DPM Lee : Korean Economy in Transition to Market Economy
- Economy to become stronger, more solid as it continues its growth

Deputy Prime Minister and Finance and Economy Minister Lee Hun-jai said the Korean economy is experiencing the growing pain, which is temporary in nature. In his speech at the Foreign Press Club in downtown Seoul Nov. 18, the top economic planner in the country said in the medium to long-term, the Korean economy will have become stronger and more solid, he emphasized.
Commenting on the debates and the possibility of growth potential decline and polarization of the economy, DPM Lee regarded as a temporary phenomenon arising from transition to the market economy of opening and competition after the financial crisis from government-led centralized economic model.
The government's policy focus will be on development of market economy of free competition. It requires strong social cohesion simultaneously. Social safety net and education and training opportunities are critical factors in keeping social cohesion intact. Speaking about the much-debated foreign exchange policy, DPM Lee reassured that the government has no target level as foreign exchange rate is determined by market supply and demand. Never is foreign exchange used as a policy tool.
Nonetheless, the government continues monitoring the market. In the event of serious market fluctuations due to speculative forces, the government will take necessary steps to ensure smooth operation of the market. Touching upon interest rate, he repeated the government position that it is under jurisdiction of the Monetary Policy Committee of Bank of Korea, and the government respects the Committee's decision.
Differing views have been observed on the effectiveness of interest rate cuts. The latest overnight call rate cut is interpreted as the Bank of Korea's signaling to the slack economy.
DPM Lee spoke strongly for the efficient management of pension fund, arguing that loads of legal restrictions, responsibility for future asset of the people and psychological obsession preclude pension fund investment in stock market. As a result, excessive investment in bond market causes serious market distortion. The government has put forward to the National Assembly a bill on the pension fund management on grounds of long-term liquidity and profitability to release the shackles placed around it.
Responding to the foreign investment issue, DPM Lee also made it clear the government has no intention to place restrictions on or limits to foreign investment.
He also said the ceiling on company's stake holding in affiliates will be removed once corporate transparency and accountability is secured. In his concluding remarks, Lee said Koreans have a tendency to be heavy-hearted and pessimistic about the economy. Quite contrary to it, foreign financial markets and businesses are generally optimistic of the Korean economy, holding objective views about the Korean economy. The finance minister reassured foreign press that the Roh Moo-hyun administration is pro-market economy and thus no doubt should be raised. Private consumption shrank by 0.8 percent from the same period last year in the third quarter, which was attributable to subdued household spending on durable and semi-durable goods.
Gross capital formation rose by 3 percent year-on-year as facility investment increased offsetting slower growth in construction investment. Goods exports increased by 17.8 percent as metal products, communications equipment and auto vehicles exports surged while semi-conductor growth slowed and light industry products decreased.
The contribution ratio of domestic demand to final demand was up from 14.9 percent in the previous quarter to 18.1 percent, while that for exports was down from 85.1 percent to 81.9 percent. nw