This paper addresses why and how South Korea’s financial system has diverged

drastically from the Japanese model since the early 1980s and has turned to the US

model, which is often regarded as a more market-oriented financial system. The paper

traces the rise of American-trained Korean economists in the Economic Planning Board

and their collaboration with other such economists in public and private economic

institutes and academia.​

This paper explores the origin of China’s recent credit and asset boom by comparing it with the Japanese bubble economy in the late 1980s by focusing on the asymmetric pattern of financial liberalisation under high savings. It argues that (1) both cases show a ‘confidence trap’ in that policy-makers of the government shared a complacent mindset that they can achieve the optimal mix of market liberalisation and repression, while believing that their political economic system is fundamentally different from others; (2) Such complacent confidence precipitated the supply-side driven financial reforms, in which both governments tried to diversify the credit channels of bank deposits by promoting non-bank financial intermediaries; (3) Exogenous shocks played a pivotal role in enforcing the government to take aggressive monetary easing and fiscal expansionary measures. But the Chinese case is different from the Japanese case in that (1) local politics has promoted a ‘too secure to fail’ situation in which rent-seeking activities are difficult to be detected, thus aggravating the hidden systemic risks; (2) China needs to liberalise its capital account with the more strengthened macroprudential regulatory governance, as the global foreign exchange markets have drastically changed from the period of the 1980s.

This paper investigates how three major political conditions—political constraint (imposed by veto players), government partisanship, and elections—have influenced the government responses to financial crises in 98 developing countries over the period 1976–2004. We find that governments experiencing financial crises generally tightened their monetary and fiscal policies, but the extent of the tightening was considerably moderated by the presence of large political constraint (large and strong veto players), strong leftist partisan power in government, and upcoming legislative or presidential elections.

This paper epxlores why Japan and South Korea intervened in resolving the non-performing loan problems in the banking sector in 1997-98 in a different way--swift in Korea, gradual in Japan. It explores how politics in both countries worked different in determining the way of government intervention and specifically compares how the government of each country used publc funds and asset management companies--KAMCO in Korea and RCC in Japan--differently. 

This article explores why the Japanese government did not decisively intervene on behalf of bank bailouts at the early stage of the banking crisis of 1997–98 and investigates the institutional and political context behind the use of fiscal money for bank bailouts in 1997–98, 1998–99, and 2001–05. This article argues that Japanese policymakers shared a congruent policy preference — that is, minimizing the disruptions in the existing institutional arrangement in government-bank-firm relations and this congruence in policy preference (or ‘cognitive capture’) compelled the government to take a creditor-centered approach to the banking problem — i.e., letting banks resolve their own problems

This study explores why South Korea’s top leadership combined a merit-based principle with region-based particularistic elements in the recruitment and promotion of career bureaucrats of the Ministry of Commerce and Industry (MCI) during its industrial takeoff in the 1960s and 1970s. It also investigates how this recruitment and promotion style was emulated by business sectors as a way of securing means to penetrate into the MCI. The authors argue that (a) South Korea’s top leadership utilized region-based particularistic elements to secure loyalty to the authoritarian leader and (b) state bureaucrats fell back on the readily available social resources of the time—informal social ties—to reduce the uncertainty innate to policy implementation and to achieve short-term policy goals, and this practice bred the organizational foundation that might undermine the bureaucratic character of the state—legalism and impersonalism—at the later stage of economic development.

This paper reviews the preexisting financial regulatory framework and the process of establishing a unified financial supervisory agency during the 1997-1998 financial crisis in South Korea. It also explores the specific evolution process of a unified financial regulatory framework and its remaining challenges. Finally, it discusses the broader implications of the Korean case and some lessons in broader context of financial regulatory reforms.

This article explores the idiosyncratic institutional features of public debt financing in Japan that have enabled the government to finance increasing public debt at low costs. It examines the three key aspects that contributed to the Japanese government bond (JGB) market development: (1) the surplus financial balance of the household sector; (2) the strong tradition of public financing; and (3) home bias, that is, little dependence on external financing. It suggests that restoring people's trust in the government's competence and leadership is an essential element for successful fiscal consolidation.

This paper argues that the financial deregulation measures pursued by the Korean government for the past decade have increased the vulnerability of the Korean banking sector to external shocks. Specifically, the Korean government has aggressively attempted to deregulate foreign exchange, both inward and outward capital flows, while the Korean currency has not been fully internationalized; and the government has allowed the reckless practices of short-term foreign borrowing by domestic branches of foreign banks without establishing an appropriate monitoring system. The current situation demands a new regulatory framework that can prudentially supervise the financial system, not only for promoting efficient financial intermediation of cross-border capital flows and the soundness of individual financial institutions but also for managing the systemic risks of the entirefinancial system. 

This chapter explores how Korea’s balanced budget tradition, which was institutionalized under the strong policy autonomy of the fiscal bureaucracy, has eroded with democratization and the deepening socioeconomic polarization that resulted from neoliberal economic reforms since the financial crisis of 1997-98. With democratic consolidation, the oversight power of the legislature over the executive in the budgetary process has been enhanced, but the executive has tried to bypass the growing legislative oversight over the budgetary process by using non-budgetary fiscal channels such as mobilizing public corporations for fiscal purposes.

This paper explores the sequence, pace, and emerging outcomes of bank restructuring in South Korea since the financial crisis in late 1997, paying special attention to the state intervention pattern in regard to resolving non-performing loans by using both pubic funds and asset management companies, while privatizing temporarily nationalized banks by foreign selling.

This article examines the political origins of South Korea’s rapid economic development in the 1960s and 1970s, with emphasis on the enduring effects of the developmental state era. It begins by considering developments since 1980, including the influence of democratization, the causes and consequences of the financial crisis of 1997–1998, and the market-oriented reforms pursued by the government in the wake of the crisis. It then discusses the legacy of the developmental state era in the coverage of the welfare state, along with the liberalization of the Korean economy beginning in the 1980s. The article documents South Korea’s transition into a market economy, marked by reforms in the financial sector and corporate governance, as well as reforms in foreign direct investment and even labor markets. Finally, it appraises a number of challenges that the Korean political economy must deal with, including growing economic and social polarization, inequality, and the social policy agenda.

This book chapter explores the role of the Korean government in formulating and implementing economic policies toward trade and investment from the early 1960s, by focusing on its role as a rule-setter in domestic government-business relations and as a rule-adjuster in foreign economic relations, combining both reactive and proactive strategies in a changing international environment.

This article examines the changing pattern of key party position assignments in three leader-centric political parties during the democratization of South Korea. We examine the interplay of three key variables: (1) party members’ relationship to the party leader, (2) leaders’ relationships to the party’s core faction, and (3) political seniority, as factors that determine who receives key party positions. Our study contributes to an understanding of the interplay of personalistic behaviors and informal rules in intraparty politics and how this interplay contributes to the institutionalization of informal but important institutions governing intraparty politics during democratic consolidation.

This paper explores the deepening structual imbalances in the globalizing capital markets and policy implications on Asian countries. It specifically investigates the cross-border capital flows--to and from Asia since the Asian financial crisis of 1997 to 2010, focusing on the different pattern of capital flows in foreign direct investment, portfolio equity investment, and bank loans. It also discusses some regulatory reforms for better management of systemic risks of cross-border capital flows at the national and the regional levels.

This study explores why KOSPI options and futures trading grew exponentially from 2000 to 2007. It argues that the growing was possbile because of a regulatory failure. It specially lies in an asymmetric and rushed deregulation at the initial stage of creating a financial derivatives market, without properly considering the differences in the institutional environment and market infrastructure that Korea inherited from its past, and from those of advanced derivatives markets. This produced an unexpectedly explosive growth of KOSPI options and futures trading from 2000 to 2003. This initial condition made it difficult to launch necessary regulatory reforms, not only to restrain highly leveraged and speculative trading in KOSP200 options and futures markets, but also to reduce the overgrown market sizes of these two equity index derivatives. 

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