South Korea Cuts back economic barriers

Liberalization of the Korean economy continues steadily right across the board, from the removal of import restrictions to the opening up of the local capital markets to foreign investors.

Some trends:

* The trade liberalization rate stood at 68 percent at the end of last year, and is to be expanded this year.

* On foreign exchange transactions, more than 90 percent of external payments are now handled by commerical banks without further government licensing.

* Foreign securities companies this year will finally be licensed to deal in the local capital market. Japan's Normura Securities Company will open an office in Seoul shortly, while Daiwa Securities is negotiating with the Korean Investment & Trust Corporation to follow suit by the end of the year.

"There is no reason why this shouldn't grow to include companies from the United States and elsewhere," observes Vice Finance Minister Chung in Yong.

The growth of foreign interest in Korea has been rapid. There are now 33 foreign bank branches and 20 representative offices in Seoul, many opened in the last five years. There are also six joint venture merchant banks, while international insurance companies are beginning to make their presence felt.

The government is well advanced with studies for the establishment of a joint bank venture overseas, mainly to facilitate the flow of short-term credit to meet balance of payments difficulties. It is seeking partners among leading American banks, but has not yet made the final choice. Domestically, banks up to now hve been government run. But there are moves afoot to develop a private banking sector.

Mr. Chung admits there won't be "all-out opening up of the capital market in the immediate future. But certainly we are taking steps on a gradual basis."

Facilities are already available for foreign residents to dabble on the local stock market. As individuals working through licensed dealers, they can freely buy and sell stocks. The only restriction is on the the remittance overseas of dividends and profits, which may not be automotically approved.

Nonresidents have to obtain Finance Ministry approval for stocks dealing, and approval is far from automatic.

Large-scale foreign investment is covered either by the foreign Exchange Control Law or the Foreign Investment LAw. In future, the government has promised to administer both with more flexibility.

The Foreign Investment Law is applied to sectors of the economy where the Koreans are extremely keen to attract foreign capital for development purposes. Tax incentives are available and convertibility and repartriation of dividends guaranteed.

In future, explain Mr. Chung "there will be quite a bit of opening up in areas where we don't need the investment desperately, but where we need no longer say no.

"So, we will be saying to potential investors in these areas: 'Yes, you can come in, but you must pay taxes just like Koreans, and we cannot give you any advance guarantees on remittance of dividends in case we experience foreign exchange difficulties."

There will be very few areas, in fact, where foreign investors will experience any real difficulties, he insists.

The government currently is considering the possibility of opening up two more important areas: pharmaceuticals and food processing.

"There are going to be less and less limitations, but, of course, there will also be less and less privileges."

Among other changes planned this year are an increase in the minimum amount of investment requiring advance government approval from the present $200,000 to

The basic government policy is now summed up as: protecting domestic industry where the international competitiveness has not developed enough yet, while stimulating foreign investment to the utmost.

One natural concern is to channel capital where it is most needed, especially to the weaker small and medium businesses which don't have the name of international creditability to shop around for their own funds.

Chung Soo Chang, president of the Chamber of Commerce and Industry, says his organization is now creating a local business corporation that will act as an intermediary in matching foreign investment with the most needy sectors.