There is little question that many banks and firms expected government support to ensure
their profitability and their ability to repay their creditors. None of the chaebol in Korea had been
allowed to fail for at least a decade before Hanbo steel collapsed in early 1997. State-owned
banks, especially, believed they would always be bailed out. Firms owned by members of the
Suharto family in Indonesia and their close allies had every reason to expect special favors to
ensure continued profitability. Furthermore, there is little question that creditors knew this, and
were unlikely to impose stringent loan conditions on well-connected firms. However, it is
probably more accurate to say that these creditors expected these firms to continue to be
profitable and thus repay their loans, rather than that they expected a crash and a subsequent
bailout. Indeed, creditors often complained in Asia that weak bankruptcy laws made it nearly
6
Yung Chul Park (1997) is an exception.
10
impossible for them to collect on collateral in the event of non-performing loans.
There is little question that many banks and firms expected government support to ensuretheir profitability and their ability to repay their creditors. None of the chaebol in Korea had beenallowed to fail for at least a decade before Hanbo steel collapsed in early 1997. State-ownedbanks, especially, believed they would always be bailed out. Firms owned by members of theSuharto family in Indonesia and their close allies had every reason to expect special favors toensure continued profitability. Furthermore, there is little question that creditors knew this, andwere unlikely to impose stringent loan conditions on well-connected firms. However, it isprobably more accurate to say that these creditors expected these firms to continue to beprofitable and thus repay their loans, rather than that they expected a crash and a subsequentbailout. Indeed, creditors often complained in Asia that weak bankruptcy laws made it nearly6 Yung Chul Park (1997) is an exception.10impossible for them to collect on collateral in the event of non-performing loans.
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