Enhancing good governance - the role of the financial sector in Korea

Abstract

In Korea, economic growth has been primarily fuelled by capital accumulation in the past and this strategy was based upon a bank-dominated fin ancial system under the tight control of the Government. A now widely-held consensus view is that the financial crisis of the late 90s can be largely attributed to weak governance mechanisms and in particular to inadequate financial structures. It is the objective of the paper to examine how the Government-business-bank relationship worked in the past in Korea, how it contributed successively to the economic miracle and to its meltdown, how the system is being re tormed and whether these changes can enhance better governance and help the country return to a stabIe growth path. Beyond the reform of the 'financial system, what the country actually needs is a complete overhaul of its growth strategy which requires a redefinition of the intensity and form of Government interventions. The paper closes with an analysis of the remaining challenges Korea has to face in its endeavor to move toward a more market-oriented system of governance .