We Paid Back the IMF in 2001, So Why Are We Still Paying in 2027?

When I saw the news headline, “Public Funds from the Asian Financial Crisis: A Period Put to Repayment After 30 Years,” I initially thought it was a typo. Wasn’t the ‘IMF graduation’ something that already happened in 2001? It’s a well-known historical fact—taught in schools—that President Kim Dae-jung declared in December 2000 that we had “completely overcome the IMF crisis,” and in August 2001, Korea repaid the $19.5 billion bailout early, exiting the management system. So, why are we paying something off again in 2027? I was confused about whether this was the sequel to the same debt or an entirely different one. As it turns out, these were payments from two completely different accounts.

The $19.5 Billion IMF Loan vs. the 97 Trillion Won in Public Funds: Why Are They Different?

I need to clarify this first. What we paid back in 2001 was the $19.5 billion bailout loan from the IMF. This was a 'foreign currency loan' borrowed from the IMF, the World Bank, and others to prevent the country from defaulting on international payments when our foreign exchange reserves bottomed out at $3.9 billion. Since it was money borrowed because the country literally lacked dollars, it was structured as a loan between a sovereign nation and international organizations.

On the other hand, the public funds being fully repaid in 2027 are entirely different in nature. This money was raised domestically by the government between 1997 and 1998 to protect depositors and prevent the collapse of the financial system as domestic financial firms were failing one after another. The Korea Deposit Insurance Corporation (KDIC) and the Korea Asset Management Corporation (KAMCO) issued bonds to raise funds, which were then used to inject capital into insolvent banks or purchase non-performing loans. Essentially, one was a debt owed to foreign entities, and the other was a debt the state took on itself to handle domestic financial insolvency. If you think of the IMF loan as ’emergency blood transfusion to prevent national bankruptcy’ and the public funds as ’long-term rehabilitation costs after surgery,’ it might make more sense. Because both events stemmed from the same crisis, they often get blurred in news headlines, but in reality, the entities responsible for repayment, the targets of the payments, and the timelines involved are all completely different.

168.7 Trillion Won: Where and Why Was It Injected?

This leads to the question of exactly how much these public funds were and where they went. According to the Financial Services Commission, the total amount of public funds injected since November 1997 is 168.7 trillion won. Looking at the state of the financial sector at the time, you can guess why such a massive amount was needed. In June 1998, five banks—Dongnam, Donghwa, Daedong, Chungbuk, and Kyunggi—were ordered to exit the market simultaneously. Even the six major commercial banks at the time—Chohung, Commercial, Jeil, Hanil, Seoul, and Korea Exchange Bank—could not survive intact and all underwent restructuring. Beyond banks, merchant banks that had been borrowing short-term foreign debt without collateral to fund long-term loans collapsed in droves; in January 1998 alone, 10 merchant banks, including Hanwha, Ssangyong, Gyeongnam, Goryeo, and Samsam, were announced for closure. If you include insurance and securities firms, the list of financial institutions that disappeared or were sold off during this period is endless.

The government could not just stand by and watch this insolvency because the money deposited by the public was at stake. If a bank closed, deposits could vanish entirely. To prevent this, the government provided guarantees, and the KDIC and KAMCO issued bonds to raise funds, which were then injected into failing financial firms or used to buy up non-performing assets to prop up the system. For the public, this was a measure to prevent the worst-case scenario of their savings disappearing, and the ‘bill’ for that effort has been arriving in installments over the past 30 years.

The impact felt during that period is even clearer in the numbers. The unemployment rate, which was 3.1% in December 1997 right before the crisis, jumped to 4.5% in just one month, and during that same month, about 3,300 companies went bankrupt. The unemployment rate peaked at 8.7% in February 1999 before gradually declining. The Korea Composite Stock Price Index (KOSPI) also plunged to the 280 level in June 1998 and did not regain the 1,000-point mark until June 1999. Considering that these public funds weren’t just numbers on an accounting ledger, but actual money used to support depositors and the real economy during this collapse, the 30-year repayment period feels a bit different.

Why Was the Recovery Rate Only 72.6%?

It’s not as if the injected money was completely lost. A significant portion of the funds put into insolvent financial firms remained as equity or bonds, and as the economy recovered, the government sold these assets to recoup the funds. According to the Financial Services Commission, the cumulative recovery as of the first quarter of this year is 122.4 trillion won, which is a recovery rate of 72.6%. This might not look too bad, but conversely, it means that over 46 trillion won has not been recovered. Furthermore, the financial sector explains that a large part of this unrecovered amount consists of money injected into merchant banks and savings banks that went bankrupt during the crisis, making it effectively a ‘sunk cost’ that is impossible to recover. The portions related to major commercial banks like KB Kookmin, Woori, Hana, and Shinhan have already been recovered; what remains are assets like the Korea Deposit Insurance Corporation’s stake in Seoul Guarantee Insurance or the sale of residual assets from defunct financial institutions.

There is one point I want to clarify here. The phrase “completion of public fund repayment” sounds as if the entire 168.7 trillion won is being settled, but what is actually ending in 2027 is the repayment of debt within the ‘Public Fund Repayment Fund’ that the government’s fiscal budget had to shoulder. Looking at the plan drawn up by the Kim Dae-jung administration in 2002, out of the 97 trillion won in public fund debt remaining at the time, it was estimated that 28 trillion won could be recovered through the sale of financial company shares and non-performing loans. The remaining 69 trillion won was to be shared: 49 trillion won by the government’s fiscal budget and 20 trillion won by the financial sector through ‘special contributions.’ This is why banks and insurance companies have been paying 0.1% of their deposit balances as special contributions. The total amount to be paid under this plan from 2003 to 2027 is 97.2 trillion won, and once this is complete, the Public Fund Repayment Fund itself will be liquidated according to law. In other words, the ‘real loss’ of around 46 trillion won out of the 168.7 trillion won remains separate from this repayment plan, and it is a task that must continue to be addressed through the sale of stakes held by the KDIC.

The U.S. Took 6 Years, Why Did Korea Take 30?

While looking for a comparison, the U.S. response to the 2008 financial crisis caught my eye. According to a Kookmin Ilbo report, the U.S. injected a total of $426.4 billion into 116 financial firms like Goldman Sachs and companies like GM through the Troubled Asset Relief Program (TARP), and recovered $441.7 billion in just 6 years, even making a profit including interest. It was essentially a bailout that ended in the black.

It is tricky to compare Korea and the U.S. directly using the same standards. The nature of the crisis, the scale of the financial firms involved, and the degree of capital market openness were all different. However, I was curious about why the recovery speeds differed so much. It seems the quality of the assets in Korea played a major role. While the U.S. TARP focused on large financial firms and companies that had a chance of surviving, Korea’s public funds were spread much more widely, including merchant banks and savings banks that had already gone bankrupt and were undergoing liquidation. If the money was injected into places where there weren’t many assets to sell off to recoup the money in the first place, it’s natural that the recovery rate wouldn’t increase, no matter how much time passed. There is no clear evidence to suggest this was solely due to a lack of effort by the government, so I’ll just summarize this as “there must have been reasons.”

Timing also played a part. The U.S. TARP was executed and settled rapidly, focusing on large financial firms immediately after the 2008 crisis. In contrast, Korea’s public funds were injected over several years due to the initial handling of the crisis, followed by subsequent shocks like the credit card crisis and savings bank insolvencies. If it wasn’t a debt settled all at once, but rather a pile of debts from multiple waves, the recovery plan was bound to be stretched out over a long period.

What the ‘Completion’ After 30 Years Really Means

Returning to the confusion I felt at the beginning, the term “overcoming the IMF crisis” has essentially been used in two ways. One was the 2001 declaration that we escaped the foreign exchange liquidity crisis, and the other is the 2027 declaration that we have paid off the debt we took on domestically to manage that crisis. While it sounds like they refer to the same event, they actually crossed different finish lines.

To summarize: what ends in 2027 is the repayment of the 97.2 trillion won in public fund debt that the government shouldered through its budget, which will close the account known as the Public Fund Repayment Fund. The $19.5 billion in foreign debt owed to the IMF was already paid back in 2001, so it is unrelated to this news. And regarding the 168.7 trillion won total, nearly 46 trillion won remains unrecovered, which stays as a lingering task for the KDIC to address by selling off assets like its stake in Seoul Guarantee Insurance.

Seeing that Minister of Planning and Budget Park Hong-keun stated that the promise made in 2002 to “resolve the public fund issue within this generation” has been kept, it is true that this repayment marks a milestone in terms of fiscal burden. However, whether that milestone means “the Asian financial crisis has been completely cleared” or “the largest portion has finally been paid off, but the remaining scraps are still being dealt with” is hard to judge from just this news alone. The 30-year timeframe feels long, but knowing how many different layers of debt were stacked within that time, I read this news in a different light.