MAIN PAGE | EVENTS & PROGRAMS | 2001 | IGM | SPEECHES | YOUNG J. ZOH
PACIFIC BASIN ECONOMIC COUNCIL
MAIN PAGE | EVENTS & PROGRAMS | 2001 | IGM | SPEECHES | YOUNG J. ZOH
Regional Vitality in the 21st Century
April 6-10, 2001 — Tokyo, Japan
Mr. Young J. Zoh
Background of financial reform in Korea From the early 1980s, there was a strong need for financial restructuring in Korea. Financial reform started with the liberalization of interest rates and the foreign exchange market. Even though Korea joined the OECD and the WTO in the 1990s, the reforms were not satisfactory and a strong financial system was required to maintain competitiveness. If we consider the increasing importance of restructuring, the outcome was generally less than the expectations; however, after Korea suffered from the foreign currency crisis and decided to obtain support with bailout loans from the IMF in December 1997, financial restructuring speeded up. Progress of financial reform After the foreign currency crisis, the Korean government and the IMF agreed to restructure the financial and business sectors first in order to recover from the difficult economic situation. As a result of the first stage of reform, among 33 banks, five major banks ceased operations and six banks were merged with more financially sound banks. Consequently, just 22 banks have survived. Even so, financial restructuring should be stepped up as there are several difficulties, such as the possibility of slowing growth both internally and externally, falls in stock prices of major companies owing to deteriorating financial situation and a credit crunch. Owing to these problems, the real economy has been badly affected. In consequence the Financial Supervisory Service announced the second stage of the financial reform plan and this is now in progress. At the end of March 2001, those banks that were evaluated as having difficulties in surviving by themselves were included as subsidiaries of a financial holding company established by the government. For those banks that have a sound financial structure, the government is encouraging mergers between banks in order to strengthen their competitiveness. Prospects for financial reform In comparison with the financial situation before the foreign currency crisis, restructuring has progressed successfully in terms of quantity. Especially, I would like to emphasize the point that the conception and recognition of risk management has improved greatly among financial experts and the general public. Despite this, there is still a long way to go before all aspects are covered successfully, such as the continuing strong restructuring by the government and recovery from high debt levels. In addition, Korea needs to maintain its determination for financial reform, even though the Kim, Dae-jung presidency is almost at an end and could suffer from the lame-duck phenomenon. I think that Korean financial reforms will be successfully completed in the long term as I consider them to be moving in the right direction. |
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