Economic Growth on Course

MOFE feels more facility investment, FDI needed to meet growth target

The Ministry of Finance and Economy, in its June briefing of the status of the national economy, said the economy has come through up and downs since the establishment of the economic management plan for fiscal 2006 in December last year.
The international price of oil rose sharply during the period with the rapid appreciation of the Korean won, both overshooting the projections by the government. The price of Dubai oil, which make up a large portion of the country's crude oil imports, went from $53.5 per barrel in December, last year, to $60.3 in March, and to $67 per barrel as of June 6.
The Korean won't exchange rate with the U.S. dollar went from 1,011 won per dollar to 971.6 won to U.S. dollar in March and to 948.2 won to U.S. dollar in June 7. The world economy appear to be better off than expected with the IMF and OECD raising their growth projections for the world economy this year.
The IMF initially projected 4.3 percent growth for the world economy, but raised it to 4.9 percent, while OECD revised its projection from 2.9 percent for its member countries to 3.1 percent.
The ministry said the economic management plan for the second half will be drawn up after taking into consideration suggestions from various government ministries. But, the ministry, can be sure that four key major measures will be upheld in the plan throughout the year.
First, the government doesn't feel it should revise its macroeconomic management plan in light of the various economic indicators in the first half. But the decision will be made based on a detailed examination of the implementation status of government budget in the first half and the degree of achievement in foreign direct investment in the first half. The government will check the base for stable consumer price target with the Bank of Korea, the central bank, and decide to make up measures to supplement it, if needed.
Second, the government will strengthen its effort to expand facility investment, which is a key task not only for this year, but next year and beyond, too, for sustainable economic recovery. Large firms have been making substantial investment,
but not SMEs, hit with an added burden of the high appreciation of the Korean won.
The government will revise the procedures of setting up corporations and build plants based on a survey now being conducted, to remove obstacles in the way of investment and financial assistance to improve conditions for investment.
Third, Efforts to cool down real estate market will continue to ensure stable economy. The government will solidify its trust in the market by continuing its Aug. 31 real estate measures and help it take a firm root.
The government will also try its best to upgrade the quality level of various service sector businesses such as finance, education, medicine, tax system, accounting, legal service and consulting, knowledge-oriented service business. It will also try to upgrade the level of foreign exchange management, tax system, competitive system, labor-management relations, and the opening of the country to foreign businesses.
The government will promote measures to close the gap between the top level and the lower level firms so that they will grow together by creating jobs, which will help to expand the social safety net.
On the policies for the free economic zones in the country, the government has decided to simplify administrative procedures by delegating more authorities to local governments. In consultations with local administrations, the government will find measures to expand its financial support to the management of free economic zones around the country.
The government will increase its effort to attract foreign firms to participate in the projects in the free economic zones, along with domestic firms. The government will provide budgetary support to expanded areas including model foreign-invested firms, the construction of R&D, and other areas that have large expansionary effects.
On policies for the establishment of medical and education hubs in Northeast Asia, the government intends to set up an international academic complex to allow the establishment of hospitals by foreign investors under various upgraded tax incentives under the laws and tax regulations to be set up by the government. The government aims to set up a medical town, along with a tourism program to build an infrastructure for medical tourism. The government will continue to push the development of free economic zones to become hubs for business and logistics in Northeast Asia.
The government will continue to help SMEs in terms of their enhancement of competitive edge despite the strong Korean currency, which has been hurting their competitive strength overseas.
In short-term, the government support will support in their effort to prevent losses from the foreign exchange rates, by having them expand their deals in the futures currency market through a system to be developed by the government.
The government will also help the SMEs to diversify their export market to minimize their losses from the currency exchange rate changes. The government will have state-run banks including the Korean Development Bank and the Industrial Bank of Korea to set up funds to be loaned to SMEs to support export activities. The KDB will secure 500 billion won in funds and IBK 300 billion won.
In long-term, the government will take measures to help SMEs to benefit from policy loans to be provided to them by the Small Business Administration.
The government will also take measures to turn their structures around through workout, and tax support at the Small Medium Business Turnaround Support Center in an effort to foster innovative export-oriented SMEs strategically. The government will provide support to those SMEs which are no longer competitive in exports to change their products or become domestic market-oriented firms.
On the inter-Korean economic cooperation, the government said it will continue to keep cooperative relations with the North, provided that it will allow the test-run of trains linking the South and North before August. The government will announce the light industry and underground resources agreement as long as the North is ready to test-run the inter-Korean train as agreed in the South-North Economic Cooperation Promotion Committee held on Jeju Island June 3-6.
The government said the delegation from the South specifically noted that the supply of light industrial material will begin from August, which means that the North should be prepared to carry out the train test-run before then.
The Jeju meeting saw the two Koreas agreed on their cooperation on light industrial raw material and mining resources exploration as a base to expand the commercial and mutually beneficial economic cooperation for the first time in the inter-Korea exchange.
The meeting also paved the way for the South to explore natural resources in the North, in competition with China. It also agreed to make the Gaesung Industrial Complex internationally competitive, by relaxing various conditions for operating plants in the complex including regulations and systems to be up to the international standards.
The government expects the North to relax its regulations on workers, labor regulations, entry procedures to the complex that the plant operators in the complex have requested. The government also expect the North will agree with the exchange of economic missions for more clearer understanding of economic conditions on both sides of the border. It will also pave the way for increased economic exchanges for the private sector in the South.
The government plans to hold intensive contact with the North until the end of August to have good results at the 13th South-North Economic Cooperation Promotion Committee meeting scheduled to be held in Pyeongyang in September.
The Finance and Economy Ministry said May 18 that domestic investors will be allowed to invest as much as $1 million in real estate in foreign countries effective from May 22. The government is speeding up deregulation of the local currency market by lifting major bans on overseas investment and further globalizing trade in the Korean won.
As part of efforts to stabilize fluctuations in the local currency and establish an efficient foreign currency exchange market, the ministry said it would advance its foreign exchange deregulation scheme by two years to 2009.
"Despite some recent measures to boost overseas investment and won trading, our foreign exchange regime still falls behind in consideration of the size of the Korean economy,"said DPM and Finance and Economy Minster Han Duck-soo during a press conference, explaining the ministry's decision to pull up the timing for easing financial regulations.
Individual and corporate investors will be allowed to invest up to $1 million in foreign properties and the limit will be eased further and by 2009, the foreign exchange regulations will be deregulated enough to remove the limit on abroad investment by domestic individuals and corporations. The ministry also took measures to raise the limit on local currency borrowing for foreigners from 1 billion won to 10 billion won, aimed at boosting demand for local currency in the market.
In the second half of this year, the ministry will promote the measure to have the won-dollar future trade listed on the Chicago Futures Trade Market. The tax rate on foreigners interest income from holding domestic bonds will be cut to 14 percent from the current 25 percent. At the same time, the financial institutions foreign exchange positions will be 50 percent of capital from the current 30 percent to invigorate foreign exchange transactions. nw

DPM and Finance and Economy Minister Han Duck-soo.

A container vessel fully loaded with export items is cruising toward the sea.