The Korean won weakened to W1,485 against the U.S. dollar during trading on Thursday -- a plunge of W90 from Wednesday's close of W1,395. The Korean currency closed at W1,379.5 against the dollar, down just W15.5 from Wednesday, after government intervention. In the span of just a day, the won fluctuated by more than W100 against the dollar.

The won’s fate is uncertain, even if the government continues to intervene in the forex market. There are fears the Korean government will not be able to intervene indefinitely by tapping into its reserves to sell dollars and buy up the Korean currency. In addition, the local forex market is performing abnormally. During four days this week, the won weakened by W156 or 12.8 percent against the dollar. Over the same period, most global currencies weakened against the dollar except for the won, but with drops of just 1 to 2 percent. Only the won took a pummeling. Fear has gripped financial markets around the world -- but Korean financial markets seem most prone to being controlled by that fear.

Hasty comments and actions by government officials only complicated the situation. The government convened an emergency meeting of bank presidents on Monday, telling them to sell overseas assets and stock up on dollars rather than depending on the government. The market interpreted this as meaning Korea's foreign reserves were running dry. Having the same impact on investor sentiment, the president warned that some market participants were hoarding dollars, while the head of the ruling party said Koreans should look for dollars in their closets and trade them into won. Those comments were interpreted as signaling a worsening situation.

The jitters can be traced to lack of confidence in the Korean government, regardless of how often officials say foreign currency reserves are not in danger of depletion. Faith in the government dissolves when official explanations differ from the facts or if government policies end up producing the opposite effect to that intended.

When the Lee Myung-bak administration was launched, it pursued a weak won policy that led to soaring consumer prices, while the government mistakenly tried to rein in inflation through sweeping, 1970s-style crackdowns and imposing restrictions. Another major bungle by the Lee administration that cost it credibility was its shaky handling of the resumption of U.S. beef imports.

Structural problems are also to blame, including the lack of uniform leadership over economic and financial policy, and a small forex market that is easily shaken by even small changes in supply and demand. But a lack of confidence in the government is at the heart of the crisis.