MOSF Determined to Press
for Financial Sector Reform

Deregulation only way to ensure economic prosperity

Strategy and Finance Minister Kang Man-soo has been initiating the government's much-touted bid toward economic prosperity through deregulation in the financial sector. He is now poised to embark on his first overseas trip to attend the 41st session of the Asia Development Bank since he took office in February, which will serve as a forum to publicize Seoul's determination for financial reform. The following are excerpts of his recent written interview with NewsWorld.

Question: Would you first comment on the agenda to be addressed during the 41st annual session of the Asia Development Bank (ADB) where you will lead the Korean delegation?
A: The 41st annual meeting will be the first international conference I will attend as the finance minister in my title as chief delegate of Korea and governor of the international organization.
The incoming session will summarize projects pursued in 2007 for reporting them to governors.
It will also serve as a forum for governors to engage in in-depth discussions of goals and strategies for the ADB to cope with the changing environment in the Asia-Pacific region. It will focus on the ADB's new Long-Term Strategic Framework (2008-2020).
Delegates from developing countries will make presentations on their economic situation and development as in the previous years.
Governors are scheduled to deliver keynote speeches with a focus on the ADB's assistance to the developing economies and ways of establishing a cooperative system among the member nations.
I am set to make a speech on May 5 and plan to present a vision for the establishment of an economic cooperative system in Asia.
Q: Can you explain the outline of the economic policy for 2008?
A: The government is poised to press for the goal of achieving 7 percent annual economic growth over the next five years.
For economic recovery, we will cut corporate taxes and abolish various regulations like the 'ceiling on total equity investment,
'which have been in the way of businesses'investments. All of these efforts toward deregulation will be made to expedite investment and domestic consumption.
To ensure continued growth, the government will minimize regulations, reduce taxation, upgrade the financial sector to a global standard and legalize relations between the labor and management. Based on these four points, the nation will be able to create the world's best business environment and enhance efficiency in the public sector.
In order to secure a basis for long-term growth, we will expand investment for research and development (R&D) while exploring growth engines in the areas of the environment and renewable energy.
The government will press for the policies under the 2008 Action Plan with the goal of achieving 7 percent economic growth. Checks will be made among relevant ministries to cope with possible problems.
Q: What is the impact of the U.S. subprime crisis upon the Korean economy and how is the government going to tackle the issue?
A: The subprime mortgage crisis has sent shockwaves through the global financial markets and is expected to further jolt the world economy. It has also become a threat to the national economy.
But given the decreased influence of the U.S. on the Korean economy, the impact will remain minimal compared to the past. With the diversification of export markets, the U.S. portion of the nation's overseas sales has continued to decrease.
Our exports to the U.S. have been led by capital goods, which means the impact of the subprime crisis on exports will be limited unless U.S. companies cut back on investment at a great level.
In the financial market, we expect limited damage due to the financial crunch in the U.S. But there is the possibility it will cause severe fluctuations in the international financial markets, destabilizing domestic stock and exchange markets, which will lead to a contracted real economy, like consumption and investment.
In order to minimize the possible adverse impacts of the external factors on the national economy, the government has been seeking systematic inter-ministerial cooperation. We are taking preemptive measures to cope with the destabilizing factors. We are exerting our best efforts to maintain a stable growth trend by promoting domestic consumption and investment.
Q: Can you introduce the government's plan to ease businesses'entry into the financial industry?
A: Businesses have so far been prohibited from owning banks for the purpose of securing a stable financial system and preventing possible conflicts of interests. And the nation has been maintaining stricter restrictions compared to foreign nations due to its past experiences resulting in negative impacts.
But the government has begun to take new measures to ease the regulations to raise the competitiveness of the financial industry and speed up the privatization of state-owned financial organizations like the Korea Development Bank and Uri Financial Holding Co.
Toward that end, the ministry plans to expand the businesses'ownership of banks gradually through methods designed to minimize the possible conflicts of interest like funds and the national pension.
In the mid-and-long term, the ministry will adopt an individual deliberation and supervision system as seen in many other economies like the European Union.
The easing of the restriction does not necessarily mean the automatic permission of major conglomerates or chaebols to own banks. While mitigating strict regulations, the government will strengthen financial supervision to the level seen in major industrial economies like the U.S., UK and EU.
Q: The government has been taking various steps to ease regulations in the financial industry. Can you provide some details?
A: The government will put its top priority on deregulation in the financial industry, which it has selected as the growth engine.
All financial regulations will be reexamined on a zero basis and such deregulation will be initiated by private concerns.
The tentatively named "financial sector reform advisory committee"will deliberate the properness of the regulations, some of which will be abolished should the authorities fail to prove their necessity.
A market-friendly and consumer-oriented supervision system will be introduced. A soft-touch supervision system will be adopted with a further opening of the deliberation process to ensure transparency. Epoch-making deregulation will be made to enable financial companies to engage in various businesses as in advanced nations. The efforts will enhance the global standard of financial organizations. Coupled with the deregulation, the ministry will continue its efforts to strengthen the preemptive risk-management system to ensure stability in the financial system.
Q: Would you tell us about the government's plan to set up a financial hub?
A: The government has set up a basic direction for a financial hub and has been establishing basic infrastructure by revising related regulations since 2003.
The government plans to speed it up with concrete programs so that the financial hub policies will yield a feasible outcome.
Firstly, the government will designate "financial clusters"by the end of the year that can match international financial hubs like Canary Wharf of London and that in Dubai. This "financial assistance center"will be set up to help companies enter the financial cluster.
Secondly, finance-related regulations will be totally reexamined in relation to foreign financial firms in particular.
A one-stop service desk will be operated to establish schools and hospitals exclusively for foreigners. The desk will also be in charge of facilitating administrative affairs for foreigners. The government is poised to take all measures necessary to greatly improve the living conditions of foreign business people. nw

Minister of Strategy and Finance Kang Man-soo

Minister Kang Man-soo of the Strategy and Finance Ministry (right) in a meeting with heads of economic research institutions.

Strategy and Finance Minister Kang , left, talks with President Lee Myung-bak during a break in his ministry's report on its policies to the president.

This gragh compares annual exports of Korea, China and Japan in the past decade.
(Korea is blue, China yellow and Japan in green lines.)