The politics of financial control and reform in Korea

Government control over finance has been a persistent feature of the politco-economic structure of Korea. This paper first seeks to explain the process in which the government's control over finance had intensified by the late 1970s. with a focus on particular episodes such as the dramatic interest rate reform in 1965, Emergency Decree in August 1972, and several recurring "restructuring (in effect, bail-outs)" attempts, and in relation to the changing industrialization strategy and the consuequent relationship between the government and chaebol. And then it will review critically the financial liberalization policies in the 1980s: the privatization of commercialbanks, the conflict between the banks and the non-bankfinancial intermediaries (NBFI's) in the process of the restructuring the financial industry, and the freeing of interest rate and to "policy funds." The central argument of this paper is that a considerable progress of financial liberalization notwithstanding, the financial system of Korea still serves as the fulcrum of Korean industrial policy and as a fundamental tool with which Korean policymakers can induce business cooperation and compliance.