Together with the modernization of the economy, the
financial sector has continued to evolve through a diversification
of the financial services and functions of financial intermediaries.
In comparison with foreign countries which are at a similar
stage of development to Korea, Korea's financial sector still
remains underdeveloped in many respects.
The financial reform in the early eighties has contributed
greatly to the efficiency of the financial industry. A series of
policy measures, including the government decision to relinquish
its equity holdings I commercial banks, the opening of
newcomers' participation in the money market and mutual
savings industry, and the lessening of market segmentation
among financial institutions, all represent the government's
willingness to carry out financial reform.
Although the domestic banking sector has maintained close
links with the international financial markets, Korea's financial
institutions still seem to be inactive in international banking.
Recently, Korea's ever-increasing foreign debt has loomed as a
serious problem facing the Korean economy and has become an
important policy target.
In this context, the active participation of financial
institutions in the international financial markets is needed now
more than ever. Advanced countries are also undergoing
fundamental changes in their financial services industry. Such a
trend has forced Korean policymakers to review existing
understandings and theories on the issues related to financial
liberalization, including the role of money and finance and the
effect of monetary policies.
There exists in Korea a dual financial structure: the
organized market and the unorganized market. The government
has been trying to integrate these two markets by establishing
short-term financial institutions and improving the performance
of the long-term capital market. Banks are by far the most
important financial institutions in Korea, and the government has
tries to partly offset the inefficiency of banks by developing
non-banking financial institutions. The non-banking financial
institutions have made great strides in recent years, but the
desired integration of the two markets has not fully materialized.
The future of Korea's financial services industry is bright,
provided that the government continues to forge ahead with the
current strategy, which is drastically different from that of the
past. If the current thrust of economic policies is not maintained,
the chances for a genuine financial liberalization will indeed by
very slim, in spire of the privatization of banks. The
liberalization of the financial services industry also requires the
arrest of inflationary pressure, which is inherently inimical to the
financial industry's development.
After all, the ultimate goal of liberalization is to raise the
level of efficiency in the financial market. Furthermore, this
implies that a lot of attention should be given to a maximum
degree of autonomy in the decisions of lending and borrowing
by the banks. Finally, we would like to emphasize that the
financial liberalization process should proceed gradually in
parallel with deregulation on the real side.
Either the effectiveness of financial deregulation is expected
to be minimum, or the deregulation will eventually lead to
regulation of another type, if there is always the presence of
non-market decisions in the investment, exports, and imports