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Why Is the Financial Times Lashing Out at Korea?

Posted April. 04, 2005 23:49,   


As the Korean government takes a move to introduce a system to improve the transparency of foreign capital controlling its domestic finance institutions, the Financial Times (FT) is continuously lashing out against the Korean government.

The FT’s criticism is centered on the restriction limiting the number of foreigners on the board of directors of commercial banks and the “five-percent rule” in which if five percent or more of the shares of a certain company is purchased for taking part in management, it must be reported.

The FT, which had frankly criticized on March 31 that the five-percent rule was “schizophrenic,” reported on Monday, April 3 that “the European Union (EU) will file a complaint to the World Trade Organization (WTO) on South Korea’s revised bill limiting the number of foreign directors of commercial banks.”

These two systems have already taken effect in the U.S. and England, and the government is viewing that there is a different intention for the FT making an issue of this matter.

Irrelevant criticism on the “limitation in the number of bank directors”-

The FT reported on April 3, “If South Korea’s revised bill holding the restriction on the number of foreign directors is passed in the National Assembly, it will be violating WTO regulations. The EU’s move to file a complaint is from the growing apprehension that (Korea’s) anti-foreigner sentiment is instigating unfair policy changes targeting foreigners.”

However, looking at the circumstances, the FT’s assertion is unreasonable.

Korea has been discussing the limitations on the number of directors since November of last year. In an interview with the FT, Financial Supervisory Commission (FSC) Chairman Yoon Jeung-hyun said, “It is necessary that the number of foreign directors in commercial banks does not pass more than half of the directors on the board.”

This is due to the judgment that foreign controlled banks are concentrating only on household loans, impairing the primary functions of financial institutions and their stability. Since the limitation is not included in the finance agreement with the WTO, it is to be settled as a practice rather than being enacted.

The political circle is aware of this matter, and the revised bill was submitted to the National Assembly as a legislative act. However, the general prospect is that it will be difficult to pass.

The FT reported as an established fact that the revised bill was passed in the National Assembly, and is also critical in settling it as a practice.

The FT reproached, saying, “The FSC demanded of Standard Chartered Bank (SCB), which took over Korea First Bank, that over half of the number of directors on the new board be Korean.

However, in England, under the guidance of the Financial Services Authority (FSA), when there are three or more directors of the board for foreign financial companies, at least one native is to be appointed.

Regulations are stricter in the U.S.. Starting a year before being appointed to the director of a bank, there is a residence restriction that he or she has to live within 100 miles of the bank location.

Strong Criticism of “Five-Percent Rule”-

The FT said last March 31 that the recent new “five-percent rule” of the Korean government is “economic nationalism and a draconian system”.

The five-percent rule is to remove the unfairness in foreign capital, which invests in domestic enterprises simply for investment and then actually goes for influence over management. If five percent or more shares are held, the intention behind the holding is to be reported to the financial authorities.

In fact, from March 29 through April 2, following the five-percent rule of reporting, foreign funds, including Sovereign Asset Management and Hermes Investment Management, which have asserted “simply investment” reasons for holding in the past have now shown interest in “management”

The U.S. and Japan are also adopting this system, and England is stricter with a “three-percent rule.” Moreover, Korea’s system is much more liberal than other countries, and experts judge that it is hard to say that the system is harsh.

Economics Professor Lee Sang-bin of Hanyang University said, “The U.S. restricts the exercise of voting rights for 20 days at the maximum after reporting, but Korea’s restriction is only a mere five. As to the fund-raising, funds which are to be used in the future must also be reported in the U.S., but not in Korea.”

On the contrary, there are no definite penalty regulations for false reports in the Korean system, and some are pointing out that the original purpose is not being met. In fact, foreign funds are simply stating most of the details of fund-raising as “company funds” and not verifying its source.

Are There Hidden Intentions?-

Why is the FT “hitting on Korea” when most of the advanced countries are adopting this system?

An FSC official said, “It seems that FT is pressing the Korean financial supervisory authority to speak for the interest of English banks and funds which invested in Korea such as SCB and Hermes.”

Another official analyzed, “Korea has been viewed as a country ‘a cut below,’ and as moves to strengthen the regulations are emerging, it seems that European parties with Korean interests are trying to deter the situation through the FT.”

The FSC is planning to positively cope with the European press, including the FT. Accordingly, a request to print a counterargument article to the March 31 article will be requested of FT during this week.

Ki-Jeong Ko Sun-Woo Kim koh@donga.com sublime@donga.com