Gov. Lee in IMF/WB Meet
The central bank governor to meet with his counterparts from member countries for support for Korea? quota increase
Gov. Lee Song-tae of the Bank of Korea is to leave for Singapore to attend the IMF/WB Annual Conference Sept. 17-20 as alternative chief delegate to the Korean delegation.
The Korean delegation led by Deputy Prime Minster and Finance-Economy Minister Kwon O-kyu is expected to do all it can to win the support of the member countries for increasing Korea? quota at the IMF. Gov. Lee will support the cause by meeting with every representative of the 184 member countries and secure their votes. Korea needs 85 percent of votes to be able to increase the quota. The Draft Resolution will be put on the voting by the IMF board of directors at the annual meeting. Agenda of the meeting include the adoption of agenda, the discussions on the global economy and financial markets-outlook, risks, and policy responses. The IMF? mid-term strategy; IMF quotas and voice. The status of improvement-focus on adaptation of the IMF surveillance framework. Progress reports: Strengthening IMF engagement with emerging market countries; IMF support to help low-income members achieve the Millennium Development Goals; and activities of the Independent Evaluation Office.
Facilities investment in Korea maintained strong growth, outpacing that of GDP during the period of high economic growth, thus, greatly contributing to national economic development, the Bank of Korea said recently in a report.
However, it has been on a downward track since 2000. Despite this trend, spending by businesses on facilities investment is on the rise in both volume and share terms, since they have been expanding investment in rationalization and research and development, rather than increasing production capacity, the central bank report said.
As knowledge-based service industries grow more and more important, qualitative and human investment such as spending on intangible assets rather than quantitative and material facilities investment is expected to become, vigorous in the future. Against this backdrop, major advanced countries have been proceeding to undertake theoretic and empirical research on the relations between qualitative investment in tangible assets, especially on the question as to whether qualitative investment such as spending on intangible assets is substituting for quantitative investment in tangible assets. However, this area of discussion and research is neglected in Korea, despite the fact that the ratio of its R&D spending to GDP is above the average of the advanced countries.
In view of this situation, the central bank examines the current circumstances surrounding spending on intangible assets in Korea, based on the definition that spending on intangible assets in Korea refers to spending on R&D, technology introduction, software, and human capital. The bank also conducts an empirical analysis to estimate the short-term and long-term impacts of spending on intangible assets on investment in facilities or tangible assets. The empirical analysis shows that spending on intangible assets, such as investment on a short-term basis by bringing about changes in productivity, but push up facilities investment on a long-term basis. This suggests that spending on intangible assets and facilities investment complement each other on a long-term basis, although they may seem to substitute for each other on a short-term basis, due to the budget constraints of companies and price rigidity. In other words, although growth in R&D and the introduction of new technology may bring about productivity improvement, businesses restrains the expansion of facilities investment by delaying purchases of capital goods on a short-term basis, based on an anticipation of their fall in cost response to productivity improvement, while increasing facilities investment by proceeding with their purchases on a long-term basis expecting their prices to be flexibly adjusted.
In consideration of the short-term and long-term impact on facilities investment of spending on intangible assets, by way of productivity improvement, it is not adequate for changes in facilities investment in terms of tangible and material assets to be taken as the only yardstick for assessing future growth potential and directional changes.
Consequently, some advanced countries have been discussing widening the category of investment spending in the National Accounts, and attempt to grasp comprehensively the impact on the national economy of spending on intangible assets. In an IT-oriented and export-led economy like Korea with a high proportion of IT production and investment, both spending on R&D and investment in human capital are likely to pick up. Accordingly, qualitative investment-driven productivity improvement is needed to lead to growth in quantitative investment. nw
Gov. Lee Song-tae of the Bank of Korea