Finance Minister Upbeat About Korean Economy

Stresses strengthening competitiveness of the nation’s financial sector

Finance Minister Yoon Jeung-hyun was upbeat about the prospects for the nation’s economy in 2010 while stressing the need to strengthen competitiveness of the nation’s financial sector and its deregulation during a written interview with NewsWorld. He leads a Korean delegation to the 43rd Asian Development Bank Annual Meeting, to be held in Tashkent, Uzbekistan on May 1-4.
Q: Would you first address the Asian economy in 2009 and its implications on the Korean economy?
A: The Asian economy, which includes the likes of China, India and Korea, had been rapidly recovering in 2009, boosted by export growth and domestic demand increase compared with other regions.
China, for instance, posted a 10.7 percent growth in the fourth quarter last year alongside inflationary worries in India, Malaysia and Vietnam due to rapid economic growth.
Entering 2010, the Asian economy continued to grow fast and is expected to lead the global economic recovery for the time being.
The rise in trade following the economic recovery in major advanced nations like the United States and Japan has been the main factor for major Asian economies to continue economic growth.
The expansion of China’s local markets will likely help other Asian countries to increase exports.
The inventory cycle of Asian nations has been bottoming out, which will help the Asian region to see an economic turnaround.
Despite lingering uncertainties about the possible appreciation of the Chinese currency and the normalization of contingency plans in each country, the economic growth trend will likely continue.
Q: CMIM has drawn increasing attention as a regional financial safety net. What is the meaning of CMIM?
A: CMIM is the acronym for the Chiang Mai Initiative Multilateralization, which is a system to provide funding assistance via multilateral swaps among ASEAN+3 nations in the event of financial crisis.
In the aftermath of the 1997 financial crisis, the CMI was set up as a bilateral funding system during the ASEAN+3 finance ministers’ meeting held in Chiang Mai, Thailand, in 2000. Later, it was transformed into a multilateral swap system and was reborn as the CMIM.
The total size of the CMIM is $120 billion, for which Korea is responsible for 16 percent or $19.2 billion, with the right to withdraw the same amount of money. This means the nation holds the third largest portion of the funding after China and Japan, who hold 32 percent each.
CMIM’s decision is made according to the portion of each nation, which means Korea holds a casting vote status. As any decision can only be made with the support of more than two thirds of the total portion, it cannot be finalized without the support of Korea, given the portions of 32 percent each for China and Japan and 20 percent for ASEAN.
CMIM is expected to help prevent crisis from spreading rapidly as it is a sort of regional safety net beyond the IMF.
The successful setup of CMIM was due to the Korea Initiative toward the establishment of a financial safety net. The nation as the chair country proposed the discussion for the CMIM in 2006 with the completion of the talks in 2009. The nation has established its status as the leader in Asia by coordinating the different interests of each nation.
In the future, the Korean government will attempt to increase cooperation among Asian nations toward the setup of a global financial safety net of the G-20 based on these experiences.
Q: The Korean economy has seen a rapid recovery in 2009. How do you assess this?
A: The Korean economy has seen a fast recovery from the global financial crisis. In fact, among the 30 OECD nations, only Korea (+0.2 percent), Australia (+1.1 percent) and Poland (+1.7 percent) recorded positive growth in 2009.
Korea has also been registering faster-than-expected growth this year. This is because of the following factors:
The Korean treasury, companies and banking organizations were healthy enough to cope with the shock from the crisis from the pre-crisis period. As the nation possessed $260 billion of foreign reserves, it could well address the possible outflow of capital during the crisis period.
The Korean government announced a contingency plan to stabilize the financial market and stimulate the economy, which has helped speed up the economic recovery to a great extent.
The government expanded expenditures through extra budgets in 2008 and 2009 while carrying out 65 percent of the 2009 budget in the first half of the year. It also lowered the basic interest rate from 5.25 percent to 2 percent while stabilizing the financial market at an early date through the provision of liquidity and the extension of credit guarantees for small and medium enterprises.
The national export companies have so far been diversifying export markets and strengthening competitiveness, which has helped them increase overseas sales despite the lingering economic difficulties.
Q: What is the direction and vision of 2010 economic policy?
A: We put top priority on “successful crisis settlement” and “expansion of growth foundation” for the year.
While exercising efforts so that the current economic crisis can lead to expansion of employment and investment, we will also focus on mid-to-long-term growth projects like corporate reform and the securing of growth momentum.
Toward that end, we will pursue the following projects:
First, we have been beefing up our capability to cope with possible external crises through the reform of various sectors while maintaining accommodative policies for the time being.
Second, we will enhance the ability to create jobs and expand the basis for the purpose through proactive labor policies. We will try to stabilize the livelihood of ordinary people by keeping inflation and the real estate market under control while supporting the less privileged classes in terms of employment and education.
Third, on the occasion of the hosting of the G-20 summit, the government has been making efforts to enhance external strength and national status.
Fourth, the government has been raising the ability to cope with climate change through the expansion of investment into green areas and low-cost energy.
We plan to take measures to tackle future risky factors like low birth rate, an aging society and increasing budgetary costs.
Given the recent external and internal economic variables, the Korean economy is forecast to post around 5 percent growth for the year.
The IMF raised the global growth forecast from 3.1 percent to 3.9 percent in January this year, which shows rapid global economic growth. Such a fast recovery has been apparent in Korea’s major export markets like the United States, China and other developing Asian countries, providing a positive impact on Korea’s future exports.
The nation has seen a remarkable improvement of various indexes, like the industrial index in February. Domestic consumption will likely continue to improve given the solid consumer and investment sentiment, recovery of consumption and employment. The inventory level, which had been rapidly declining during the crisis, has been turning around to a positive cycle since the beginning of 2010, contributing to growth.
Despite these and other positive factors, there are some risky variables like the possible global financial market crash, and a rise of international raw materials prices like crude oil and steel. We will also take steps in the event of such risky factors.
Q: Please let us know about the government’s focus on raising Korean-style investment banks and the deregulation of the financial sector.
A: Many nations have been strengthening the supervision of their financial sector in the wake of the financial crisis. They are rearranging their financial sector supervisory regime while the G-20 has been debating regulation on banking organizations’ capital and liquidity.
We have also been ameliorating the defects of the financial system revealed during the crisis through the signing of an MOU (Sept. 15, 2009) for information sharing among the policy authorities and the stricter regulation of foreign currency liquidity and the rate between lending and deposits.
But we believe there must be efforts to enhance the safety and efficiency of the financial system for the betterment of the financial market and national economy. This is because the financial system is playing a key role in economic growth by offering reserve capital to needy places.
We also need to address the special points of the domestic economy and financial market in carrying out financial policies.
This is because there is a sharp difference between Korea and advanced nations like the United States and Europe, where the financial crisis broke out, in terms of financial sector development, supervisory system, regulation level, productivity and competitiveness of financial institutes.
We need to take balanced consideration for nurturing IB institutions and financial sector deregulation. We also still need to strengthen competitiveness by beefing up the brokering function of the financial investment industry.
Accordingly, we also need to actively take part in international discussions while taking all measures possible toward financial system risk management for the prevention of a crisis recurring. We will press ahead with our efforts toward strengthening the financial sector and reforming deregulation to that end. nw

Minister of Strategy and Finance Yoon Jeung-hyun