This study reviews the characteristics of existing industrial financing or policy loans as economic and industrial environments change gradually, assessing current financing instruments, and presenting future direction for those instruments in line with the restructuring of industrial policies.
Since the implementation of the first five-year economic development plan in the 1960s, the government’s quantitative and direct support for public finance and financial industry has significantly contributed to the growth of the Korean economy. With regard to industrial financing policy, the share of policy loans out of total loans has been over 50 percent for the past two decades, reaching 70 percent in late 1985. Commercial banks as well as government-owned banks (including special banks) have been allowed to extend policy loans. Funding for policy loans relies increasingly on external financing, meaning that the proportion of government funds is declining, while that of private funds is rising gradually.
However, Korea’s policy loans or industrial loans have largely focused on offering the availability of funds. This means that when alternative funding source exists (i.e. when the export financing rate is similar to the general loan interest rate), this policy is not effective. In addition, the burden of financial support for industrial development significantly outweighs burden of fiscal support, and the allocation of resources may be distorted and inflation may occur.
At a time when the Korean economy has successfully completed a series of economic development plans and envisions leaping into the second phase of its growth, means to improve industrial financing policy need to be developed. To that end, market failure in real economy can be addressed by fiscal support, and financial market failure can be solved by financing support, thereby increasing the role of fiscal policy in supporting the industrial sector. Moreover, policies should transition from relying on fund availability, to policies that offer interest rate subsidy, and differential interest rates should be offered depending on market interest rates. Rather than supporting by industrial sector, providing support for sectors where the market has failed is optimal.
산업금융정책의 효율화방안(Ways to enhance efficiency of industrial financing policy)
|Subject Country||South Korea(Asia and Pacific)|
|Subject||Economy < Financial Policy|
|Holding||KIET; KDI School|