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Korea's financial and corporate restructuring : Five-year experience, lessons and tasks

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Title Korea's financial and corporate restructuring
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Sub Title

Five-year experience, lessons and tasks

Material Type Reports
Publisher

[서울]:한국금융연구원

Date 2003-12
Series Title; No 금융조사보고서 / 2003-08
Pages 166
Subject Country South Korea(Asia and Pacific)
Language Korean
File Type Documents
Original Format pdf
Subject Economy < Financial Policy
Holding 한국금융연구원; KDI 국제정책대학원

Abstract

This paper seeks to draw policy implications from Korea's five years of experience in financial and corporate restructuring. Immediately after the outbreak of the crisis, a series of restructuring policies were implemented, and they were revised as needed in response to changes in market conditions. Some restructuring policies were successful; other failed due to poor timing or inadequate scope or degree. This paper reviews as many of the policy instruments that were adopted for restructuring as possible, and it attempts to assess their effectiveness in resolving the restructuring problems that became apparent at various stages of the overall restructuring effort.
Several problems and errors in the Korean restructuring program are pointed out. These are (1) Hidden financial liabilities that prolonged and increased the total costs of restructuring, (2) Inability to complete software restructuring in a short period of time, (3) Failure to maintain credibility in policy due to a lack of consistency in restructuring and the implementation of non-market-friendly restructuring measures, (4) Hindrance of the restructuring process by dominant political interests, (5) Severe distortion of market efficiency by implementing some policies that gave rise to moral hazard, and (6) Failure to plan and execute restructuring in full consideration of the peculiarities of the economy. To prevent recurrence of these problems and repetition of these mistakes, and to tackle other problems expected in the future, several tasks are proposed: (1) Building a system for continuous hardware and software restructuring, essential to avoid recurrence of the crisis, (2) Improvement of market transparency and fairness, necessary for restoring market reliability and development of securities markets, (3) Strengthening of consumer protection and market discipline, (4) Ensuring soft-landings for ailing, but viable, financial institutions with heavy burdens of distressed consumer loans, the most urgent issue to be resolved in the Korean financial market, and (5) the immediate establishment of a preemptive risk-based supervisory system, also necessary to prevent another financial crisis.