Abstract
South Korea has undertaken major and far-reaching actions to rebuild and improve its financial sector since the financial crisis of 1997. Various measures to clean up the balance sheets of financial institutions have helped to normalize the financial system earlier than expected and have significantly eased the credit crunch. Despite the many significant changes in the South Korean economy brought about by financial reform, the country must continue with further improvements if it expects to build a stronger and more competitive financial industry that can thrive in the international market. To sustain the momentum of its initial reform effort, South Korea should institute additional financial reforms, eliminate moral hazard, and establish new market-based rules.