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(1)

Korean Economy :

March 2011

HUR, Kyung Wook Ambassador of Korea

Beyond the Crisis, Ready for the Future

(2)

I. Beyond the crisis

II. The Key Pillars for Recovery

III. The Masterplan for the Future

(3)

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

(4)

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

(5)

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%

(6)

Increase and Decrease of Employed

(YoY, thousand) Employment and Unemployment Rates

Labor Market

Source: MOSF

(7)

Government debt in OECD countries

Fiscal Sustainability

(8)

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

(9)

I. Beyond the crisis

II. The Key Pillars for Recovery

III. The Masterplan for the Future

(10)

Reasons for Korea‟s Fast Recovery

Robust Core

Fundamentals

Swift Policy Responses Robust

Core

Fundamentals

(11)

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%

(12)

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

(13)

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%

(14)

Policy Responses: Government‟s Strong Commitment

3 Principles to

Overcome the Crisis

Pre-Emptive Decisive Sufficient

Weekly Bunker Policy Meeting

(15)

National Support

Rally for the National Cause

The “Red Devils”

(2002)

Oil Spill in Taean (2007)

Gold Collection Campaign (1997)

(16)

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 %)

(17)

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

(18)

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

(19)

I. Beyond the crisis

II. The Key Pillars for Recovery

III. The Masterplan for the Future

(20)

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%

(21)

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

(22)

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)

(23)

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 demand

(24)

Low 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

(25)

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 for

proprietary technology and new growth engine R&D

(% to GDP) (% to GDP)

R&D-led Economic Growth

(26)

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)

(27)

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

(28)

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

(29)

Conclusion: Invest in Our Future!

GDP per Capita in 1970 and 2008 (US$)

(30)

Thank you !!

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