Can South Korea's Kim Open The Door Wide Enough?

Seoul's bid to join the OECD rankles local moneymen

For President Kim Young Sam, who wants South Korea to gain global recognition as a member of the world's industrial elite, the country's rigged capital and equity markets are an embarrassment. The archaic financial system is the chief obstacle to Korea's bid to become the first Asian Tiger to gain membership into the Paris-based Organization for Economic Cooperation & Development. The 27-member OECD will consider Seoul's application later this year. Much depends on Kim's ability to liberalize markets by then in the face of opposition from the financial Establishment.

DEBT-SOAKED. Kim is certainly trying. His government has introduced a host of reforms designed to open the stock market to foreign players, allow more futures trading, and ease other government restrictions that have made the Seoul markets some of the most closed and inefficient in Asia. This year alone, Seoul has introduced stock index futures, lifted a quarterly quota on initial public offerings, and raised the limit on foreign ownership of individual companies from 15% to 18%. The limit will disappear entirely by 2000. To make the market more open, the government is easing trading range limits, too.

Kim also is slowly opening South Korea's $150 billion investment-fund and pension-fund management markets to overseas competition. Foreign investment banks now can take stakes of up to 30% in Seoul money management firms. Samsung Securities Co. and J.P. Morgan Investment Management Inc. will launch a money management firm in December with $38 million in startup capital. The cap will be lifted entirely in 1998.

Still, Kim has been forced to make concessions to local players. Past government market meddling has left Seoul's three major investment trust companies, which accept deposits and invest them in government and corporate bonds, wallowing in debts of $8 billion. To help the giants, the Finance Ministry won't allow newly established foreign players to raise more than $1.8 billion a year. That's a pittance compared with the $27 billion collected last year by debt-soaked Korea Investment Management Co. alone. In another sop to locals, new players will have to steer more than 50% of funds they raise into the stock market, which is off 5.5% this year. The go-slow approach is needed "to protect the three debt-ridden companies," a Finance Ministry source says.

These concessions are likely to diminish Korea's chances this year with the OECD. The organization will probably want to see more progress on financial deregulation before giving the nod. Seoul needs to "stop interfering in the capital market," if the OECD is going to take Korea's bid seriously, says Stephen Marvin, head of research with Ssangyong Securities. So until Kim does more, he will continue to watch smaller economies, such as the Czech Republic, waltz into the OECD club, while South Korea remains locked out.

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