Financial Systems of South Korea - Essay Example

? Financial systems of South Korea Financial Systems of South Korea In 1961, the president of South Korea, Park Chung Hee, tookcontrol of the country’s economy by centralizing all the power and making all the banking and other financial institutions to be directly under the government. This though changed in the 1980s when the government started liberalizing the banks but individuals were not allowed to purchase shares directly from these institutions. In the late 1980s, South Korea had a well established banking system as well as a securities market (Goldstein, 1998). South Korea established a central bank in 1950 that was given the mandate of regulating all the other banks in the country, printing and circulation of the currency in South Korea as well as making laws and regulations that would govern other financial institutions in the country. The minor banks in South Korea had a function of extending credit services to businesses and other medium and long term investment projects (pg 48). Today, the financial system of South Korea has grown and continues to improve remarkably over the years. South Korea is located in the north-eastern Asia and it is bordered by the Yellow sea to the west and Democratic Republic of Korea to the north. South Korea has four distinct seasons and in 2011, the population was estimated to be 48.75 million people with the annual growth rate in population estimated to be 0.23%. South Korea is characterized by low birth rate and high life expectancy at an average of 82 years for women and 75 years for men but the literacy levels are high with compulsory schooling for the first 9 years. This has greatly been affecting the economy of South Korea because most of the population is made up of the old people. The major religions in South Korea are Christianity, Buddhhism, Shamanism, Confucianism and Chondogyo. Politically, South Korea has a well organized government by the president, the parliament and the judiciary. Power was well laid out in the constitution that was appealed in 1987 (Kim & Black, 2004). South Korea has had a well performing investment sector especially in agriculture and other medium and long-term investments. This sector has been an integral part of the economy of South Korea and the banks even offered loans that would be channeled towards these businesses. They contributed to the growth of South Korea’s GDP that has improved though it had staggered for some time due to hard economic times that South Korea went through for some time (Lau, 1996). The depository sector of the financial system has also been improved over the years where unlike the times when banks were solely owned by the government, the people have been allowed the freedom to have shares in the banking sector and the banks have started offering depository services for their customers (Lee, 2004). This has strengthened the financial system of South Korea and has ensured that there is constant growth in the sector. In the recent years, South Korea’s financial system moved from the government ownership to more widespread powers where people were allowed to participate directly through the purchase of shares. This was contributed to by the increases reforms and strategies that were geared towards attainment of stability in the financial markets. Over the past 10 years, The GDP of South Korea has experience fluctuations in GDP with a 9% growth in 2009 and 6.1% being recorded in 2010. This was due to changes in economic situations globally and changes in the level of exports in the country over the years. South Korea’s financial system has improved significantly and it has even gone ahead to sign business agreements with North Korea that are aimed at improving the exports in the country hence ensuring the country a growth in the GDP and Foreign Direct Investment (FDI) (Zahid,1995). The growth of the financial institutions in South Korea have been so much affected by the aging population, strict labor laws, poor management of the institutions, underdevelopment of the financial market and corruption that is associated with the economic and financial institutions (pg 79). South Korea’s financial market, Hang Seng, has had positive performance over the past few years. This stock market is the major market that tracks all the activities of the common shares that are listed in the stock exchange. The market has been posting good results with 2229.0 index points being reported in 2011. The Korea Stock Exchange Composite is charged with the role of monitoring the performance of all the major companies in Korea and see to it that they abide by the rules and regulations stipulated in the stock market act (Emery, 2001). This shows that the South Korean Stock Exchange Market is efficient and can be relied upon to deliver good results and lead to the growth of the economy as a whole. According to (Patrick & Pak, 1994), the financial markets are regulated by the Financial Service Commission that was established by the Banking Act replace the Ministry of Finance for the purposes developing policies. This body is charged with the responsibility of making key decisions on the kind of sanctions to be given to those investors who breach the investment in the stock market laws. The regulations are enforced through criminal sanctions which are mostly in terms of imprisonment for up to ten years and a fine of up to KRW 500. Failure to submit quarterly reports about the performance of the company attracts a fine that is determined by the management although talks to reveal these fines are underway due to the argument that criminalizing every breach may lead to great economic impacts on the people and the government. In other cases, the financial markets are regulated by liability such that where an individual is in breach of the financial market act; he is supposed to take liability upon himself and not the company (pg 194). This has made people to be more cautious when transacting in the Korean stock market bearing in mind that any wrong move will be accounted for by them. The violators of the stock market rules can also be imposed administrative sanctions upon their companies whereby they can have their operating licenses withdrawn completely or suspended for a given period of time or required to pay civil fines. The stock market is also controlled through private enforcements which are regulatory bodies that are established to help regulate the market privately and without bias. With these regulations in place, the stock market have been running effectively to produce good returns and ensuring that the investors are protected against the breaches that would be prevalent without the regulations in place. The regulatory system has proved effective and efficient and there has been continuous improvement and amendments on these rules to reduce the level of fines that are attached to the crimes (Cho, Kim, & Shin, 2002). In conclusion, South Korea is one country that has had remarkable economic growth over the years despite the many challenges that the country faced. The country has a well developed stock market with good regulatory mechanisms that ensure that the investor rights are protected and growth in the sector maintained. The economy of South Korea has continued to grow over the years and especially after the decentralization of the banking powers away from the government sole ownership of the banking system. Bibliography Cho, L., Kim, Y. H., & Shin, I. (2002). Restructuring the Korean financial market in a global economy. Seoul: Korean Development Institute. Emery, R. F. (2001). Korean economic reform before and since the 1997 crisis. Aldershot, Hampshire, England: Ashgate. Goldstein, M. (1998). The Asian financial crisis: causes, cures, and systemic implications. Washington, DC: Institute for International Economics. Kim, H., & Black, B. S. (2002). Self-regulation in the Korean securities market. Seoul: Korean Securities Law Association. Lau, L. J. (1986). Models of development: a comparative study of economic growth in South Korea and Taiwan. San Francisco, Calif.: ICS Press, Institute for Contemporary Studies. Lee, c. (2004). Is South Korea's stock market efficient?. Taiwan: Routledge. Mu?ller, R. (2000). Foreign banks in economic development: experiences from the regulated financial system of South Korea. Halle: Inst. fu?r Wirtschaftsforschung. Patrick, H. T., & Pak, Y. (1994). The financial development of Japan, Korea, and Taiwan: growth, repression, and liberalization. New York: Oxford University Press. Yi, T. (1987). The role of financial markets in Korea's economic development. S.l.: ILDIS :. Zahid, S. N. (1995). Financial sector development in Asia. Hong Kong: Oxford University Press. Read More