Korea's Quota Rise
Means Improved Standing
The Draft Resolution submitted by the board of directors to the general conference needs to be approved
Director General Kwon Tae-kyun of the Ministry of Finance and Economy said Korea is very likely to have its quota increased by the International Monetary Fund at the IMF/WB Annual Conference in Singapore. The Draft Resolution submitted by the board of directors to the general conference has to be approved by 85 percent of the 184 member countries participating in the conference. Korea's quota increase will boost its position in the international financial community with a bigger voice in the decision-making process of the IMF. The government has worked hard at it, said the Director General. Following are excerpts from an exclusive written interview with the Director General:
Question: What's the significance of this year's IMF/WB annual meeting in Singapore?
Answer: The annual meeting is held twice in the U.S. and once in foreign countries every year. This year is to be held in Singapore, Asia's financial and logistics hub, from Sept.19-20.
Before the opening of the annual meeting, the International Monetary & Financial Committee will hold a meeting on Sept. 17 and the Development Committee is scheduled to meet on Sept. 18. Both committees take up very important issues for IMF and WB and their members are made of 24 director countries'finance ministers among all 184 member countries of the global financial institutions.
Deputy Prime Minister Kwon O-kyu has a very busy schedule at the meeting. He is slated to make a key note speech and attend the IMFC and DC meetings as a director-country for 14 countries in our group. He is to be engaged in a serious discussion on international economy and finance along with other 24 finance ministers.
The IMF/WB annual meeting is one of the very important meetings held in the international financial community and traditionally, many representatives of famed international financial institutions participate in the meeting including top executives of such world financial companies as Citi, HSBC and Goldman Sachs.
Taking advantage of such an opportunity, we would like to increase the mutual understanding and expand and strengthen international financial cooperation through meetings with representatives of international financial organizations.
At the Singapore meeting, Korea's IMF quota is likely to be increased, which will raise our position in the IMF, but also in the international financial community, with its voice strengthened.
Q: What is the significance of the IMFC/DC meetings and their key agendas?
A: They meet twice a year only because the annual meeting has too many participants to discuss key issues in detail.
The IMF set up the IMFC to deal with the management and supervision of the international currency system, the transfer of financial resources to developing countries, the deliberation of IMF agreement plans and their revisions forwarded by the IMF board of directors. It also draws up measures to cope with the emergency situations threatening the international currency system.
And the World Bank established DC to deal with the provision of loans to spur the economic development of developing countries and other related matters.
The agenda for the IMFC/DC meetings are: To discuss joint steps to cope with the risk factors to the world economy from high oil prices and global imbalance through the IMFC meeting.
At the DC meeting, various issues related to problems in the development of low-income countries on the way to achieving the Millennium Development Goals, which is being pushed by the entire world.
Korea has become a director country for both organizations in 2004 on the 50th year of its memberships in the two financial institutions and has participated in the IMFC/DC meetings every year taking up key issues in the international finance including the prospects of the world economy and risk factors and measures to cope with them.
Q: What's the importance for Korea to have its IMF quota increased?
A:The IMF quota is the allocation of stakes for each of the 184 member countries based on their funding contribution and is the standard for voting rights in the approval of IMF policies. Korea's quota has been set at 0.764 percent ranked 28th in scale.
The IMF examines the quota for each member country in every five years with the 12th IMF quota meeting completed on Jan. 30, 2003. Korea's last quota increase came in January, 1998 at the 11th IMF quota examination meeting.
Korea sees many problems in the current quota system at IMF. It has not been able to correctly reflect member countries'economic scales. Under the circumstances, Korea has been urging the need for upgrading its quota in every annual meeting it participated
In September, 2005, Korea delivered a strong message for quota reallocation at the annual meeting in a keynote speech and the IMFC meeting in Washington. DPM Han Duck-soo said, "While I welcome reform efforts from the IMF itself, I hope the reallocation of quotas will be carried out in the nearest future."In October, 2005, during the G-20 finance ministers meeting in Beijing, Korea participated in the effort to draw up a road map for quota reallocation and the meeting was able to agree on the road map and issued the statement, which partly read, "G-20 underscores the critical importance of achieving concrete progress on quota reform at the next IMF/WB meeting in Singapore.?
Q:What are the trends for quota increases at IMF?
A: Under the result of such effort, the IMF board of directors at its meeting on Aug. 31 has decided to increase quotas for Korea, China, Mexico, and Turkey on its first step. The board recommended a 1.8 percent increase in total IMF quotas in connection with a special increase for the four countries.
The board is slated to submit the case in the form of Draft Resolution to the general conference for finance ministers of 184 member countries. The finance ministers will vote on the resolution by writing from Sept. 1 to Sept. 18 in the general meeting. The resolution should win 85 percent of the votes of the finance ministers for approval and it will take effect from Sept. 18. Korea's quota will be increased from 0.764 percent to 1.346 percent if the resolution is approved.
Korea will be able to expand its position as a director country if its quota is increased and with stronger voice in the decision-making process at the IMF.
Q: What is the possibility for upgrading of Korea's sovereign credit rating?
A: Since last year, Korea saw its sovereign credit rating upgraded by the three major credit rating agencies. S&P and Fitch have upgraded their credit ratings for Korea last year. This year, Moody's has upgraded the prospect of Korea's credit. S&P upgraded the credit rating from A- to A, Fitch boosted the credit rating from A to A+ and Moody's upped the prospect of credit rating from A3, Stable to Positive.
The government is trying to further upgrade the credit ratings, especially, that by Moody's, which is lower than others. Government officials emphasized that Korea has successfully completed the restructuring and the free trade agreement is being negotiated with the U.S. in an effort to stress that Korea's sovereign credit rating stagnant for the past 4 years is due for upgrading.
In talks with S & P and Fitch, they emphasized the flexibility of Korea's labor market and the effectiveness of the credit guarantee system, along with the successful result of the restructuring.
In that respect, further momentum toward credit rating upgrading is feasible provided that Korea is able to achieve good breakthrough in its inter-Korean relations and in the restructuring area.
Q: What is the level of Korea's foreign exchange reserves and plan to manage it?
A: As of the end of August, it amounted to $227.02 billion, the 5th largest in the world. The biggest variables for the reserves are the changes in the exchange rates and the level of interest earnings. About 83.7 percent of them are invested in securities and 16.1 percent in deposits. They are held in several major currencies including U.S. dollar, Euro, and yen.
The government has allocated part of the reserves to spur corporate investment as foreign currency loan funds. By the end of this year, the Korea Investment Corp. will be set up to manage part of the reserves for an effective boost in profit in managing the reserves so long as it doesn't hurt the stability and profitability of the reserves.
Q: What are prospects and future plans for the establishment of a common currency among Korea, China, and Japan?
A: In May, the three countries agreed to study the common currency plan in Hyderabad, India, through the ASEAN+3. With the agreement as a base, discussions on a roadmap for the establishment of a common currency in Asia and related issues will proceed. Korea, as a co- chair country for ASEAN+3 in 2006, will push the plan as a major player. nw
Kwon Tae-kyun, director-general of the International Finance Bureau of the Ministry of Finance and Economy.