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Blue House shifts focus to deregulation

‘Income-led growth’ policies have led to decline in ratings

Aug 10,2018
The Blue House is drawing up a list of 30 business regulations it intends to get rid of or fix as the government tries to turn around an economic policy that is dragging down its approval ratings.

“We have a list of some 30 regulations that are subject to being overhauled,” an official at the Blue House’s policy office told the JoongAng Ilbo Thursday. One area of regulation to be changed relates to privacy laws.

“In order to foster an industrial environment defined by big data and artificial intelligence, we need to deregulate privacy laws,” the official said.

“Our drive for deregulation will not be a one-time event,” he continued. “We will score achievements from each deregulation.”

President Moon Jae-in is emphasizing regulatory reform to boost new technologies and industries.

While attending an event discussing internet banks at Seoul City Hall in central Seoul Tuesday, Moon said a regulation prohibiting nonfinancial companies from owning a stake of more than 10 percent in internet banks, or exercising voting rights of 4 percent or more, has “hindered the growth of internet banks,” which he described as bringing change to the conventional banking industry. But they are struggling due to over-regulation, he said.

“While keeping the separation of nonfinancial companies and banks as a fundamental principle of our finance [policies], we need to take a new approach if the existing regulations limit the growth of new industries,” said Moon.

“On one hand, regulation can foster the growth of a new industry. But at the same time, it can also kill it,” he said in blunt terms. “Only if we manage to reform outdated regulations will we have a future in which we are at the forefront of the fourth industrial revolution.”

The law prohibiting nonfinancial firms from owning a sizeable stake or exercising significant voting rights in banks is designed to prevent industrial conglomerates from using banks for their own purposes, such as borrowing large unsecured loans at relatively low interest rates or using them for unrelated businesses such as bribery or even embezzlement.

But Korea now has two internet banks - K bank and Kakao Bank - and regulation is preventing them from growing.

The introduction of the two online banks has given consumers greater choice, especially access to loans with interest rates higher than commercial banks but much lower than so-called savings banks, which are akin to consumer finance companies. They have also intensified competition among existing commercial banks.

K bank, Korea’s first internet bank, was launched in April 2017. Kakao Bank opened three months later.

K bank reported a net loss of 18.8 billion won ($16.8 million) in the first quarter of this year and Kakao Bank suffered a net loss of 5.3 billion won. Kakao Bank lost money even though it attracted 6.3 million customers in one year.

Their biggest problem is raising sufficient capital.

The Moon administration appears to be shifting its economy policy from the so-called income-led growth measures - which involved raising the minimum wage, encouraging companies to upgrade contract workers to the regular payroll and hiring lots of new civil servants - to removing regulations that stand in the way of new business opportunities.

During a visit to Seoul National University Bundang Hospital in Gyeonggi on July 19, Moon promised to remove regulations that make it hard to introduce new medical devices.

Moon’s government is calling for a so-called negative regulatory framework.

Korea’s regulatory system is currently described as positive. That means if someone invents a new technology, it must comply with regulations that already exist. Otherwise, the creator will have to wait for the government to devise rules that specifically allow the technology.

By adopting a negative regulatory framework, the Moon administration hopes to open the door to new technologies - and regulations can follow later if they become necessary. It remains to be seen how successful the government will be in changing a bureaucratic mindset accustomed to the positive regulatory framework.

BY KANG JIN-KYU [kang.jinkyu@joongang.co.kr]


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