In 1999, Korea abolished the so-called positive list system
and adopted the negative list system with respect to capital
transactions, thereby regulating only such transactions as
listed in the Foreign Exchange Transactions Law of Korea
(FETL). Simultaneously, lawmakers passed a sunset provision
requiring the advance approval of the Ministry of Finance and
Economy (MOFE) or the Bank of Korea (BOK) for certain capital
transactions (restricted transactions). That sunset provision
will terminate on December 31 2005 and as a result, beginning
on January 1 2006, MOFE (or BOK) approval requirements in
respect of restricted transactions will automatically cease to
be effective and be changed to reporting requirements.
Listed below are some of the restricted transactions that
will be subject to the reporting requirements beginning in
- A Korean resident borrower with a debt-to-equity ratio
not less than the industry average will be able to borrow
foreign currency-denominated loans or issue any foreign
currency-denominated bonds, with a maturity of less than one
year from the drawdown or issuance date, subject to the prior
filing of a report with MOFE.
- Subject to the prior filing of a report with MOFE, a
Korean resident borrower will be able to borrow Korean
won-denominated loans from a non-resident lender or issue
Korean won-denominated bonds to a non-resident subscriber,
maturing within one year from the drawdown or issuance
- A Korean resident guarantor that is one of the top 30
conglomerates will be able to provide a guarantee in an
amount exceeding a certain threshold in relation to overseas
financing by that guarantor's overseas subsidiary, subject to
the prior filing of a report with MOFE.
- A Korean resident guarantor will be able to provide a
guarantee in respect of obligations of a non-resident obligor
owing to a non-resident creditor, subject to the prior filing
of a report with BOK.
- A Korean resident lender will be able to make a loan to a
non-resident borrower in excess of $10 million, subject to
the prior filing of a report with BOK.
As a result of the termination of the sunset provisions of
FETL, restricted transactions will be subject to mere reporting
requirements and Korea plans to fully liberalize all types of
foreign exchange transactions by 2010.