Skip to Main Navigation

Credit policies and the industrialization of Korea (English)

The Korean government has played a pervasive role in promoting industrialization and economic development. Directed credit was a basic instrument of economic policy. In Korea the government directed more than half of bank credit, directly owned all major banks, and controlled their interest rates. Government intervention was effective in Korea because it was predicted on close consultation with industry, was implemented within the context of a competitive business environment with a very strong export orientation, and was closely monitored and evaluated. Export orientation provided objective and observable criteria of success, while close monitoring and consultation permitted the re-allocation of directed and subsidized credits to successful firms and the flexible adaptation of credit policies to the evoloving needs of the Korean industry and economy. Korea relied extensively on foreign loans to supplement its initially meager domestic savings, but the government played an active part in authorizing and guaranteeing such foreign funds. An important aspect of Korean intervention was the use of effective risk sharing mechanisms whereby firms facing temporary difficulties received government-orchestrated support from the financial system. Despite the overall success of directed credit programs, their use was not cost free. Major costs of the programs were the underdevelopment of the financial system, the overborrowing of large firms, the concentration of economic power and the legacy of substantial amounts of nonperforming loans. The relative importance of credit policies has declined in recent years and their emphasis has been re-directed toward small firms in a belated attempt to rebalance the structure of Korean idustry and of the Korean economy more generally.


  • Author

    Yoon Je Cho, Joon-Kyung Kim

  • Document Date


  • Document Type


  • Report Number


  • Volume No


  • Total Volume(s)


  • Country

    Korea, Republic of

  • Region

    East Asia and Pacific,

  • Disclosure Date


  • Disclosure Status


  • Doc Name

    Credit policies and the industrialization of Korea

  • Keywords

    Credit policies;credit policy;Industrial Policies;Industrial Policy;direct credit;financial sector policy;government intervention;Economic Policy;real effective exchange rate;short period of time;cost of government intervention;early stage of development;scope of government intervention;allocation of bank credit;financial policies;credit support;competitive business environment;sources of fund;interest rate subsidy;per capita income;economic development plan;weak financial structure;redistribution of income;modern financial system;size and structure;rapid industrialization;general equilibrium analysis;allocation of credit;national security concern;exchange rate policy;sale of asset;efficient banking system;Exchange rate policies;Escape from poverty;accumulation of capital;impact of credit;repressed financial system;multilateral financial institution;financing development;economies of scale;foreign debt service;government credit policy;macroeconomic policy framework;exchange rate management;export credit programs;real exchange rate;cost of capital;commercial loan market;risk share arrangement;source of funding;international political economy;world war ii;house of representative;foreign exchange revenue;economic development strategy;competitive product market;deposit money bank;bank interest rate;domestic saving;domestic bank loan;gross domestic product;domestic financial institution;commercial bank loan;



Official version of document (may contain signatures, etc)

  • Official PDF
  • TXT*
  • Total Downloads** :
  • Download Stats
  • *The text version is uncorrected OCR text and is included solely to benefit users with slow connectivity.


Yoon Je Cho Joon-Kyung Kim

Credit policies and the industrialization of Korea (English). World Bank Discussion Papers,no. WDP 286 Washington, D.C. : World Bank Group.