Credit policies: Lessons from Japan and Korea

The success of policy-based credit programs in Japan and the Republic of Korea suggests that credit policy can be an effective instrument for economic development. Why, then, have credit policies failed in so many countries, and what factors explain their relative success in Japan and Korea? Both economic and institutional factors appear to be important in the success or failure of credit policies. Essential economic factors include a reliance on the private sector, a bias toward industrialization, an orientation toward export production, the encouragement-of domestic competition, and a commitment to price stability. Crucial institutional factors include extensive and frequent consultation between government and the private sector, effective monitoring systems, and, most important, a clear and credible plait for economic development. Although several countries have included one or more of these factors in their programs, the experience of Japan and Korea suggests that a comprehensive-network combining all or most of these factors may be necessary for the successful implementation of credit policies.