EUCCK LUNCHEON
The Korean government's policy direction for another economic takeoff
2009. 9. 9
Yoon Jeung-Hyun
Minister of Strategy and Finance
Republic of Korea
I. Introduction
Honorable President Jean-Marie Hurtiger and members of the EUCCK, Distinguished ambassadors from the EU member states,
Ladies and gentlemen,
Let me first thank you all for taking time out of your busy schedules to join us today.
And I would like to extend my gratitude to the EUCCK for organizing such a wonderful occasion.
As you are aware, the European Union is an important economic partner for Korea. The EU is now Korea's biggest foreign investor and the second largest trading partner, with bilateral trade reaching 100 billion dollars last year.
In addition, the conclusion of the Korea-EU FTA negotiations in July marked a turning point in the economic relations between the two partners.
In a book I recently read, "The Speed of Trust," Stephen Covey said "when trust goes up, speed goes up and cost goes down, resulting in increasingly remarkable outcomes".
As such, I believe that trust is one of the greatest contributors to our ever-deepening economic ties.
In this regard, I would like to thank all of you for your critical role in building trust between Korea and the EU.
Today, I would like to take this opportunity to talk about "the Korean government's policy direction for another economic takeoff." I hope my remarks help you attain a better understanding of Korea as a good partner in economic cooperation.
II. The current status of the Korean economy
The Korean government's efforts to tackle the global economic crisis Faced with an unprecedented economic crisis, countries across the world share something in common: the necessity of active roles by governments. Thus fiscal expansion and measures to boost domestic demand have been taking place all over the world.
Korea is not an exception. The Korean government has taken preemptive and decisive measures, the priority being economic recovery.
We have introduced the largest supplementary budget in Korea's history and front-loaded fiscal spending to prevent a sharp economic contraction.
We also have taken actions to stabilize financial and foreign exchange markets through interest rate cuts and liquidity injection.
Moreover, we have pursued job creation and stabilization of the public's livelihood by introducing job sharing and youth internship programs.
In addition to setting up currency swap agreements with the US, Japan and China; thus easing concerns on the Korean economy, Korea has taken a leading role in international policy coordination, such as, in G-20 and ASEAN+3.
Recent developments of the Korean economy
Due to the government's active efforts and easing of international financial strains, the Korean financial market seems to be stabilizing. The Korean economy is showing early signs of recovery, so called "green shoots."
With the help of foreign investment, the KOSPI exceeded levels it was prior to the Lehman Brothers bankruptcy (1,400 points). And the won-dollar exchange rate has stabilized at around mid-twelve hundred.
Current account surplus stood at 26.2 billion dollars in the first seven months of this year. Foreign investment in Korea reached 6.8 billion dollars as of July, 2009, up 32% compared to the previous year.
In its recent report, OECD indicated that Korea achieved the highest economic growth rate among the OECD member in the second quarter.
Unless unexpected external shocks take place, Korea is likely to achieve its trend of positive quarterly growth, reaching the initial target of an annualized growth rate of negative 1.5%.
Despite these encouraging economic indicators, however, a high level of
uncertainty and potential risks still remains. Given Korea's high dependence on trade, we cannot afford to be complacent.
Indeed, some of the sources of concern in the international financial market include a risk of double-dip recession and volatility of oil and other commodity prices.
There is also the fact that recent signs of economic recovery in Korea do not seem to stem from the private sector.
Keeping that in mind, the Korean government will maintain its vigilance in formulating and implementing economic policies for continued economic stability.
III. The Korean government's policy direction for another economic takeoff
Distinguished EUCCK members,
There is a saying that a crisis is an opportunity in disguise.
I believe that the current crisis provides the Korean economy with a new opportunity for another takeoff.
In this sense, I would like to briefly share with you the policy direction for another economic takeoff.
1. Solidifying the foundation for economic recovery
Policy operations for macroeconomic stability
First, the Korean government will maintain active fiscal and financial policies, including uninterrupted execution of supplementary budget, until economy is firmly established on a path to recovery.
We will improve capital flow in a way that ample liquidity in the financial market can be channeled into the real economy, while utilizing the restructuring fund to support the resolution of non-performing loans.
We will also carry out close monitoring and policy implementation to keep the real estate market stable.
Recently some have raised the necessity of normalizing macroeconomic policy or the exit strategy. Regarding this, we intend to take a step-by-step approach depending on the progress of economic recovery.
At the current stage, the implementation of an exit strategy will be premature, although there is a need to begin preparing for the exit cautiously.
Such was the shared perspective at international discussions such as G-20.
Structural reforms for improved economic fundamentals
While managing macroeconomic stability, the Korean government will
implement structural reforms to improve the competitiveness of our economy.
We will push through a restructuring plan for companies with unsound financial structure in such industries as construction, shipbuilding and shipping.
We will also support the financial sector, resolving non-performing loans by utilizing the 40 trillion wons in restructuring funds.
Meanwhile, we will implement plans to streamline and advance public institutions including privatization, merger and acquisition, and increasing management efficiency.
We will expedite preparations for sales of 24 public institutions subject to
privatization, including Korea Real Estate Investment & Trust(KOREIT) and Korea Asset in Trust(KAIT).
2. Vitalizing investment
Distinguished EUCCK members,
Corporate investment is one of the most effective ways to create jobs and sustain economic growth.
In the wake of the global financial crisis last year, governments around the world have offset the reduction in private consumption and investment to a large extent. However, there is a limit to roles of governments in revitalizing economies.
Thus, the Korean government will provide active support so that corporate investment can be made despite difficult economic conditions.
Business environment improvement
To that end, we will create a business-friendly environment more than anything else.
So far, the Korean government has pursued abolishment of restrictions on total amount of share holding of other companies, less strict separation of banking and commerce, and deregulation on holding companies.
In addition to those policies, we will increase tax credit on R&D investment in source technologies and new growth engine industries to the highest level in the world.
We will also induce facility investment in the private sector through capital investment and purchase of long term corporate bonds, using capital that will be raised by this year by institutional investors like the government, Korea Development Bank, Industrial Bank of Korea and national pension service.
We will streamline procedures necessary for starting businesses, while improving
systems that shoulder unreasonable burdens on companies.
Efforts to increase foreign investment
Along with these measures, the Korean government will continue its efforts to create a better environment for foreign investment.
Foreign investment has played an important role in facilitating economic growth and solidifying economic fundamentals in Korea.
Thus it is encouraging to see foreign investment in Korea increase 32% in the first seven months of 2009 compared to last year based on renewed confidence in the Korean economy's growth potential and outlooks for recovery.
However, I understand very well that much still remains to be done for Korea to be a more attractive investment destination.
In this regard, the Korean government will increase incentives to attract foreign investment. For example, we will provide full exemption for rent on land in Foreign Investment Zones exclusively for parts and materials production.
On the other hand, we will enhance the flexibility in our labor market and remove inconveniences that foreign investors may face in doing business and living in Korea.
For flexibility in the labor market, we are introducing measures to extend the hiring period of irregular workers and considering the expansion of the range of jobs wherein companies can hire dispatched workers.
Meanwhile, the Korean government is planning to build more international schools and train medical interpreters to improve education and healthcare environment for foreigners in Korea.
I would like to remind you that the Korean government is always ready to listen to requests from foreign investors, given they are reasonable and accords with global standards.
3. Laying the foundation for sustainable growth
Distinguished EUCCK members,
Korea rose from the ashes of a war to achieve the 'Miracle on the Han River', comparable to the 'Miracle of the Rhine' a half century ago.
Korea will make utmost efforts to maintain its track record by laying the foundation for sustainable growth.
Active open economy policy
First, the Korean government will pursue an active open economy policy to upgrade the competitiveness and productivity of the economy as a whole.
As the next chair of the G-20 meeting, Korea is now leading coordinated international efforts against protectionism.
In addition, we will continue to expand our trade and investment partners by ratifying FTAs with large economies like the US and India in an expeditious manner and signing FTAs with countries such as Australia, New Zealand, Peru and the GCC.
In the near future, Korea will emerge as an FTA hub by concluding FTAs with most major economies in the world, providing a wide array of different business opportunities to foreign companies doing business in Korea as well as domestic companies.
In this regard, I would like to thank you for your active support in the conclusion of the Korea-EU FTA negotiation and I would like to ask your additional interest and support for its ratification in each of the EU member countries.
Low carbon green growth
The Korean government is promoting "low carbon, green growth" as a way to sustain economic growth.
In the future, economic competitiveness will be determined depending on
outgreening.
In other words, we cannot survive international competition under an economic system of high energy consumption and low energy efficiency.
Last year, the Korean government proclaimed "low carbon, green growth" as a national vision, using it as a growth engine to promote sustainable growth and to create new markets and jobs.
This led to the announcement of the "Green Growth five-year plan" last July.
Under the plan, the government will designate and nurture key green industries and input 2% of the GDP for public spending on green growth between 2009 and 2013.
Advancement in Service industries
Lastly, Korea will make efforts to advance its service industries.
Until now, the Korean economy has largely relied on the manufacturing sector.
As a result, Korea ranks 29th out of 30 OECD member countries in terms of the ratio of service industries to the GDP. The productivity in the service sector is half that of its manufacturing sector.
Thus, the Korean government will create an environment where the service industries can be fostered, creating quality jobs and improving economic fundamentals.
We will ease regulations on the entry and operation of key service industries such as education and medical treatment, while formulating measures to support R&D activities in service industries.
Service industries with high added-value will contribute to creating new business opportunities and advancing the Korean economy as a whole.
IV. Conclusion
Distinguished EUCCK members,
Regardless of the nationality of major investors, both domestic and foreign companies doing business in Korea are same in that they contribute to the Korean economy.
For this reason, the government and the people of Korea see foreign companies as invaluable economic partners.
The Korean government is committed to make further efforts to create an attractive investment environment.
Before closing, I would like to thank the EUCCK once again for serving as a bridge in economic cooperation between Korea and the EU.
And I hope that you make the Korean government's commitment to advancement and openness widely known back in the EU, and we ask for your support in further expanding bilateral trade and investment.
The Korean government will listen carefully to your advice and continue to expand efforts to strengthen economic cooperation between Korea and the EU.
Thank you.
