Once again there questions about the qualifications of Lone Start Funds, an American company that bought Korea Exchange Bank (KEB), and Hermes Investment Management of the UK has been indicted on charges of stock manipulation. It is not just liberal economists who complain about foreign capital anymore. Members of the National Assembly are also suggesting the need to strengthen regulations governing foreign investment capital. There does need to be vigorous discussion on the subject.
Foreign capital has contributed much to the Korean economy since the foreign currency crisis of 1997. But there have been many negative sides to it as well. Speculative capital has used loopholes in the regulations to gain massive profits, and foreign capital has come to occupy far too large a share of the economy. Much of that is because policy was so desperate to attract capital that it overemphasized measures that were more about temptation. Policy was not without elements that gave preferential treatment and acted as forms of favoritism. A typical example would be the massive capital gains Lone Star made through its purchase of KEB.
Lone Star did not meet the qualifications a financial company had to meet in order to be able to control a bank, but the country's financial supervisory authorities approved the sale anyway by invoking an exception clause. One can understand the urgent need to get KEB back to normal, but it never would have happened had it been a Korean capital concern. Part of the problem is that the government was hesitant to go after violations of the rules by foreign capital because it worried it would give foreign investors a negative view of Korea.
The government declared the country beyond the foreign currency crisis a long time ago, and people no longer see attracting foreign capital as a lifeline for the Korean economy. It is time to reevaluate policies that give special treatment. The rules need to be measured according to rational judgment and independent policies based on international standards, not according to foreign demands. The country has to be discriminating about the type of legitimate foreign capital it attracts, and it urgently needs to tighten the reigns with better regulations on capital that is speculative in nature. For foreign funds that thought they could make a sucker out of the Korean market it may make the country look like it changes its mind, but any nation's policies are bound to change according to the given conditions. Parts of policy that went too far because of an urgent situation should be made what they were supposed to be.
The Hankyoreh, 2 February 2006.
[Translations by Seoul Selection]
[Editorial] Revamping Policy on Foreign Capital |
