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Korea: Intervention, interference or encouragement?

With a first round of bank restructuring that killed off more than half the country’s banks behind it, Korea is now facing up to consolidating what is left, ostensibly to enhance competitiveness and create economies of scale. It’s not clear, though, that the timing is right or that the government’s approach to mergers is appropriate or sufficiently disinterested.

It's been a busy seven weeks in Korea's financial sector, with the country's efforts to reform the corporate and banking sectors creating serious conflict. A bank president was held hostage in his office and the leader of one of Korea's largest unions went into hiding, leaving his unfortunate deputy to face the rap - a pair of handcuffs. On New Year's Eve, W7 trillion ($5.7 billion) was pumped into six ailing banks in the wake of conglomerate Daewoo's collapse - this on top of the W64 trillion already injected into the tottering sector.

Also, despite scepticism from the IMF, a plan to consolidate five banks, creating what some cynics have dubbed a mega-ailing bank, was put under starter's orders. The government itself has faced a barrage of accusations that it has meddled in the private business affairs of a major bank. And on top of all this, concerns are mounting about the effects on Korea if the US economy crash-lands.

Many now suggest that the pace of reform in Korea has been too slow, but if the past couple of months are anything to go by, it's probably just as well. True, international investors and the international financial institutions are clamouring for more.

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