Korean Economy :
March 2011
HUR, Kyung Wook Ambassador of Korea
Beyond the Crisis, Ready for the Future
I. Beyond the crisis
II. The Key Pillars for Recovery
III. The Masterplan for the Future
9.5 8.5
7.2
4.6 4.0
5.2 5.1 2.2
6.1 4.7 5.0
0.2 2.8
4.0
0 5 10 15
1997 1999 2001 2003 2005 2007 2009 2011E
Recovery from Crisis
Asian Financial Crisis
Global Financial Crisis
V-shaped GDP Growth after Crisis GDP Growth Rate Outlook
Stock Market and Interest Rate Exchange Rates
Resilient Capital Market
Government bond (3yrs, left) CD (91 days, left) KOSPI (right)
Won/Dollar Won/100Yen
Source: Bank of Korea
Current Account Surplus
External Debt Soundness FX Reserves
Export Growth (YoY, %)
Solid External Fundamentals
43.4 42.6
47.2 40.1
47.8 43.2
45.8 51.9
74.5 71.4 79.1
63.2 45% 57.5
55%
60%
70%
80%
Increase and Decrease of Employed
(YoY, thousand) Employment and Unemployment Rates
Labor Market
Source: MOSF
Government debt in OECD countries
Fiscal Sustainability
Recognition from Global Community
“South Korea is No Longer the Underdog.”
“… South Korea’s status as an underdog is wearing thin. Its economy is practically as big as India’s even with a population less than one- twentieth the size. It exports more goods than the UK, a statistic admittedly more surprising to those who are aware that Britain still makes things. Samsung, not long ago considered a poor-man’s Sony, overhauled Hewlett-Packard last year to become the world’s biggest
technology company by sales. This year, it should make more money that the top 15 Japanese electronics groups combined…”
Financial Times, February 24, 2010
“Investors in South Korea find reasons for optimism.”
“…Seoul‟s imposition of capital controls and the worsening security outlook in North Korea are doing nothing to reduce investors‟ ravenous appetite for South Korean equities.…Serenely confident there will never be a war between the Koreas, many investors regard flashes of
conflict as buying opportunities.…Credit Suisse has identified Korea as its top stock market pick of 2011 mainly because of its calculations on undervalued companies.…South Korea‟s companies were among the big winners of the economic downturn. Hyundai-Kia outsold Toyota to become the biggest Asian car seller in Europe last year. Samsung is looking to challenge Apple over 2011 with its Galaxy smartphone and tablet products.”
Financial Times, January 19, 2011
I. Beyond the crisis
II. The Key Pillars for Recovery
III. The Masterplan for the Future
Reasons for Korea‟s Fast Recovery
Robust Core
Fundamentals
Swift Policy Responses Robust
Core
Fundamentals
Initial Conditions: Minimal Exposure to Subprime
Minimal Exposure to Subprime Mortgage
US$0.2 bn Exposure (as of March 2008)
Only 0.01% of the total asset
Write-downs / Asset Ratio
3.78%
2.10%
7.21%
8.16%
Initial Conditions: Sound Banking & Corporate Sector
Interest Coverage Ratio2 Debt to Equity Ratio2
378%
454%
64%
115%
1997 1998 2008 2009
Asian Crisis
109%
336%
426%
101%
1997 1998 2008 2009
Asian Crisis
Banking Sector
Corporate Sector
5.8%
5.0%
3.3%
2.8%
2.2%
1.6%
1.4%
0.8%
0.8%
Italy USA UK Germany Australia Hong Kong Singapore Cananda Korea 16.6%
14.7%
14.7%
14.2%
13.9%
13.3%
12.2%
11.7%
10.1%
Hong Kong Singapore Germany Korea USA UK Canada Australia Italy
NPL ratio1
BIS ratio1 LTD Ratio2
90 100 110 120 130
2008 2009 Jun-10
101.2
Initial Conditions: Export Diversification
Diversified Export Products (2009) Diversified Export Markets (2009)
The top export product only accounts for around 10 %
Semiconductor 8.5%
Chemicals 10.9%
Automobile 6.2%
Mobile Communication
8.5%
Flat Panel Display
6.4%
Shipbuilding 12.4%
Steel 6.3%
parts of an auto.
3.2%Computer 2.2%
Textile 3.2%
Others 37.6%
China 23.9%
EU 12.8%
North America
11.3%
ASEAN 11.3%
Japan 6.0%
Central &
South America 7.3%
Middle East 6.6%
Others 20.8%
Export to Developing World: 71%
Policy Responses: Government‟s Strong Commitment
3 Principles to
Overcome the Crisis
Pre-Emptive Decisive Sufficient
Weekly Bunker Policy Meeting
National Support
Rally for the National Cause
The “Red Devils”
(2002)
Oil Spill in Taean (2007)
Gold Collection Campaign (1997)
■ ■
Macro Response: Fiscal and Monetary Policies
0 1 2 3 4 5 6
Sep Oct Nov Dec Jan Feb Mar Apr
Korea 3.25%p
US 1.87%p
Euro zone 3.00%p
Japan 0.40%p
Large Scale of Stimulus Package („08-‟09) Decisive Policy Rate Cut
1.8
1.5
3.6 3.6
3.3
(% of GDP) 4.9
■ KRW49.6 trn
■ 64.8% of Total Expenditure Disposed in 1H 2009
(Policy Rate %)
Micro Response: Financial and Corporate Sectors
Learning from Experience: Old Wisdom for New Crisis
Stabilizing the Banking Sector
Bank Recapitalization Fund (KRW20 trn) - Provided KRW4 trn to 8 financial
institutions (as of 2009)
Stabilizing the FX Market
FX Liquidity Provision (USD550 bn)
Currency Swap Line with US, China and Japan (total USD90 bn)
Government Guarantee for banks offshore fund raising (up to USD100bn)
Corporate Restructuring SMEs Support
2010 Economic Outlook
GDP Growth
Private Consumption Expenditure
C/A Balance1
Unemployment Rate1
2.4%
2.2%
-
0.7%7.9%
6.1%
4.2%
3.0%
3.4%
1 Percent of GDP 2 OECD Average
5.0%
4.3%
2.3%
3.3%
2010 2011 20112
I. Beyond the crisis
II. The Key Pillars for Recovery
III. The Masterplan for the Future
35.6%
36.1% 37.6%
37.1%
35.9%
2010 2011 2012 2013 2014
Public Debt Fiscal Balance
Public Debt and Fiscal Sustainability
Public Debt to GDP (2010) Korea‟s National Fiscal Management Plan
Future Plans1
36.1%
92.7%
225.8%
76.7% 84.2%
Korea US Japan UK France
Public Debt (% of GDP)
Adjusted fiscal balance in 2013 – 2014 Public debt up to low 30% of GDP by 2014
(% of GDP) 36.1%
35.1% 35.1%
33.8%
31.8%
-2.7% -2.0% -1.1% -0.4%
0.5%
Household Debt under Control
Not Vulnerable to Interest Rate Hike No Debt-financed Asset Price Bubble1
No-nation wide housing boom over the last 15 years in only Korea, Switzerland, Germany and Japan among 17 OECD Countries
Unlikely to result in a de-leveraging following bust of the asset bubble
BOK‟s Interest
going along Rate of Increase in House Price
50 100 150 200 250 300
00 01 02 03 04 05 06 07 08 09 10
US UK Korea
High Quality of Debt Payment Ability
64% of household debt held by top 40% of income bracket (as of Mar 2010)
51% are collateralized against houses
Elasticity in Job Creation to GDP Growth
Structural Challenges Facing the Korean Economy
127
92
75
58
30 24
Taiwan Korea Germany China Japan USA
Slowdown in Potential Growth High Dependence on External Trade
86 88 90 92 94 96 98 00 02 04 06
Slowdown in Potential Growth rate
0.32%
0.28%
0.36%
1990s 2000s 2008
Potential Growth rate
Real Growth rate (% to GDP)
Advanced Service Industry
Fostering Areas
Education Medical Services Tourism
Expected Effects Service Industry Weighting to GDP
Luxembourg Frace USA UK Greece italy Germany Japan Slovakia Czech Korea Norway
OECD Average: 71%
Korea: 58%
1.00
2.50
1.85 1.92
Korea US Japan France
Low Service-industry Productivity1
Job creation
Expansion of domestic demandLow Carbon Green Growth
Presidential Commitment
& National Vision
Cut Greenhouse gas by 30% by 2020 from BAU
levels
Investment of 2% of GDP every year
'Low Carbon Green Growth'
Circumstances in Korea
High overseas dependence (97%) on energy
High energy consumption
: Korea 0.34, Japan 0.11, OECD average 0.20 (TOE1/US$1000)
Ranked 9th in the world for carbon dioxide emission
From Tech-Follower to Tech-Innovator
Green Technology High-tech Convergence High-value Add service
■ Renewable Energy
■ Low-Carbon Energy
■ LED
■ Green vehicle
■ Robot Applications
■ IT Convergence System
■ Media Convergence
■ Advanced Materials / Nano Convergence
■ Global Health care
■ Global Education
■ Green Finance
■ Contents-Software
New Growth Engine
5.0%
3.2% 3.4%
3.0%
R&D Investment
3.4% 3.2%
3.6% 3.5%
Ranked #4 Internationally1
Expand tax credit forproprietary technology and new growth engine R&D
(% to GDP) (% to GDP)
R&D-led Economic Growth
■ Law and Order (e.g. Ssangyong Motors strike)
■ Wage payment to full-time labor union representatives banned (July ‟10)
■ Militant Labor Union losing Ground
Untold Story: Improving Labor Relations
Decreasing Labor Strikes Recent Developments
Time Warp Wake up to the New Reality!
848
1,201
627 809
536 1,199
0 200 400 600 800 1,000 1,200 1,400
2004 2005 2006 2007 2008 2009
0 50 100 150 200 250 300 350 400 450 500
Time Lost due to Strike (LHS) Labor Dispute Cases (RHS) (1,000 days)
KCTU : 32 labor unions, 38,000 members seceded
Launch of New Alliance of Labor Unions (March „10)
FTA Hub in Asia
Building Global FTA Networks
FTA Effective
FTA with USA and EU
17.6%
21.2% 38.8%
EU EFTA
GCC China
Russia
India Turkey
Japan
Australia
New Zealand
Canada
Mexico
Peru
MERCOSUR
Chile USA
Singapore ASEAN
Proportion of Trade With FTA Partners
Joined OECD Development Assistance Committee (DAC) (Nov. 2009)
Increasing Official Development Assistance (ODA)
0.09% 0.15% 0.25%
2008 2012 2015
Limelight on Korea‟s Status in the Global Society
The first emerging, Asian country to host a G20 Summit
Korea’s Initiatives:
Global Financial Safety Nets
Development Issue
From Rule-Taker to Rule-Maker From Aid Recipient to Donor
Conclusion: Invest in Our Future!
GDP per Capita in 1970 and 2008 (US$)