Lesson 1 | Political Environment and Willpower
For the successful introduction of the real-name financial system, it is very important to have a conducive political environment and a head of state with a strong will to fight for its adoption. In spite of many interest groups who may oppose the introduction of the real-name financial system, politicians are the only group of people that have the power to block it. As members of the legislative body, they are the ones that have the authority to approve or disprove bills. Nevertheless, there may be an exception to this. For example, Korea issued a Presidential Emergency Order that had an effect of immediately implementing the system without prior approval from the National Assembly. Excluding such cases, long and difficult negotiation with politicians is an inevitable yet crucial step. In this regard, one should pursue the introduction of the real-name financial system only when assured that one can successfully persuade the politicians. The attempt made by the Chun Doo-hwan Administration failed because it came short of overcoming the ##3D_LAYER##oppositions from the ruling party##3D_TEXT:The most aggressive opposition came from the presidential office and the ruling party. Specifically, from the presidential office, Senior Secretary on Political Affairs Hur Hwa-pyung, Senior Secretary on Audit and Inspection Hur Sam-soo, and Senior Secretary on Administrative Affairs Kim Tae-ho were in opposition. From the ruling Democratic Justice Party, Secretary General Kwon Ik-hyun, Party Chairman Lee Jae-hyung, Floor Leader Lee Jong-chan, Policy Committee Chairman Chin Eui-jong, and National Assemblyman Kim Jong-In were also in opposition. As a matter of fact, Secretary General Kwon Ik-hyun even stated that Koreans consider it was a virtue not to disclose one’s wealth. The business sector did not remain silent either. Chairman of Hyosung Group Cho Suk-rae stated that the real-name financial system is going against the intrinsic nature of capital that wishes to stay away from sun light. The Minister of Home Affairs Roh Tae-woo, who would later pledge to introduce the real-name financial system in the 1987 presidential election, also opposed.##3D_LAYER_END## (Democratic Justice Party), the senior secretaries at the Presidential Office, and cabinet members. The attempt made by the Roh Tae-woo Administration failed for a similar reason. It could not overcome the ##3D_LAYER##oppositions##3D_TEXT:From the Democratic Justice Party, it was Kim Jong-in, the Minister of Health and Social Affairs, that played a critical role. Regardless of his formal role in the cabinet, Minister Kim persistently presented his view against the introduction of the real-name financial system to the President. From the business sector, it was Chey Jong-hyun, the Vice Chairman of the Federation of Korean Industries (FKI) and the President of Korea Economic Research Institute (KERI), who took the leading role in opposing the real-name financial system.##3D_LAYER_END## coming from the incumbent party, the size of which significantly grew following the three-party merger in January 1990. The retreat of the real-name financial system in 1997 resulting from the replacement of Presidential Emergency Order with the Act on Real-Name Financial Transactions and Confidentiality is also a good example. President Kim Young-sam, who was stigmatized as a failed president after the crisis, did not have the political power nor was in the position to resist such retreat.
It is also very important that the head of state has a strong will to fight for its adoption. In case of President Roh, not only did he lack the will but he also did not have much to gain from the real-name financial system. The lack of President Roh’s will is partly based on the fact that ruling party politicians, including President Roh himself, were interested in keeping the confidentiality of their slush funds. Accordingly, he quickly leaned toward postponing its adoption when economic conditions weakened. As a result, with his decision to postpone, Korea lost the chance of adopting the real-name financial system through a normal procedure. Contrary to President Roh, his successor, President Kim had a ##3D_LAYER##strong will##3D_TEXT:Such strong will was partly based on his strong interest in learning about the financial status of his political rivals both in the ruling party and opposition. By making it difficult for his political opponents to raise funds through anonymous or false-name accounts, he was expecting to see his position strengthen in the ruling party. Without a doubt, he had much to gain from its introduction.##3D_LAYER_END## for the adoption of the real-name financial system. In contrast to the first and the second attempts to introduce the system during previous administrations that were led either by a cabinet member (Kang Kyung-shik, Minister of Finance) or by a senior secretary at the Presidential Office (Moon Hee-kap, Senior Secretary for Economic Affairs), the third attempt was practically led by the president himself. President Kim Young-sam ##3D_LAYER##kept his plan as a secret##3D_TEXT:To implement the real-name financial system without prior notice, its preparation had to be carried out confidentially outside the government. On June 29, 1993, President Kim Young-sam gave Deputy Prime Minister (DPM) Lee Kyung-shik a secret mission to prepare for the real-name financial system. In return, Deputy Prime Minister Lee asked his Senior Advisor, Yang Soo-gil to organize a small team of KDI fellows, which included Nam Sang-woo, Kim Jun-il, and Yang Soo -gil himself. In the beginning, it was just these four - Deputy Prime Minister Lee, Senior Advisor Yang, and two other KDI fellows – that carried out the mission. To keep their work strictly confidential, the meeting took place at venues such as the Deputy Prime Minister’s villa next door and an office room owned by Senior Advisor Yang’s friend. Once the KDI working group drafted the plan, it was discussed and revised at meetings with the Deputy Prime Minister. Afterwards, the plan was presented to the President, who usually went for the option that was most comprehensive and most aggressive. It was not until the third report to the President was complete did the KDI Working Group was given the instruction to brief Hong Jae-hyung, the Minister of Finance, and Kim Yong-jin, the Assistant Minister of Tax and Customs, on the progress made until then. Immediately after this briefing, a team of bureaucrats from the Ministry of Finance joined the Working Group and was given the mission to draft a more detailed plan. Their participation was inevitable and also expected for it was the Ministry of Finance that had the authority to enforce the real-name financial system. The new KDI-MoF Joint Working Group was headed by Kim Yong-jin, the Assistant Minister of Tax and Customs, and was consisted of two teams: the KDI team led by Yang Soo-gil and the MoF team led by Kim Jin-Pyo. From the Ministry of Finance, five other bureaucrats joined the Working Group. This includes Chin Dong-soo (Director, Division of Overseas Direct Investment), Lim Ji-soon (Director, Income Tax Division), Paik Woon-chan (Deputy Director), Choi Gyu-hyun (Deputy Director), and Lim Dong-bin (Deputy Director). Later, a legislative officer from the Ministry of Government Legislation, officers from the National Tax Service’s computer center, and a manager from the Citizens National Bank joined the team.##3D_LAYER_END## even from his own Senior Secretary for Economic Affairs, who was against its introduction. When drafting the Presidential Emergency Order, he always opted for the strictest and the most comprehensive approach. Such strong will was based on his strong interest in learning about the financial status of his political rivals both in the ruling party and opposition. By making it difficult for his political opponents to raise funds through anonymous or false-name accounts, he was expecting to see his position strengthen in the ruling party. Without a doubt, he had much to gain from its introduction.
Lesson 1: Political Environment and Willpower
|Subject||Economy < Financial Policy|