Comparative Study of Financial Restructuring:
South Korea, Thailand and Mexico
Yasunobu Okabe

I stayed in Mexico, Thailand and South Korea from September 2006 to March 2007 in order to conduct research on financial restructuring. Though it was a tight schedule, taking me to three countries in a period of six months, it provided me, as a researcher of comparative political economics, with the valuable experience of observing differences and similarities among the three countries in a concentrated manner. Based on this experience, I would like to discuss comparative studies, while touching upon Mexico, a “foreign country” from the viewpoint of Asian studies.

Comparative Study of Limited Cases: Neither a Single-Country Study nor a Quantitative Analysis of Multiple Cases

To begin with, the comparative study of a small number of cases (countries), which I am engaged in, may be seen to indicate a noncommittal attitude about the methodology, at least by political scientists in Japan. Area study researchers, who carry out detailed analyses of a single country using primary sources, interviews and statistics, occasionally argue that my field of study lacks in-depth case analysis, while “scientific” researchers who quantitatively analyze multiple cases criticize it for having a bias in the selection of cases or for having poorly controlled variables.

Furthermore, I noticed during interviews with government officials and bank executives from the three countries, on the research theme of financial restructuring, that they seemed to take little interest in the comparison itself, and indeed sometimes seemed to be uncomfortable with the comparison. A department chief at Mexico’s central bank, when speaking about the comparison with Asia, which was going through a financial crisis similar to Mexico’s, simply responded by saying, “Mexico faced special circumstances.” One commercial bank executive in Thailand shrugged off the comparison entirely, snapping, “The situation in Thailand was completely different from that in South Korea.”

At first, I felt somewhat frustrated by such statements. As I continued with my studies of the three countries, however, I came to appreciate the unique history and circumstances of each of the three countries and to better understand the reactions of the interviewees. As I was accepted as a visiting researcher at CIDE (Centro de Investigación y Docencia Económicas) in Mexico and at Chulalongkorn University in Thailand, I had many opportunities to discuss my topics with researchers there. The more I came to understand the idiosyncratic circumstances of these countries through these opportunities, the more ambiguous I came to feel about the comparative perspectives, which I had considered in Japan.

Thus, in the course of my research in the three countries, I had to ask myself a series of questions: Why does one country need to be compared with another, what is so interesting about comparisons, and why was I comparing South Korea, Thailand and Mexico, instead of looking at the three separately?   

Comparison and Case Selection from the Perspective of Single-Country Studies and Quantitative Analysis

These comparisons and the selection of cases might not seem so significant for researchers conducting quantitative analyses on the basis of quantified data for multiple countries. For such researchers, comparison is just a means of verifying the general relationship between variables, and individual countries are selected simply as samples. For them, the important question is not which countries should be selected but rather how many countries with readily available data can be analyzed and whether or not the samples are biased. When they take up specific areas instead of the world as a whole, the significance of the selection may become an issue, but even in that case, they probably take little interest in any particular country.

For people engaged in single-country research, by contrast, what is important appears to be the significance of the selection of cases rather than the significance of a comparison. I have the impression, however, that there are in reality few references to reasons why a particular country (instead of another) has been selected as the subject of analysis. This may be because a consensus already exists among researchers that the study of that particular country has a certain significance. What is important, it seems to me, is which academic theme should be selected for that particular country, such as “the impact on policy decisions of the multiparty system in Thailand” or “factors allowing the coexistence of a multiethnic population in Malaysia.”

In contrast, when researchers of comparative studies propose making a “comparative analysis of financial restructuring between South Korea and Mexico,” they are most likely to be asked “why did you select those two countries to compare?” and thus are expected to explain the reasons in advance. The justification for their research is called into question unless they can present reasons (or perspectives) for the selection of cases and for the comparison at the time when they declare the intent to compare (even when the case involves only a single country, research that explicitly suggests the perspective of comparisons with other countries is construed to be included in comparative studies). 

Justifications for Comparisons

Why, then, did I take up South Korea, Thailand and Mexico for comparison? The reason is that I found it interesting that while all three countries had similar economic and political conditions regarding a certain theme, and that they could be intuitively expected to adopt similar policies and show similar results, the actual results were different.

Let me explain this more specifically. All  three countries experienced a “financial crisis of the 21st century” in the 1990s. This crisis featured a currency crisis, where the exchange value of the domestic currency plummeted due to a rapid and massive outflow of short-term private capital. At the same time, each experienced a banking crisis, with many domestic banks becoming insolvent. The crisis that dealt a heavy blow to these three economies was the most conspicuous phenomenon of globalization. Before the crisis, South Korea and Thailand had enjoyed “miraculous” economic growth, while Mexico had returned from the “lost decade” through the promotion of liberalization. But all  three countries proved to be just small boats tossed about by gigantic waves of international money moving across borders in a fraction of a second.

Continuing this analogy, all three countries found themselves floundering in the boundless sea of financial globalization, and were rescued by a salvage ship called the International Monetary Fund (IMF). All had democratic political regimes, and experienced a change of government after the financial crisis. The comparison is also interesting considering the influential “convergence hypothesis,” which argued that in the world of global finance, the economic policies of individual countries would converge into liberal policies.

Bearing these points in mind, it was not surprising that all three countries, in their efforts to rehabilitate their battered financial markets, took similar approaches for financial restructuring. This may seem intuitive. However, when they repaired their damaged ships to sail onto the sea again following the crisis, not only the repair methods but also the shapes of the renovated ships were quite different. In fact, as explained below, the approaches to and results of financial restructuring differed significantly from country to country.

Differences in Financial Restructuring

Among the policies that are considered in financial restructuring are the disposition of nonperforming loans, strengthening of capital bases, and banking sector realignment, including allowing the entry of foreign capital. These are all important from the standpoint of rebuilding the financial bases and business operations of domestic financial institutions. These policies can be divided into two approaches: government-led restructuring, and market-led restructuring. Given this, the financial restructuring in the three countries can be characterized as follows.

South Korea’s financial restructuring was characterized by “government initiative, promptness and partial acceptance of entry of foreign capital.” The government injected public funds into problem banks to boost their capital bases and in some cases even nationalized them, with tough follow-up measures, including changes of top executives and the closedown of some institutions. It also established the Korea Asset Management Corporation (KAMCO) at an early date to deal with nonperforming loans. Following the permission of market entry by foreign capital, foreigners came to control the management of some Korean banks. Discussing the prompt action toward financial restructuring, one Korean bureaucrat told me, somewhat proudly, that governments of other countries hit hard by the Asian financial crisis lacked the capacity to do the same.

Thailand’s financial restructuring was characterized by “market initiative, gradualism and limited entry of foreign capital.” To cope with bad loans, priority was initially given to the disposition of bad assets by the private sector on their own, with the establishment of the Thai Asset Management Corporation (TAMC) coming only in 2001. The strengthening of Thai banks’ capital bases was also left, essentially, to independent endeavours to increase capital. While some smaller banks were nationalized or acquired by foreign banks, there was no large-scale alignment of the banking sector, and the entry of foreign banks was also fairly limited. In explaining Thailand’s market-led approach in sharp contrast to South Korea’s government-driven effort, current and former officials of the Bank of Thailand, the central bank, and the Ministry of Finance cited cultural differences as well as the relative weakness of the Thai government.

Lastly, Mexico’s financial restructuring featured “government initiative, moderate progress and substantial access for foreign capital.” Mexico adopted the government-led approach, though not to the extent seen in South Korea, disposing of nonperforming loans through FOBAPROA (Fondo Bancario de Protección al Ahorro), a public institution, and buttressing banks’ capital bases through the injection of public funds. On the other hand, however, as the Mexican government allowed substantial entry by foreign capital into the banking market, foreign banks eventually came to control approximately 80% of Mexico’s banking sector assets through mergers and acquisitions. Because of the large presence of Spanish banks, some newspaper articles blasted what was happening in the banking market, describing it as the recurrence of the invasion 500 years earlier by Spanish conquistadores who took gold from the new world to bring home.

History and Origin of the Financial Systems

What led to the differences between the three countries, which essentially faced similar circumstances? This is a question that is unlikely to occur to single-country researchers, and is also the very reason for the comparison between the three countries. To explain the differences, I have analyzed the historical relationships among the governments, enterprises and financial institutions (terming these relationships the “financial systems”) in these countries. Through this analysis, I hope to shed light on the historical processes through which the actors, particularly the governments, have formed their policy preferences for addressing financial restructuring.

The gist of my discussion is as follows. Financial restructuring has a historical origin, which can be traced back to the financial system adopted around 1960 at the outset of the era of developmentalism. The differences in the financial systems adopted by the three countries in the past led to the differences in the financial restructuring approaches as well as in their results some 40 years later under the (path-dependent) historical restraints of their own choices. The financial systems adopted by the three countries in the past can be classified by two axes. One is the extent of government intervention in the financial market, and is the other the question of which actors enjoy the benefits (financial rent) of the intervention. In line with this, South Korea’s financial system can be classified as “rent-for-enterprises” type as the government strongly intervened in the financial market and provided the conglomerates (chaebols) with preferential loans. Thailand’s financial system can be seen as “rent-for-banks,” as commercial banks were heavily protected, and government intervention was relatively weak. The Mexican government absorbed bank deposits to finance its fiscal deficit and to control inflation through strong intervention, and thus its financial system may be categorized as “rent-for-government.”

What, then, led to the selection of the different financial systems in the three countries? It was the contingent outcome of political processes that resulted from the crises they faced, such as economic depression and political regime changes. Let me explain the three cases briefly. In South Korea, the government of President Park Chung-hee, which came to power in a coup, pursued an import-substituting industrialization policy by absorbing domestic bank deposits in order to attain the country’s economic reconstruction and establish its political legitimacy. This attempt failed, however, because few deposits remained and both the business sector and the United States opposed it. Consequently the government had no alternative but to provide preferential credit to private businesses (the export sector).

In Thailand, Prime Minister Sarit Thanarat, greatly concerned about the communist threat in Indochina, adopted the private sector-driven economic development strategy advised by the World Bank and the United States in a bid to secure economic and military assistance, and left economic policymaking in the hands of liberal bureaucrats. Under this strategy, there was a contraction of the state-owned enterprises that were the economic basis of political rivals. In Mexico, the labor movement grew in strength from around 1958 against the backdrop of rampant inflation caused by the devaluation of the peso and the influence of communism, threatening to undermine the dominance of the ruling Institutional Revolutionary Party (PRI). In response, the government of President Adolfo López Mateos recognized the urgency of inflation control and social policies, and this proved a critical factor behind the selection of Mexico’s financial system.


My analysis of the history of the financial systems and financial restructuring efforts, as explained above, could also be completed as single-case studies of particular countries involved, given country-by-country particularities. However, a comparative analysis of a small number of countries makes it possible to elucidate the idiosyncratic elements of each country and the common elements. This process reveals that the cases of the respective countries are actually not so unique, and also suggests the possibility that other countries can be analyzed within the same comparative framework. This is a distinct feature of comparative analysis that cannot be expected from single-country studies.

Another advantage of the comparative study of a small number of cases lies in the fact that it allows an analysis of not only the above-mentioned directionality toward generalization, but also of the dynamic historical process of individual cases. In this sense, comparative analysis shares a strong point of single-country studies, which is impossible with quantitative analysis. This two-sided nature may stem from the halfway position it occupies in (Japan’s) political science, as mentioned at the outset, but if viewed from a different perspective, I believe that is really a fascinating aspect of the method.


Yasunobu Okabe

Ph.D. candidate, Graduate School of Arts and Sciences, The University of Tokyo (Translated from the original Japanese version published on February 25, 2008)