This study strives to improve the efficiency of the backwards financial sector in Korea, while also improving the quality of financial services and enhancing the competitiveness of financial industries through measures for financial liberalization. The Korean financial sector has managed the growth of the Korean economy with remarkable success by providing extremely limited financial resources for prioritized policy areas at affordable costs. However, because finance in Korea is ruled by factors other than the principles and rules of finance themselves, the financial sector lags far behind the real economy. In the meantime, the growing size and complexity of the Korean financial sector and the ongoing march of liberalization and globalization may transform the financial sector as a key obstacle to the continued and stable growth of the Korean economy.
Financial liberalization is therefore crucial to let finance in Korea be decided according to the rules of finance themselves. This requires the following changes. First, the interest rates should be liberalized on an incremental and phase-by-phase basis, in light of the surrounding real economy and financial market conditions. Second, the monetary credit policy should be improved and the autonomy of fund management enhanced. Third, the foreign currency management system should be reformed, while the foreign currency market should be activated and the basis for globalizing the Korean won (KRW) paved (foreign currency liberalization). Fourth, the capital market should be liberalized to increase growing foreign investment phase by phase, stimulate investment overseas, liberalize trade credit and loosen the financial restrictions overseas. Fifth, the banks should be allowed to make autonomous personnel and internal management decisions to enhance the rationality of their management, while also deciding their service rates freely on the basis of the cost and the beneficiary burden principle. Sixth, financial supervision should be reinforced to ensure the stability of financial institutions.