-US FTA in 1988, and NAFTA in 1992. Following establishment of NAFTA, momentum in the US for free trade has seemed to wane, with President Clinton failing to receive renewal of fast track authority from the Congress. However, loss of attention and supporting legislation have not altogether halted free trade initiatives deriving from the US. The US already offered to begin formal negotiations with Chile regarding the country's joining of NAFTA and the US has agreed with the 34 countries in the Western hemisphere to conclude the Free Trade Agreement in Americas (FTAA) by 2005.

The US administration has continued to study the feasibility of the establishment of FTAs with Asian countries. The report by the USITC (1989) analyzed the feasibility of an FTA with Japan, ASEAN, and a number of other Asian nations, including Korea. The report found that, except for Japan, the US would stand to benefit economically from the establishing FTAs in the region.

However, various political roadblocks and costs were found in almost all areas of Asia outside of Japan. For example, while an FTA with Korea was assessed as likely to benefit the US economically, it was believed that such a pact would intolerably increase anti-US sentiment in Korea.

Turning to discussion of APEC, while the US appeared only passively interested following joining the group in 1989, it appeared that President Clinton viewed APEC as offering great promise as a vehicle through which to open the Pacific region's markets. Thus, the US enthusiastically held the first APEC Leaders'meeting in Seattle in 1993. Upon APEC declaring region-wide free trade as its goal in the following year, the US enthusiasm for APEC began to surpass its interest in establishing bilateral FTAs in the region. To achieve the goal of free trade, APEC economies agreed to the Individual Action Plan (IAPs) and the Collective Action Plan (CAP). However, while touted as trade liberalization plans, nothing in the agreements signified binding guidelines and symbolized, at least from the point of view of the US, the end of any opportunity in the short-term to realize a multilateral free trade agreement in the Pacific.

This failure to reach real trade liberalization through APEC has seen the US alter its position to where it now views bilateral FTAs with Asian countries as offering the best hope to promote trade liberalization in the region. Korea would likely be near the top of any list of candidates, due to its already strong trade partnership with the US and the substantial decrease in anti-US sentiment since the early 1990s.

The current US administration, following its loss of fast track authority in 1994, has not been very active in pursuing trade liberalization. However, this may soon change. Signs are promising that the US Congress will restore fast track authority to the President at the end of 1999 or early 2000. Business community support for increased free trade initiatives has been strong. Many business leaders see the relative loss of competitiveness in Chile, caused by Canada and Mexico signing bilateral FTAs with the country after the US blocked expansion of NAFTA to Chile, as a precedent that needs to be immediately reversed. Furthermore, the Congress wants to conclude within three years the new WTO Round, which will resume at the end of 1999. Increasingly active business community pressure and growing Congressional support will likely see the US administration resume its search for ways to promote free trade.

So far, Korea's normal reaction to any expansion of regional trading blocs has been to push for the WTO to enact barriers to such spread. The major ruling regarding regional trade agreements under WTO is GATT XXIV. Altering this article to where it becomes more restrictive of the establishment or further expansion of regional trade agreements is unlikely as most WTO member countries already participate in one or more regional trading blocs. Thus, the most realistic policy for Korea to follow is to actively explore the establishment of FTAs with major trading partners. This will require Korean trade policy makers and politicians to adopt an entirely new approach and even mindset; however, no other option is currently available.

Electronic commerce is emerging as one of the main issues in the international community. It has the potential of becoming one of the major features of economic development in the 21st century, changing the conventional method of transactions. Consequently, as a new way of doing business, electronic commerce will require significant changes in the existing trade norms.

A major issue in electronic commerce deals with its taxation aspects, as various problems arise in applying current international taxation system to electronic commerce. However, even with a strong initiative to align multilateral rules governing electronic commerce, there can be varying positions among countries simply due to concerns of undermining their tax revenue.

OECD is a dominant agenda-setting body leading international discussion on the taxation of electronic commerce. In this context, this study summarizes OECDs discussions on electronic commerce with regard to taxation and examines policy implication for Korea.

Issues of discussions surrounding taxation policy on electronic commerce includes Value-added Tax (VAT), customs duties, international taxation, and tax administration. In the case of VAT, the main issue at hand is determining the country of origin of supply to assess product/service-related tax liabilities. As for customs duties, there is a growing need to differentiate taxation according to the method of transaction, as goods can effectively avoid taxation when ordered or delivered electronically. Regarding international taxation on corporate income, concerns are related to determining the place of permanent establishment and to transfer pricing. Lastly, tax administration issues deal with taxpayer identification, acquiring evidences on taxable transactions and income, application of tax rules, and maintaining tax revenues, by securing information on taxpayers and income through a consolidated network.

Domestically, the question of how to address taxation problems regarding electronic commerce is also a top priority. The basic principle of the solution will be to modify the tax system and administration to incorporate transaction via the internet, while focusing efforts to shape international norms in line with national interests by participating in discussions within international organizations such as the OECD.

Most importantly, with regard to Koreas taxation policy on electronic commerce, provision of services by foreign companies needs to be included as a taxable transaction in the VAT system, which is currently bases its principle of taxation on the country of destination.

In respect to the demand for discriminatory tariff treatment between products traded traditionally and electronically, Korea may have to adhere to the declaration made at WTO Ministerial Meeting to introduce no new tariffs for products traded electronically. However, with the development of taxation technologies and further discussion within the WTO and OECD, a more in-depth study on the possibility of tariffication needs to be conducted.

As for taxation of income generated from by foreign companies from domestic electronic commerce, Korea should adopt a system of taxing the income source, irrespective to the presence of permanent instablishment. While this is not a matter solely under the national authority of individual states, considering that a consensus for greater taxation right of country of origin is expected to increase within OECD, Korea needs to take a more clarified position on the issue. Lastly, regarding transfer pricing, Korea must accumulate its own experiences in line with the current discussions within the OECD.

The core issue in taxation of electronic commerce is identifying individual transactions made through internet. Taxing authorities, therefore, in cooperation with the financial institution who possess information related to electronic commerce transactions, will have to look for ways to efficiently solve taxation problems, by, for example, intervening in the payment process to levy withholding taxes. At the same time, they need to systemically introduce electronic technologies in the taxpayer service system in the long term.

Studies on Recent Investment Dispute Cases
Kwanho Kim Sungmi Lee

In the world economy today there exist many international arrangements concerning FDI. The arrangements set forth the rights and obligations for the actiors in the area of FDI, such as multinational corporations, host country government, and home country government. For example, host governments should treat foreign investors on a non-discriminatory basis and should protect their property. Corporations are obliged to accept the laws of the host government and are also obliged to avoid restrictive business practices. The home government has an obligation to recognize host government's right to regulate the activities of corporations. Such a complex network of rights and obligations produce occasional disputes between actors.

This report studies recent investment dispute cases which have some implications for Korea.Chapter 2 looks at investor dispute cases under NAFTA. The NAFTA Investment Chapter provides investors with strong ivnestment protection and an arbitration mechanism to resolve disputes between an investor and the state. While NAFTA is a trilateral agreement, similar disputes could occur under a BIT with the U.S., which is being negotiated, or under a multilateral investment agreement, which is expected to emerge in the near future.

Chapter 3 looks at some labor-management dispute cases in foreign invested enterprises. Due to their complex nature as multinationals, labor disputes are sometimes not settled at the local level, but develop into diplomatic disputes between the host and home governments. The OECD Guidelines on Multinational Enterprises and their procedural mechanism are potentially effective in settling such disputes.

Chapter 4 reviews the development of the U.S.-EU dispute over the Helms-Burton law, focusing on the context of MAI negotiation at the OECD. The dispute was settled by the two sides reaching an Understanding in May. An important meaning of the Understanding was lost by the de facto failure of the MAI negotiation. But the disciplines on illegal expropriation which were developed by the two sides, will have impact on future rule-making on this issue at the multilateral level.

Chapter 5 looks at state to state dispute case which the U.S. charged that the EU`s restrictions on banana imports were unfair. The WTO Panal founded that the EU did not fulfill its WTO obligations under the national treatment principle of GATs. However, the U.S. is in the process of preparing retaliation as the EU`s proposed import regime remains inconsistent with the WTO ruling on the banana.The case marks the time that a WTO dispute settlement panel has ruled on the GATs ; its findings will likely guide interpretation of similar cases in the future.

Trade Facilitation in the WTO and Policy Implications for Korea
Chan-Hyun Sohn and Hyo-Sung Yim
Trade Facilitation is often defined as "the simplification and harmonization of international trade procedures" with trade procedures being the "activities, practices and formalities involved in collecting, presenting, communicating and processing data required for the movement of goods in international trade". This definition relates to a wide range of activities such as import and export procedures (e.g. customs or licensing procedures); transport formalities; payments, insurance, and other financial requirements. Steadily growing volumes of trade, together with tariff levels at an all-time low after the conclusion of the Uruguay Round and modern technology available to significantly improve the management of cross-border trade and distribution of goods have lately created a strong interest from international business in the improvement of the infrastructure for international trade. The losses that business suffers through delays at borders, complicated and unnecessary documentation requirements and lack of automation of government mandated trade procedures are estimated to exceed in many cases the costs of tariffs.

Work in this area has been carried out by organizations such as UNCTAD, UN/ECE or the WCO for several decades. At the regional level, initiatives such as APEC and ASEM either in the framework of customs cooperation, general trade facilitation work, or in support of free trade agreements have recognized the need to reduce, simplify and harmonize trade procedures. However, trade facilitation was only added to the WTO agenda in December 1996, when the Singapore Ministerial Declaration directed the Council on Trade in Goods (CTG) "to undertake exploratory and analytical work, drawing on the work of other relevant organizations, on the simplification of trade procedures in order to assess the scope for WTO rules in this area." Specific elements connected with the simplification and harmonization of trade procedures are already contained in the WTO legal framework, e.g., in Articles V, VII, VIII, X of the GATT 1947 as well as the in Agreements on Customs Valuation, Import Licensing, Preshipment Inspection, Rules of Origin, Technical Barriers to Trade, and the Agreement on the Application of Sanitary and Phytosanitary Measures. However, only the Singapore Ministerial Conference gave the WTO the mandate to take a more comprehensive look at trade facilitation.

WTO's initiative on trade facilitation has advanced considerably with the holding of a symposium on trade facilitation in March 1998, where members heard first-hand from some of the most prominent corporations in the world on the practical problems they encounter in moving goods across borders. The symposium placed WTO Members in a position to move to the phase of analytical work on trade facilitation, in order to assess the scope for WTO rules in this area, as set out in the Singapore Declaration. In the WTO Trade Facilitation Symposium, a large number of issues were raised, which forms the basis of the current WTO discussions.

Work within the WTO thus far, through a series of informal discussions under the auspices of the CTG, has identified problems of real concern concerning customs procedures and physical movement of consignments. The CTG's next discussions will be critical in the development of the issues which will focus on relevant elements of various WTO Agreements, the role of electronic commerce and the link between economic development and the trade facilitation environment. However, work on trade facilitation is still in its initial stages with discussion being confined to identifying areas where WTO has a relevant role and if WTO has a relevant role at all in trade facilitation. While considerable time will be required to make any progress within the WTO that would ultimately lead to rule-making, there is a consensus among the key players, such as the EU and US, for a need for additional WTO action on trade facilitation. With CTG's recommendations due to be made at the Third Ministerial Conference, it is highly probable that that trade facilitation will be incorporated into next phase of WTO negotiations scheduled to be launched in the year 2000.

Trade facilitation has numerous implications for Korea. As Korea relies heavily on trade, trade facilitation initiatives could provide an opportunity for domestic firms to strengthen its competitiveness by substantially reducing logistic and financial costs. Therefore, there is no reason for Korea to oppose WTO's initiative in the field of trade facilitation. Rather, Korea should take an active position in the multilateral discussions since it has already achieved to a considerable extent modernization of customs procedures and the benefits of trade facilitation accruing to domestic firms are substantial. Moreover, in order to reap the full benefits of trade facilitation, Korea must continually reform its customs laws and procedures in line with the changing technological and global trade environment..

The recent financial crisis has pressed the Korean government to further accelerate liberalization of investment in order to improve the local financial and business environment. Foreign direct investment (FDI) in Korea has decreased in the first half of 1998 to USD 2.5 billion, a 44.9% decrease from the same period in 1997. However, the recent trend has shown substantial month-to-month increase. As of November 1998, aggregate FDI had already equaled 1997 total FDI of USD 7.0 billion.

Korea imported USD 2.4 billion in technology in 1997. The U.S. and Japan contributed 60.8% and 20.9% of the imports, respectively. The government of Korea has promoted international cooperation in R&D in various forms. At the governmental level, the International Joint Research Program, which started in 1985, has played the major role. So far, 906 joint projects have received a total of USD 41 million in support from this program. The government-sponsored research institutes are also involved in boosting cooperative international R&D efforts. Large firms have actively pursued strategic technological alliances with leading multinational corporations(MNCs).

As Korea has been losing competitiveness due to rising labor costs, restructuring the industry to improve the competitiveness of Korea's high technology and high value-added production has become an increasingly important part of the national agenda. In order to implement this agenda and to provide alternatives to those workers displaced by financial and corporate restructuring, the government has emphasized the promotion of small and medium-sized firms, especially new ventures. While beginning in the 1960s, venture business only began to emerge in the 1980s as a viable concern. There were about 1,500 venture enterprises with more than 70,000 employees in Korea as of 1996. Both public and private organizations are involved in the promotion of venture businesses.

The most ambitious national agenda adopted by the new government is the knowledge-based nation building for the 21st century. According to the plan, a substantial amount of new investment will go towards information infrastructure, development of new knowledge-based industries, improvement of the science and technology environment, and education reforms.

Many barriers and problems hindering technology-related investment and joint ventures with foreigners still need to be overcome. However, the recent efforts of the government, such as the enactment of the Foreign Investment Law, as well as actions by other public and private organizations to reform the economy and improve the investment climate, promise to induce more active involvement of foreign partners. The strategy to build a knowledge-based economy will also render a favorable environment to induce increased FDI.

Increasing Foreign Direct Investment (FDI) is one method through which Korea can overcome its economic crisis and implement successful restructuring. For this purpose, the further use of Industrial Free Zones (IFZs), which provide incentives and exceptions from normal regulations, is now being considered. The idea for expanding the usage of IFZs is derives from the new Foreign Investment Promotion Act as the promotion of Foreign Investment Zones (FIZs: Table).
Table. Criteria for designation of FIZ

While there are no FDIs designated as FIZs yet, provisions in the Act seem to generate significant confusion in actual implementation. Therefore, further review and discussions on the specific measure and process to promote FDI inducement by way of the FIZs is indispensible to maximize its effect.

In this context, a case study on the IFZs seen in various forms in other countries can be useful. This paper analyzes and compares IFZs in foreign countries including the U.K., China, Mexico, Philippine, Japan, and Malaysia, and also in Korea. Korean IFZs studied include the Industrial Park for Foreign companies and the Free Export Processing Zone. In addition, current and potential problems in the newly conceived FIZs have been studied.

Based on analysis of the above-mentioned IFZs, we proposed three key strategies in terms of the IFZs to induce FDI. The first strategy is to increase efficiency of existing Fenced Industrial Free Zones such as the Free Export Processing Zone and Industrial Park for Foreign Companies. Second is to prepare measures to efficiently manage the FIZs. Third is to designate the International Free Zone as a long term strategy of economic development in Korea.

Assessment of IMF Emergency Financial Support Programs in East Asia and Prospects for Strengthening the International Financial ArchitectureHyoungsoo Zang and Yongkul Won

Despite strong financial and policy interventions by the International Monetary Fund (IMF), the East Asian financial crisis has continued to worsen beyond expectations. And as the contagion effects of the crisis carried over to other regions, there have been an increasing number of critical and skeptical views on the operative role of the IMF.

Given the haunting experience of the East Asian financial crisis, restructuring the IMF-led international financial system as well as designing policies for the future crisis-prevention through international cooperation are emerging as urgent issues.
This study intends to analyze and assess the implications of the emergency financial support mechanism of the IMF and its management of the financial crises in Korea, Thailand, and Indonesia. We also discuss prospects for strengthening the international financial architecture, and suggest policy directions for the Korean government.

The structure of this study is as follows: In Chapter 2, we have analyzed the causes of the East Asian financial crisis, and offered an explanation of the basic nature of the crisis in order to assess the IMF's crisis-resolution programs.

In Chapter 3, we have chronologically analyzed the development and background of the East Asian financial crisis. We then evaluated and summarized policy measures of the affected governments and the IMF prior to and after the crisis.

In Chapter 4, we have evaluated the IMF's emergency financial support mechanism from the post-event perspective. We have given emphasis to analyzing whether the currently controversial IMF financial programs have had a positive effect on the recovery efforts of East Asian economies, as well as assessing the timeliness and promptness of the IMF's intervention. To do this, we have examined the theoretical basis and potential problems of the IMF's macroeconomic program, and evaluated the microeconomic restructuring programs for the affected East Asian countries. In the course of assessment, the high-interest-rate policy of the IMF is examined both theoretically and empirically.

In Chapter 5, we have summarized the increasingly important issue of improving the current IMF-led world financial system, the need for which has been well demonstrated by the enduring effects of the financial crisis in East Asia. And then we have discussed issues, such as regulating short-term capital movements and burden-sharing of private international creditor institutions, which are likely to become a focus of attention in future discussions on the necessary alterations of the international financial architecture.

In Chapter 6, we have discussed what the implications of the new international financial structure are for the Korean economy and the appropriate policy responses.

Finally, Chapter 7 presents the conclusion of the study.This study recognizes that the East Asian financial crisis primarily resulted from reaction to panic and temporary illiquidity, and was further exacerbated by the failure of affected governments to respond with the appropriate policy measures. Furthermore, the prompt response of the IMF to the requests of the East Asian countries in crisis enabled the maintenance of their external payments. By putting a cap on the panic in the international financial market, the IMF has proven its raison d'?ochtre. The IMF's East Asian financial program comprises the traditional policy of restraining aggregate demand and the relatively new structural restructuring policy. In particular, the financial program requires the East Asian countries to comply with its demand for rigorous restructuring in the weak financial sector, which is considered a fundamental cause of the crisis.

This study's ex post assessments are such that the policy of restraining aggregate demand and the accompanied high-interest-rate policy of the IMF failed to grasp the intrinsic nature of the East Asian crisis. The episodes of frequent revisions of the IMF financial program in the course of dealing with the crisis have proved its ineffectiveness. We point out that the program may have at times intensified the crisis. Considering the IMF's structural adjustment programs, although the direction for financial and corporate restructuring has been set apropos, a question should be raised as to whether the IMF had not overly demanded in light of the difficulties in the process.

Had the IMF emphasized a more intensive restructuring of short-term external debts in the private sector and maintaining sufficient foreign exchange liquidity in early stage of the crisis, instead of its policy of restraining aggregate demand, the situation would be more benign. Such measures would have reduced uncertainty and thereby insured continued capital flows into the corporate sector. Furthermore, attempts should have been made to enhance the health of financial institutions in the early stage of the crisis. The financial and corporate structural reforms should have been the focus of ensuing measures.

Maintaining the working framework of the IMF and World Bank, and strengthening the function and role of the IMF are likely to be the direction of changes in the international financial architecture. Consensus will be reached easily on enhancing transparency of information and strengthening prudential regulations while the principle of capital account liberalization in the long run will not be disputed unless there is a fundamental change in the trends of globalization and trade liberalization. Thus, remaining issues of debate will concern the regulation of short-term capital movement and burden sharing by private international creditors in times of crisis.

There have been numerous discussions on how best to regulate short-term capital flows, but realistically, there are few effective measures that may be taken. Dimming any prospect for direct capital control is the opposition from the United States and most other major industrialized countries. This study notes that regulations on short-term capital movements are likely to be conducted within the framework of orderly capital account liberalization of the IMF. Nevertheless, a scheme will be initiated by early 1999 to strengthen the information disclosure of, and prudential supervision of hedge funds and other highly leveraged financial transactions.

There is a wide consensus on the principle that international private creditors and investors should share the burden of resolving the financial crisis. However, it may take some time for the international community to reach an agreement on what specific measures should be adopted. For instance, burden sharing through debt reduction by private creditors will not likely materialize soon.

Due to the recent trend of globalization and surging flows of international capital movements across borders, the IMF does not have sufficient funds to mitigate the negative effects of the international private capital volatility, and thus can no longer play the role of the international lender of last resort. The IMF may well have the authority to declare a temporary debt payment standstill for a crisis country and subsequently organize negotiations on debt restructuring.
This study recommends that the Korean government advocate in principle the need for a systematic burden sharing of international private creditors. Nevertheless, Korea would not get much out of the establishment of the prospective schemes of burden sharing, such as collective action clauses or debt reductions. The scheme, if implemented, is likely to result in a rise in debtors' financing cost of the capital in the international financial market as a result of the increase in the credit risk. Even in the case of external debt reductions, it would damage investors' confidence. Moreover, history tells us that the benefit of external debt reduction is no greater than the long-term cost, incurred by the loss of international confidence.

Lessons of the East Asian financial crisis suggest that strong macroeconomic fundamentals and sound policies are indeed indispensable and necessary conditions for the prevention of a financial crisis, but not sufficient. A small open economy's effort alone could maintain economic stability in the gigantic and volatile ocean of the international financial market. In this context, the importance of a multilateral financial organization that commands the international financial order must be emphasized. However, the organization should exercise the power with prudence, under justice and supervision.