As the global financial crisis has unfolded, many South Koreans feel they are reliving a nightmare.
South Korean stock markets and currency have dropped more than 30 percent since last summer as foreign investors have fled in droves.
Rating agencies have raised concerns about the health of the nation's banks. The problems are a chilling echo of a decade ago, when the Korean currency and economy collapsed during the Asian financial crisis.
They are also a microcosm of the challenges many emerging markets are facing in the current turmoil, underscoring the vulnerability of even larger developing economies like South Korea to sudden tremors in global finance.
Once again, the Asian economic powerhouse appears threatened by an international financial contagion that began elsewhere. Last time, it started with the Thai baht. This time, the crisis began on Wall Street and has already claimed less wealthy countries like Iceland and Ukraine.
Many South Koreans complain that their economy is vulnerable to Western market panic and destabilization because it is more transparent and open to foreign capital than those of neighboring Japan and China, who have so far survived the credit crisis unscathed.
"We are collateral damage in a crisis that is not our doing," said Park Yung-chul, a professor of international finance at Korea University in Seoul. "We live in an unfair world."
They are not the only ones.
Emerging markets around the globe have come under simultaneous pressure from the financial tsunami that started in the United States mortgage market.
South Korea's vulnerability is an indication that the global financial crisis has reached a new level.
Unlike Iceland, South Korea is a major industrial power, whose $960 billion economy was the 13th-largest in the world last year Economists have been hoping that demand from South Korea and Asian neighbors like China and India could replace some of the lost global demand from slowdowns in the United States and Europe. The biggest concern is that the global credit crisis could cripple South Korea's banks, which rely more heavily on overseas borrowing than China's or Japan's.
As global credit markets have dried up, South Korean banks have scrambled to find dollars to repay maturing foreign-currency loans.
Woori Bank, one of South Korea's largest lenders, suddenly found itself unable to borrow dollars after last month's collapse of Lehman, a bank executive said. Dealers in the bank's trading room made frantic calls to big foreign banks seeking fresh loans, only to be told bluntly "no," said Jung Hyun-jin, an executive vice president in the bank's financing market business unit.
Worse, foreign banks refused to roll over many existing loans, forcing Woori to repay them as they came due, also in dollars.
With the bank using as much as $280 million of precious foreign currency a week, Woori has stayed liquid thanks to dollar loans from the government, which has pumped tens of billions into banks, Mr. Jung said.
Recently, the crunch has begun to ease slightly, with some European banks like Deutsche Bank once again lending dollars to Woori, he said.
"International banks, because of their own problems, won't lend to us," Mr. Jung said. "We don't face a solvency problem. We face a liquidity problem."
Last Sunday, the government responded by pledging more than $100 billion in loan guarantees and an infusion of $30 billion in American dollars to prop up the Korean banking system. The government said the additional liquidity should help Korean banks repay or roll over the banks' $80 billion in foreign currency loans that will come due by June 2009.
"The money will buy us breathing room," said Lee Dong-gull, president of the Korea Institute of Finance, a banking industry research center, speaking of Sunday's move. "But there will not be a fundamental solution until we can find new sources of foreign currency funding."
The long-term fear is of the effects of a global slowdown on South Korea's exports, and a trade deficit — the first since the Asian financial crisis. Some economists fear the deficit could also drain South Korea's formidable foreign currency reserves.
Foreign investors have been leaving South Korea since subprime problems first hit last year. In the first six months of this year, net foreign direct investment in South Korea turned negative for the first time since 1980, when such figures started being kept, as foreign investors withdrew a net $886 million, according to the Bank of Korea.
Many blame South Korea's president, Lee Myung-bak, for failing to send a strong signal of government support for banks earlier in the crisis. Earlier this month, Mr. Lee called for South Koreans to reduce energy consumption and exchange their dollars for won, prompting some loyal citizens to line up at banks with dollars in hand, but reinforcing the image abroad that Seoul was unable to come up with a more effective response.
One nightmare scenario has been the image of South Korea once again seeking outside help, as it did in 1998 when the International Monetary Fund led a bailout of the country. But with signs now emerging that the month-long global crunch may finally be easing, many economists are confident the country will pull through on its own power. Indeed, economists said the nation's banks are much better able to weather a recession than they were in 1998. They say the real problem is that developing economies do not have the same access to emergency sources of foreign currency funding that the United States and a few developed countries have, and are thus left unfairly to the mercies of global financial markets.
"We thought that sitting on a quarter of a trillion dollars in reserves would be enough to make us okay," said Dr. Park of Korea University. "Boy, were we wrong."