Nice to meet you everybody. I am Chan Keun Lee from South Korea. I am teaching international finance at the University of Inchon, Korea. I am very much honored to be given a chance to share some of my thoughts with all of you mainly from the Christian society of Europe. Special thanks must be given to the organizers of this important conference.

Today I want to deal with two issues: two externally separate but internally interlinked issues. The first one is what's wrong with the current international financial structure? As you may know, the world has experienced similar types of currency and financial crisis more than 150 times over the last twenty years. Many European countries with solid financial infrastructure were not the exception as were the cases of UK in 1992, Nordic countries over the early 1990s, etc. It means we cannot attribute the causes of the repeated occurrence of similar crisis solely to the internal weaknesses of crisis-stricken countries. We have to delve into the external conditions of the crisis-engendering mechanism. We have to understand the innately precarious nature of international finance.

And the second issue is what are the implications of the Angloamerican reform programs on the development potential of the less-developed world. Everytime currency crisis takes place, IMF intervenes immediately with US strategic agendas keenly in its mind. They push Angloamerican, neoliberalistic, market-dogmatic reforms on crisis-stricken countries. But what has turned out to be true in Latin America over the last twenty years and more recently in East Asia is surprisingly destructive: loss of growth potential, deepening of social disparity, and degradation of economic sovereignty.

Therefore, we have to think hard to find solution alternatives to free the world from the repeated occurrence of the crisis and to devise a new development paradigm for the less developed world vis-á�-vis the dominance of Angloamerican dogmas. Let me start with the first issue, "What's wrong with the current international financial structure".

1. What's wrong with the current international finance?

In the international finance of today, three powerful, underlying forces have formed a dangerous tiangle, by which financial crises are incessantly triggered. I believe three forces are accumulation of financial capital in the developed economies, integration of financial markets of the less developed world into the global financial market, and aggressive application of information technology in the field of finance. Let's spend some time to understand those three forces one by one.

The most vivid example of exponentially expanding financial capital is the trends of US stock market index, Dow-Jones Industrial Average, over the past ten years. It is now around 10,000 points up five times from 2000 points ten years ago. It means Dow-Jones increased 500% over the ten years. In contrast, the real economy of the US has grown in terms of GDP only by 3 percent annually. It means US real economy has grown cumulatively 30% over the same period. Doesn't it sound appalling?

Why such deep discrepancies are observable between the financial economy and the real economy? There are two fundamental reasons for the inexplicable expansion of the financial economy, let alone many other technical reasons. I believe the income disparity between the rich and the poor is the primary driver. According to the world renowned economist, Paul Krugman of MIT, the increase in households income in the US over the past 30 years has been extremely skewedly distributed. It's been concentrated for the benefit of the privileged. Around 70 percent of the increase went into the top one percent households, while the remaining 30 percent has been shared by 99 percent of the whole households.

Then you will come to argue: "Why do we need to be concerned about income disparity? Now we are talking about global finance. What's the relationship between income disparity and overexpansion of financial economy?" That might be your question. But income disparity is a matter of deep concern. It gives rise to the lack of effective demands. You know poor people cannot buy cars, for example, because they don't have purchasing power, whereas rich people don't want to buy as many cars as they can afford because they don't need many cars. The result is simply the lack of effective demands. Because of this, most of big companies in the world hesitate to make investments on facilities and equipments. They are now at a loss for what to do with their surplus capital. They have money, but they don't have the right things to invest on. As a result, huge surplus capital is drawn into the financial market, creaing financial bubbles in the developed economies. You may have heard that many big transnational companies like GE and GM make around half of their earnings from their financial operations.

Besides, the increase of the aged people matters. You know the prevailing market principle requires the majority of the people over 50s to leave jobs even though modern medicine lengthens their life up to 80s. Naturally, people are getting more and more concerned about their old years. They think national pension system as well as corporate pension system is not fully reliable. What can they do as a safeguard? They all take a sizable portion of their income or sometimes by drawing debts to portfolio investment.

This is why the financial capital keeps expanding in the developed economies. This evasive animal, financial capital, has a peculiar characteristics. It dislikes regulations. It wants every regulation which restricts free movement of capital to be discarded. It wants to move freely whereever it makes high abnormal profits. You know all the crisis-stricken countries has opened their capital markets since late 1980s not out of their own willingness, but in order to meet with the United States� unilateral selfish demands.

Let's go back to the mid-1980s. Everybody will agree that the United States in those days was in a downward spiral in terms of economic strength. It actually lost competitiveness in many established manufacturing industries including cars and consumer electronics due to the advent of Asian dragons and tigers, as well as the aggressive market penetration of Japanese goods. On the other hand, Japan, being supported by accumulated trade surplus, started buying landmark builings in Manhattan and national-pride firms in Hollywood.

At that time, the US was in a critical juncture. It needed a strategy plan for a rebound. It devised a new scheme under which it could recover its national economic strength. The end-result was the Uruguay Round, which aimed to liberalize agricultural trade, to introduce tight intellectual property rights and to open financial markets around the world. Why were those three items targeted by the US? The reason was very simple: those three sectors were the very ones the US enjoyed competitive advantage. As a matter of fact, the US is the biggest producer & exporter of agricultural goods, the front runner of IT industries of which the profit comes from the intellectual property rights, and the breath-taking engineers of casino-like financial industy.

In this context, capital markets of Mexico, Korea, Thailand, Indonesia, Malaysis, and Russia were coerced to open, and consequently free flow of speculative capital led all of them into the financial crisis. Coerced liberalization of capital markets combined with the accumulation of huge financial capital was the root cause of the latest falldown of many countries in the less-developed world.

The last driver in the dangerous triangle is the advancement of information technology. It is heavily applied in the financial sector, accelerating the speed of money transfer up to that of the electronic pulse. With a couple of mouse-clicking on the computer, billions of dollars are crossing the border.

What a surprising new world we are living in, aren't we? Huge financial capital has become more and more speculative as the financial borders are crumbling down and as the movement of money is fully supported by the IT. This is the new reality by which we inevitably experience tragic currency crisis repeatedly. Unless this dangerous triangle is untied, we will never get out of the vicious trap.

Then what can we do to break the dangerous triangle? Many altertive ideas have been generated and discussed so far in the progressive civil society as well as among academicians and politicians. Due to the time constraint, however, I cannot go into the details. But my position is that partial, piece-meal solutions such as debt abolishment movement of Jubilee 2000 or Tobin tax movement of ATTAC would not be sufficient to stop the crisis and thereby a comprehensive package solution approach is required. Let me show you an interesting chart.

When it comes to the crisis prevention, Tobin tax will be effective only to reduce the speculative currency transactions in foreign exchange markets. But the control on the speculative capital at its origination in developed economies and at its destination in less developed economies is also important. We must devise measures to reduce the generation of speculative capital from the developed economies. At the same time, we must institute the sovereign right of each nation to take discretionary capital control measures whenever necessary, and furthermore resist the WTO's New Round and various investment treaties if they are schemed out to liberalize the crossborder movement of capital.

Even with such measures, crises will possibly take place. Then we must have ideas on what we can to manage crises. We should not allow IMF to dominate the scene as usual. It must have competitors, something like AMF, WFA, etc. And direct negotiation between the creditor and the debtor must be the priority, for example by following the international bankruptcy code. In addition, if it turns out that the debtor nation cannot afford to serve the principal and interest with its best efforts, debt abolishment measures must be applied as Jubilee 2000 tries to achieve.

What will be the most effective solution to prevent the crisis among all these solutions? I believe to stop the worsening income disparity in devoloped economies is by far the most important. Once it is controlled, there will be no further threatening increase in speculative financial capital. The critical task of designing a better, just world depends a lot more on you living in the affluent North than on people living in the South.

So far I have touched upon the first issue of what's wrong with the current international financial structure. Let me turn to the second issue of "Why the Anglo-american reform is not an answer.

2. Why the Anglo-american reform is not an answer?

As you are well aware, Korea's financial sector has been under drastic transformation, after Korea was swept into the financial crisis towards the end of 1997. I agree that Korea's financial sector requires significant changes. But what I want to argue is that the direction of the current change is definitely wrong. The fact is Korea is modeling after the Anglo-American financial system. Unfortunately, however, there does not exist any commonality between Korea and the USA. Development stage is different, economic size is different, people and their capabilities are different, and so on. I would say if Korea continues to follow the Anglo-American system as strictly as it is now, it will have no future, by losing its growth potentials irrevocably.

You may have heard that Korea's current President, D. J. Kim, won the Nobel Peace prize this year. It was announced Octerber 13^th at Oslo, Norway. There were big ceremonies held in many parts of Korea with fireworks popping up into the sky. It is a great achievement indeed, since it's the first Nobel prize for Koreans throughout its entire history.

But in my deeper heart, I find a mixed feeling. I cannot applaud his achievement with as pure and innocent heart as a child�s. Why is that so? Why I feel perplexed at this apparently good news? The reason is that he has neglected his primary duties. Fundamental issues of the economy and society have not been duly taken care of by the President over the past few years since his mind has been so much obsessed or taken away to get the prize.

As a result, Korea is again falling into deeper troubles, despite all the good signs of macro-economic indicators. If you look at the Korea's composite stock market index, it is plunging down very steeply these days. It hit the bottom low at the outbreak of the IMF crisis in 1997, and then it recovered to 1000 high at the start of this year. But again it kept declining from then on, now staggering around at 500 level. What's happening in Korea? I think Korea is thrown into a second round financial crisis. It is not just a matter of curiosity. It's a matter of serious concern.

The first round crisis was triggered in 1997 by the external shock. That's why I call it an explosion. Apparently, panicky outflow of foreign capital was the trigger, combined with the reckless liberalization of Korea's capital market as well as foreign exchange market. But now we are faced with a second round crisis, which has contrastingly different characteristics from the first one.

It is a kind of implosion, triggered by the mismatch of the replaced financial system to the existing conditions of Korea. Korean Government has executed the IMF version of financial reform over the last two and a half years, with the prejudiced idea that there is no alternative but an Anglo-American financial system in this age of globalized capital market and borderless world economy.

The IMF demanded that Korea should transform its financial system from bank centered one to capital market centered one. But the reality turning out since is that the capital market centered financial system does not function well. With some exaggerations, it is possible to say it stopped functioning. It does not supply adequate liquidities to cash-hungry business sectors. Unless some drastic measures are taken, there is a strong possibility that Korea will fall into severe economic depressions.

Then you may be curious to know why Korea is following the wrong directions? Who initiated this kind of wrong-directed, stupid reform? I would say this nonsense reform has been pushed on and on by the tripartite alliance among the IMF, DJ Government and some major civil NGOs.

The IMF, as you are well aware, is not a non-biased, neutral international organization. It is unfortunately one with a mission to implement America's external strategic agendas. In retrospect, the United States, definitely, welcomed the Korea's crisis. The US thought it as a great opportunity to enforce Korea to widely open its economy to profit-seeking borderless Wall Street financial capital.

As for D J Kim, President of Korea, I am quite sure he wanted to take advantage of the crisis too. Being elected president immediately after the outburst of the crisis, he found that his party was not dominant in the National Assembly. Actually his party accounted for less than the half in the Assembly. He was deperately in need of a new power leverage with which he can overcome the minority position.

So he made a strategic alliance with the IMF, stressing that the crisis was caused mainly by the misdoings of the former governments, his political opponents. To D J Kim, the IMF crisis was a kind of disguised blessing with which he managed to empower himself.

Lastly come the major civil NGOs, the two dominant NGOs called PSPD and CCEJ. They are being guided by US-trained economists. Even before the crisis, they kept preaching the needs of Anglo-American reform across the whole sectors of the economy.

What a convenient consensus? All these three groups arrived at an historic agreement: "Let's destroy Korea's Ancient Regime completely. The alternative is out of question. The United States is the most prospering economy in the world. Let's copy it as thoroughly as possible." This is the background of why neoliberalistic, Anglo-American, and maket-based refom has been drastically implemented in Korea, without any thought given on the Korea's specific historic, social, and political context at all.

What are then the consequences of the current reform, specifically in the field of the financial sector? The banking sector, which used to be the primary pipeline of funds circulation, is dwindling by brutal downsizing measures. Almost 35% of its workforce lost jobs whereas more than 20% of its branch offices closed doors in one year's time.

In the process, the presence of foreign capital in bank's ownership has expanded quite dramatically. In six out of nine nation-wide banks in Korea, foreign capital, in aggregate, has taken the biggest shareholding position. Somebody may want to argue at this point that the foreign ownership doesn't matter in today's globalized world economy.

But what makes me very much worried is that almost all of Korean banks are changing their business strategies. Almost all of them announce that they want to reduce corporate lendings as much as possible while expanding their endeavors to increase the portion of the retail household businesses.

Isn't it a big problem? What do you think is the original mission of the commercial banks? Every economics textbook says that commercial banks� primary role is to transform households savings into corporate investments. But Korean banks, strongly influenced by profitability-minded foreign investors, are giving up their original mission. Whence will cash-lacking small&medium sized companies draw adequate funding for their necessary investments?

Now let's turn to what is happening in Korea's capital market. It is dominated by foreign capital to a greater extent than the banking sector. Foreign portfolio investments account for roughly 30% of total market capitalization. Somebody may say that it is not significant. But it is very significant, I should say. As is the case in Japan, founding family's equity holding as well as the interlocking shareholdings between affiliated companies are very significant, almost up to 40% in average.

It means 40% of equities outstanding in Korea do not change hands. They are basically non-tradeable equity positions. So I must tell you that foreigners� equity holding of 30% is equivalent to a half of the total tradeable equities.

Even more alarming than that, their equity investment is not well spread out. They are only interested in the top ten companies in Korea, for example, Samsung Electronics, SK Telecom, LG Chemical, POSCO and some others. They are applying ruthless Wall Street investment rules to Korean companies. They think most of Korean companies are below investment grade. As a result, Korean companies, with a few exceptions, are kicked out from the capital market even though they need immediate funding.

What will happen to Korea, if this kind of situation is not reversed? Korea will lose its own strategic freedom. All important strategic investment decision will be made by foreign capital, mainly in Wall Street. If it is a legitimate doubt that foreign capital is short-term profit-minded with no serious concern about the long-term prospects of Korea, we must all wake up and start thinking again what is an alternative way of reconfiguring the financial system.

Financial system is not something operating separately from the other systems. It must be designed in a right way to support a continuing growth of the economy, to create enough jobs for people and ultimately to secure the economic sovereignty of the country.

Now I want to explain you some empirical evidences and theoretical arguments by which I arrived at the conclusion that Anglo-American financial model is not the answer. First, capital market is not a secure source of capital. If you look at the statistics of how much money was mobilized by the capital market for new investments in industries, you will easily find they are very low or minimal or sometimes even negative. Over the period between 1970 and 1989, capital market's contribution to new industrial investment is �8.8% in USA, -8.0% in UK, +2.7% in Japan and +0.9% in Germany.

Why is this so low? While M&A, LBOs and defensive purchase of own stocks tripled or quadrupled stock prices, the increase in stock prices did not lead to new capital injection in the industrial sector. It did not end up with new investment. It meant just the change of stock ownership.

What's happening in the bond market is also very much dismal. These days, we witness the rapid expansion in bond markets all around the world. But the market is dominated by only a handful of companies. In Korea, ten big conglomerates( so-called Chaebols) account for more than 70% of the new issues in the bond market. In other words, less prestigious companies including numerous small&medium sized companies are fully excluded from the access to the bond market.

Second, the capital market is not fitting to the success of manufacturing industries. As we can observe, the capital market centered financial system is gaining support in many parts of the world from the mainstream thinkers due to the fact that the US is leading the success of IT industries based on that. It may be right that capital market centered model is condusive to the promotion of new IT industries with short product life cycles.

But it still leaves a question of how effective IT industries will be to ensure continuing growth of Asian countires with their potentiality of creating jobs. In Germany, which has marked the greatest catch-up of IT industries with the launching of the Neue market, new jobs created over the last couple of years through venture capital are limited only to 70 thousands. In this context, I am very doubtful about venture capital based, IT-driven New Economy. I still believe Asian countries including Korea has good prospects for traditional manufacturing industries if secure capital is supplied for them to make necessary new investment and thereby help them to achieve consistent increase in productivities.

Now the question is how to ensure the stable, reliable supply of capital to the indiginous industries. The best example is Germany or Japan. Both of them relied heavily on the bank-centered financial system, and achieved spectacular advancement in their global competitiveness across many different industries. Stable supply of capital sourced from banks enabled companies to provide job securities to workers, and based on that the workers reciprocated with continuous improvement on firm-specific core competences, skills, knowhows and technologies.

At this point, I would like to stress the fact that lessons should be learned from Germany or Japan of the previous age, not from Germany or Japan of today, nor from Anglo-Americans.

The last, but not the least important point, is that abrupt transition to the capital market centered model triggers such crisis as Korea has been experiencing since 1997. Based on my dialogue with many experts in the field, I would like to suggest that there are prerequisites that must be satisfied before a country make an ambitious transition to the capital market centered financial system. Let me explain you a little bit about the critical prerequisites of the transition one by one.

First, the growth of self-sustainable companies with capacities to generate a great part of their necessary funds internally. Please remember that capital market is not open to every company. They are accessible only by a selected few.

Second, accumulation of wealth by a wide-spread strong middle class is important. In Germany and Japan, there was almost no "equity culture" for quite a long time after World War. It is actually starting today because substantial wealth has been handed over from hard-working baby boomers to new generations. And this newly emerged conservative middle class reduces effectively the chance of capital market's overheating and destructive fluctuations.

Third, the development of capital market must be led and managed mainly by the banks. Banks are the most conservative of all kinds of financial institutions because they are required to play public functions as well as profit-seeking functions. At the same time, bank-centered financial system is not incompatible with capital market development. As we can see in Germany, the preeminance of banks in the financial system does not rule out the development of the capital market. Germany's capital market is one of the most sophisticated and strongest in the world. Banks can play the dual jobs of maintaining financial stability and promoting financial innovations.

Forth, democratization of the governance structure of the financial institution is very important. Transition towards capital market will give rise to intensified disintermediation and securitization, which will end up with fierce competition between financial institutions. But financial institutions are very different from ordinary business companies in the sense that the failure of one institution will be highly endemic or contagious, leading up to the failure of the total system. Therefore, the mistakes by the management must be reduced to zero. And one secure way to achieve it is the democratization of the governance structure.

Lastly, social safetynet must be well installed for those who are vulnerable to the incessant process of restructuing. Transition to capital market will require maximization of stockholder interest and thereby ruthless downsizing and layoffs will follow on and on. Unless the adequate level of social safety net is institutionalized beforehand, capital market driven restructuring will confront bloody social strife, political resistance, or even rebels as we have seen over the latest years in Paris, Chiapas, Seattle, Washington DC and Prague most lately.

Now the message of mine to you everybody is very clear. The dominance of Angloamerican capitalism must be checked and restrained. The diverse ways of promoting capitalism with the people's initiatives in a specific political, social and historic context must be respected. Otherwise, many countries in the less developed world will be devastated and mush more worse tragic experiences of human being over the first half of the 20^th century will be duplicated.