Economic crises and augmenting financial bureaucratic power in South Korea

ABSTRACT

Despite negative public opinion, the role of the Korean government has expanded, while overcoming two rounds of global financial crises. The phenomenon of the re-swelling state is mainly attributed to the strengthening of the central bureaucracy, in particular the financial bureaucracy, rather than the whole central government or the state. The argument of the strengthening of the ‘state’ or the ‘government’ after economic crises might be subject to the error of generalization. Through the two rounds of economic crises, the financial bureaucracy succeeded in acquiring the authority of market supervision and industrial support. In consequence, the bureaucracy's institutional supremacy within the government grew less challenged. The central bureaucracy was no longer the loyal servant to the President. It has reinforced its institutional strength and autonomy vis-a-vis the President, the National Assembly, the Central Bank and civil society, under the pretext of building up the rational and autonomous market and democratic politics.

KEYWORDS:

• South Korea
• financial bureaucracy
• regulatory state
• financial industry
• market-centered reform
• financial crisis

Acknowledgments

Authors would like to thank anonymous referees and editors who provided commments and adivice.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. As of 2016, Korean citizens’ confidence in the government ranked as low as 32nd out of 35 OECD member countries, and the rate of confidence had not increased at all since 2007 (Organization for Economic Cooperation and Development 2017, http://www.oecd-ilibrary.org/docserver/download/4217001ec076.pdf?expires=1509091606&id=id&accname=guest&checksum=DB26E57EE765C138A5193E151DF2696E). Also, according to a survey conducted in Korea, the public confidence in the central government was the lowest next to the Blue House and the National Assembly among the State institutions (Sungkyunkwan University Survey Research Center 2012, http://www.index.go.kr/smart/refer.do?idx_cd=4066&stts_cd=406602).

2. Loan and guarantee insurance statistics of policy financial institutions described in this study comes from the figure of Sohn (2013, pp. 82–87) until late-2012, and they are revised through researchers’ request of the disclosure of official information from various institutions to cover the figure until late-2014. The nominal GDP statistics is from the Bank of Korea Economic Statistics System (http://ecos.bok.or.kr/jsp/vis/keystat/#/detail). Nominal GDP is Bank of Korea (BOK) statistics which shows the year GDP, and policy financing (include lending, guarantee and insurance) is end-of-year based.

3. Data acquired from the Korea Technology Finance Corporation through researchers’ request of the disclosure of official information.

4. Bank for International Settlement capital ratio is calculated by multiplying capital by risk-weighted assets and 100.

5. Korea Export Insurance was created in 1992 and was renamed as the Korea Trade Insurance Corporation in 2010. Trade insurance dedicates to trade finance by reducing concerns in regards to trade sanctions while compensating for risks from non-payments of goods exported and imported.

6. Former personnel from financial departments such as the Ministry of Strategy and Finance and the Financial Services Commission.

7. Specialized banks are those that operate after being established in accordance with individual special banking acts. They differ from regular banks that operate after being established in accordance with the Banking Act. As of the end of 2015, there were four specialized banks: the Korea Development Bank, the Small and Medium Industry Bank, Nonghyup Bank and the credit business sector of the National Federation of Fisheries Cooperatives.

8. Public financial institutions include the Korea Credit Guarantee Fund, the Korea Technology Credit Guarantee Fund, the Korea Housing Finance Corporation and the Korea Finance Corporation.

9. ‘Financial Services Bill Receives Royal Assent’, 19 Dec. 2012 (https://www.gov.uk/goverment/news/financial-services-bill-recieves-royal-assent).

10. As for the 18th General Election, the reelection rate was at 30.1% with 90 members out of 299 members, third-term election was at 15.1% with 45 members, 19 members (6.4%) elected for the fourth term, four members (1.3%) for the sixth term, one member (0.3%) elected for the seventh term (Hankyeoreh, April 13 2012).

Additional information

Funding

This work was supported by the National Research Foundation, Korea [grant number NRF-2015S1A5A2A01010747].

Notes on contributors

Yeonho Lee

Yeonho Lee is a Professor in the Department of Political Science and International Studies, Yonsei University.

Hak-Ryul Kim

Hak-Ryul Kim is a Visiting Research Professor in the Institute of East and West Studies, Yonsei University, Yonsei-ro 50, Shinchon-dong, Seoul, 03722, Korea.