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Comprehensive one-stop references on key development issues of Korea

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Korea’s Experience of Introducing the Real-Name Financial System

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 oppositions from the ruling party (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 oppositions 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 strong will 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 kept his plan as a secret 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.