Lee Hun Jai knew that overhauling South Korea's debt-riddled banking industry would be tough. But he probably didn't count on it being dangerous as well. When the International Monetary Fund late last year demanded the cleanup in exchange for a multibillion-dollar bailout, Seoul picked Lee, a former top bureaucrat, to winnow out the country's sick banks and shut them down. Fearing threats from business and union leaders, he sent his family to the United States. But Lee rashly declined to hire bodyguards. When he dropped in unexpectedly last month to talk with labor leaders camped out in downtown Seoul to protest bank closures, one of the union men took a swing at him, barely missing. "He has guts," says Ho Chull Yang, an executive director of Morgan Stanley's Seoul office. "He is the only guy in this country who came out and said you have to close banks."

As the government's point man in the IMF-led reform effort, Lee won't win any popularity contests. Korea's banks figured the government would never let them fail. The chaebol, or conglomerates, counted on no-questions-asked borrowing to feed their expansion fantasies. The IMF prescription of open markets, deregulation and transparency has thus been the equivalent of electric shock treatment. What's surprising, though, is how well the patient is responding. It's still too early to call Korea an IMF success story--the economy could shrink 7% this year. But despite criticism of its handling of the global economic crisis, the IMF appears to be mostly getting things right in Korea. "We needed reform," says Lee Doo Won, an economist at Yonsei University in Seoul. "The general direction is correct."

Koreans didn't exactly welcome IMF intervention. As the Asia crisis snowballed last fall, Seoul scoffed at suggestions it might need a bailout. But in late November, with their foreign-exchange reserves almost run dry, the Koreans swallowed their pride and called in the suits from Washington. Less than a year later, Korea has pulled back from the brink. Foreign-exchange reserves are back up, and foreign investment is trickling back in. The government is revamping an economy rife with inefficiency and corruption. Taboos have fallen, too. Foreigners can take over Korean companies for the first time. In some cases, Seoul has even gone beyond IMF recommendations--for instance, by easing a ban on foreigners' buying land.

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R E L A T E D   S T O R I E S :

LIGHT AT THE END OF THE TUNNEL? There's still plenty of pain to come, but hope is on the rise that the region's troubles may be waning. Japan's bank-overhaul plan and the Fed's interest-rate cuts bolster the new optimism INTERVIEW Eisuke Sakakibara, Japan's "Mr. Yen," emphasizes the need for cooperation POLL Are the region's troubles waning or is the worst yet to come?

OUTLOOK TIME's Asian Board of Economists evaluates the chances for recovery in the region GOOD START Thailand has better reviews than returns THE RIGHT MEDICINE Korea accepts a bitter pill VIEWPOINT David Roche sees trouble, but no depression