Financial globalisation and its challenges to economic sustainability in South Korea

Abstract

This paper analyses the recent liberalisation experience in South Korea. This country was historically characterised by financial repression and capital controls, but it has turned to financial liberalisation since the early nineties. The South Korean experience with liberalisation and the subsequent financial crash are described with an account of the institutional changes introduced. At present, there is widespread perception of the need for a more pro-active regulatory stance towards capital inflows. The Korean experience shows policymakers' renewed enthusiasm with policy intervention coupled with the Bank of Korea unceasing quest for financial markets' stability. At the micro level, we observe a dwindling enthusiasm with foreign banks role on the part of monetary authorities.