Advancing policy frameworks to safeguard financial stability in developing and emerging economies: the case of South Korea’s management of international financial flows after 1998

Abstract

Abstract Financial liberalisation can promote economic development in developing and emerging economies (DEEs). Especially international financial flows pose risks to the stability of their financial system though, as recurrent foreign debt crises in DEEs show. How can DEEs benefit from international financial flows while safeguarding financial stability? The case of South Korea shows how DEEs can develop domestic policy frameworks to manage international financial flows while maintaining a high degree of financial openness. With the experience of the foreign debt crisis of 1997/98 in mind, Korean policymakers have interlinked policies (monetary policy, foreign exchange policy and financial regulation), public financial institutions and the development of domestic capital markets to develop a financial stability-oriented policy framework that has served as protection against risks attached to international financial flows. While this policy change substantiates a turn towards a finance-led accumulation regime, the case of Korea illustrates that DEEs are not passive bystanders in financialisation processes.