Post-Crisis Financial Reform in Korea: A Critical Appraisal

In the aftermath of the economic crisis of 1997-98 South Korea has undertaken a number of financial reforms under IMF auspices. One of such reforms was in financial supervision, which created the Financial Supervisory Commission and the Financial Supervisory Service. In spite of these reforms Korea has recently experienced a costly financial instability relating to credit-card companies and household debts. Korea’s success in bringing about rapid economic recovery from the crisis may have lessened, as suggested by the World Bank, the urgency for full financial reform. This paper, however, argues that the newly created supervisory agencies, although created as independent agencies, have not in fact functioned as such and thus failed to carry out proper supervision over credit-card companies. It is argued that those agencies have not been able to function independently due to institutional constraints imposed on them by other extant, formal as well as informal, institutions in Korea. JEL Classification: G