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 fo r economic development. Why, then, have credit policies failed in so m any countries, and what factors explain their relative success in Japa n and Korea? Both economic and institutional factors appear to be impo rtant in the success or failure of credit policies. Essential economic factors include a reliance on the private sector, a bias toward indus trialization, an orientation toward export production, the encourageme nt-of domestic competition, and a commitment to price stability. Cruci al institutional factors include extensive and frequent consultation b etween government and the private sector, effective monitoring systems , and, most important, a clear and credible plait for economic develop ment. Although several countries have included one or more of these fa ctors in their programs, the experience of Japan and Korea suggests th at a comprehensive-network combining all or most of these factors may be necessary for the successful implementation of credit policies.