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1Byongwon Bark
January 11, 2010
Overcoming the Global Financial Crisis
- Korea s Experience -’
2Byongwon Bark
Ⅰ. Current Status of the Korean Economy
Ⅱ. Korea’s Resilience amidst the Global Economic Crisis
Ⅲ. Economic Policy Direction for the Future
3Byongwon Bark
I. Current Status of the Korean Economy
II. Korea’s Resilience amidst the Global Crisis
III. Korean Economic Policy Directions
4Byongwon Bark
(10)
(5)
0
5
10
15
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1Q09 2Q09 3Q09
Korea US Japan Taiwan China
GDP Growth Comparison by Country
Asian Financial Crisis Global Financial Crisis
Source: Bloomberg
GDP Growth Rates (YoY, %)
V-Shaped Economic Recovery
5Byongwon Bark
Where Korea Stands : GDP Growth, Export Growth
GDP Growth Rates Trend
(YoY %)
Export Growth
16.4
35.6
18.127.7
7.8
(34.5)
(18.5)(22.5)(19.9)(29.4)
(21.9)(21.0)
(9.0)(8.5)(12.6)
(17.9)(19.5)
-50
-30
-10
10
30
08-Jan 08-Sep 08-Dec 09-Mar 09-Jun 09-Sep
Korea Japan Taiwan Singapore
2.63.2
-5.1
0.10.2
-2.2
0.9
-4.2
-3.4
3.1
-6
-4
-2
0
2
4
6
8
1Q.07 3Q 1Q.08 3Q 1Q.09 3Q
��� ���
Source: Bank of Korea, as of Sep 2009.
(%)
6Byongwon Bark
Where Korea Stands : Employment, Inflation
(YoY, %)
Inflation RatesEmployment Trend
Source: Bank of Korea, as of Sep 2009.
(YoY ,Ten thousand)
-500
-400
-300
-200
-100
0
100
200
300
Employment exclude public sector
08JAN Apr Jul Oct 09.JAN Apr Jul Nov
-2
0
2
4
6
8
JULY.08 NOV.08 MAR.09 JULY.09 NOV.09
Consumer infltion Core inflation
(
7Byongwon Bark
0
20
40
60
80
100
120
US Korea China Japan
Where Korea Stands : Stock Market, Bond Interest
Stock Market Interest Rate Trend
1,682.8
10,428.110,546.43,277.1
0
2
4
6
8
10
12
14
JAN.07 JULY.07 JAN.08 JULY.08 JAN.09 JULY.09
Government (3years ) Corporate(AA,3years )Corporate(BBB,3years )
STOCK, RATE
(%)(%)
08JAN Apr Jul Oct 09.JAN Apr Jul Oct Dec
8Byongwon Bark
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
W/$ Won/100Yen
Exchange Rate KOSPI and CDS
Where Korea Stands : Capital Market
KOSPI Index CDS (bps)
JAN.08 JUNE.08 JAN.09 JUNE.09 DEC.09
CDS-ROK : CDO of 5yr Korea Government Bond
800
900
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
0
50
100
150
200
250
300
350
400
450
500
KOSPI CDS- KORMAR APR MAY JUN JUL AUG SEP OCT NOV DEC
9Byongwon Bark
Improving Debt Soundness
Where Korea Stands : External Debt
Foreign Liability Structure Improved
65.4(63%)
189.6
146.1 147.3 146.3
235.9
230.0223.0 232.9
251.2
425.5
381.1369.1
380.2397.5
151.1100
150
200
250
300
350
400
450
3Q08 4Q08 1Q09 2Q09 3Q09
(USD bn) Short-term Long-term
37.138.739.639.6
44.6 73.9
89.996.5
80.5
97.1
30%
40%
50%
3Q 08 4Q 08 1Q 09 2Q 09 3Q 09
50%
60%
70%
80%
90%
100%
Short Term Debt Ratio (LHS) Current Foreign Debt Ratio (RHS)
10Byongwon Bark
KOSPI3 1,474 1,124 1,686 +50.0%
KRW/USD Ratio3 1,089 1,259 1,168 (7.6)%
Consumer Price 5.6% 4.1% 2.8% (31.7)%
BIS Ratio1 11.36% 12.31% 14.07%2 +14.3%
Foreign Currency Reserves USD 243bn USD 201bn USD271bn +34.8%
CDS Premium 116 bps 316 bps 86 bps (72.8)%
- 10 -
<Appendix> Dramatic Improvement in Economy since Lehman Collapse
Dec. 2008Aug. 2008 DEC. 2009 Changes since Dec. 08
1 As of quarter-end 2 As of June 20093 As of 31 Decenber
11Byongwon Bark
Assessing Economic Recovery (1)
- 7.4
1.6 1.0
- 0.1
1.7
- 3.5 - 3.4 - 5.4
- 5.7
1.1- 1.5
5.35.34.1
0.3
-10
-8
-6
-4
-2
0
2
4
6
8
1Q07 3Q07 1Q08 3Q08 1Q09 3Q09
Domestic Demand(ex cept inventor y)Inventor yNet ex por t
Contribution by Domestic Demand and Net Export
5.3 3.8 2.5
- 4- 6.1
- 4.10.2 0.5 0.6
0.61.9 1.9 1.3
- 0.4
- 8
- 6
- 4
- 2
0
2
4
6
8
1Q.08 2Q.08 3Q.08 4Q.08 1Q.09 2Q.09 3Q.09
Government Private
Contribution by Government and Private Sector
(YoY, %) (YoY, %)
Source: Bank of Korea, as of Sep 2009. Source: Bank of Korea, as of Sep 2009.
12Byongwon Bark
Assessing Economic Recovery (2)
GDP/GDI TREND
Domestic demand picked up quickly, as economic conditions improved amid financial market & price stabilization.* The GDI plummeted in the fourth quarter of 2008 due to oil price hikes, but as terms of trade improved recently ,
the growth rate of GDI exceeded that of GDP.
Private consumption and facilities investment have been significantly contributing to GDP growth since the second quarter.
(YoY, %)
Relatively Fast Recovery of Domestic Demand in Second Half
4.5 5.3 4.9 5.7 5.54.3
3.1
- 3.4 - 4.2- 2.2
0.9
4.25.4 5.9
3.72.4 2.0
- 2.6
- 6.2- 4.4
0.2
3.9
- 8.0- 6.0- 4.0- 2.00.02.04.06.08.0
1Q07 3Q07 1Q08 3Q08 1Q09 3Q09
GDP GDISource: Bank of Korea, as of Sep 2009.
13Byongwon Bark
I. Recent Macroeconomic Developments
II. Korea’s Resilience amidst the Global Crisis
III. Korean Economic Policy Directions
14Byongwon Bark
Reasons Behind Korea’s Fast Recovery
Swift Fiscal and Financial Policy Responses
Efforts to Stabilize the F/X Market
Proactive financial measures
− Lowering policy rates
− Provision of Won liquidity
− Corporate restructuring
− Bank Recapitalization
Stimulus package: 4.9% of GDP (08-09)Fiscal expansion, Tax cuts
Minimize GDP contraction and Return economy to pre-crisis levels
Strengthening corporate fundamentals
Relatively Sound Banking and Corporate Sector
Enhanced corporate management after the Asian Financial Crisis(1997)
- Improved financial soundness (debt ratio, interest coverage ratio)
- High rebound in export (LCD, auto)
Relatively sound banking sector compared to other country (BIS, NPL ratio) and prevent real estate failure
Relatively strong fiscal soundness
Fast Recovery
15Byongwon Bark
107 11564 71
141 146
264
351
483 460414
363322
0
100
200
300
400
500
600
19961997 19981999 20002001 2002 20032004 20052006 20072008
(%)
336
425
336
235 221196
145 131 114 111 105 116 131
050
100150200250300350400450
19961997 19981999 20002001 2002 20032004 20052006 20072008
(%)Interest Coverage Ratio
Corporate Sector (1) : Improved Financial Structure
Continuous Decline on Debt Ratio
Asian Crisis
Asian Crisis
Source: FSS
Equity to Total Asset Ratio Debt to Equity Ratio
Korea (07)
US (07)
Germany(05)
Japan(07)
Korea (07)
US (07)
Germany (05)
Japan (07)
46 44 34 30 116 127 191 232
Corporate Financial Soundness
Source: FSS
16Byongwon Bark
Corporate Sector (2) : Export Competitiveness
Technological Competitiveness Index of Major Export Products (World’s Top 100 Companies)
Mobile
Communicatio
n
8.5%
Automobile
8.3%
Chemicals
8.9%
Semiconductor
7.8%
Others
35.3%
Flat Panel
Display
4.4%
Textile
3.2%
Shipbuilding
10.2%
Autoparts
3.3%Steel 7.1%
Computer 3%
Diversified Export Markets (2008)
EU
13.9%
Middle East
6.3%
China
21.7%
North America
11.0%ASEAN
11.7%
Japan
6.7%
Central &
South America
7.9%
Others
20.8%
Semiconductor Cellular Phone LCD Ship Steel
100.4 96.3 96.1 95.5 95.4
Diversified Export Items (2008)
17Byongwon Bark
6.07.4
13.6
8.8
3.32.4 2.7
1.9 1.3 0.9 0.7 1.1 1.6
0
5
10
15
1997 1999 2001 2003 2005 2007 ‘09.6
Banking Sector (1) : Improved Soundness
* As of December 2008
BIS ratio
9.1
11.3
12.7
7
8.2
10.8
10.5
10.8
10.510.5
12.4 12.3
12
14.3
14.6
4
6
8
10
12
14
16
1996 1998 2000 2002 2004 2006 2008 3Q09
Asian Crisis
Source: FSS
NPL Ratio
Source: FSS
Asian Crisis
NPL by Country NPL Coverage Ratio by Country
Korea US Hong Kong Taiwan Korea US Hong Kong Taiwan
1.1% 1.7% 1.2% 1.5% 147% 89% 82% 67%
Soundness of Bank Loans
18Byongwon Bark
Banking Sector (2) : Preventing Real Estate Bubbles
Housing Price Index of Major Countries
Source: FSS △ highest point, ■ lowest point
Housing Price Declines in Major Countries
Source: S&P Case-Shiller index, National wide Index
Real Estate
The LTV ratio in the US & UK is around 70~80%, whereas the ratio in Korea is around 47%.(banking sector, March 09)
Exemption of capital gain tax for unsold houses in non-Seoul regions and comprehensive real estate tax exemption for assets owned by real estate funds
- 2.17%
- 12.6%
- 19.6%
- 32.5%
- 40
- 30
- 20
- 10
0US A UK CHN KOR
60
80
100
120
1 2 3 4 5 6 7
2006 2007 2008 2009
USA UK CHN KOR
19Byongwon Bark
Government Sector : Maintaining Fiscal Soundness
E: Estimates (0.6% when excluding supplementary budget)Reference: OECD Economic Outlook (June 2009)32.6% for Korea, when excluding supplementary budget
1.0%0.4% 0.4%
3.5%
1.2%
(2.3)%
0.6%
(3)%
(2)%
(1)%
0%
1%
2%
3%
4%
2003 2004 2005 2006 2007 2008 2009
Consolidated Fiscal Balance (% of GDP) Public Debt
62.7%87.0%
74.9%
35.6%
217.2%
0%
50%
100%
150%
200%
250%
KOR JAN USA FRC UK
G20 average : 72.5%
Government Finance
Maintaining a surplus in the consolidated fiscal balance and keeping the government debt ratio in the 30% range
- This will lay the foundations for active fiscal policies amid the recent crisis.
20Byongwon Bark
How Korea Affected by the Recent Financial Crisis
Foreign net buying of stocks in second half of 2008 : -20.7 trillion won
Foreign Net Buying of Listed Bonds Foreign Net Buying of Stocks
Expansion Channels
-10-8-6-4-202468
Jan08 May08 Sep08 Jan09 May09 Sep09
* Trillion Won
-6
-4
-2
0
2
4
6
8
10
12
Jan08 May08 Sep08 Jan09 May09 Sep09
* Trillion Won
Foreign net buying of listed bonds in 4th quarter of 2008 : -5.3 trillion won
Financial Channels : Instability in advanced countries’ financial markets (Fund Redemption) → Withdrawal of investment from Korean market → Decline in stock prices, rise in foreign exchange demand → Upsurge in exchange rates and CDS →Credit crunch in the Korean financial market
Export Channels : Lower consumption in advanced countries → Reduced exports →Reduced production
21Byongwon Bark
How Korea Affected by the Recent Financial Crisis
Balance of Capital account Exchange Rate & CDS Premium
900
1100
1300
1500
1700
Jan08 Sep Mar Nov0
0100200300400500600700800
KRW/ US$ CDS premiun* Hundred million $ KRW/US$ CDS
600
800
1,000
1,200
1,400
1,600
1,800
2,000
Jan08 May08 Sep08 Jan09 May09 Sep09
200
250
300
350
400
450
500
550
600
650
700
KOSPI KOSDAK
Index at the end of each month
Stock Price Index
- 50- 40- 30- 20- 10
010203040
Jan08 May08 Sep08 Jan09 May09 Sep09
USA JPN EU
Export Growth to G3 Region
-300
-250
-200
-150
-100
-50
0
50
100
Jan08 May 08 Sep08 Jan09 May09 Sep09
22Byongwon Bark
Swift Policy Responses : FX Market Stabilization Measures
Addressing F/X Market Uncertainties
Resolute actions to supply foreign currency liquidity was possible by the sufficient foreign exchange reserves and the currency swap with the US.
Liquidity Provision- Direct FX liquidity provision : USD55bn
Increasing FX Stabilization Fund- Issuing USD3bn Global Bond
Currency Swap Line - USD90bn with US, China and Japan
Government Guarantee- Borrowings of banks up to USD 100bn
Chiang Mai Initiative- Creating reserve pool of USD 120bn
(To be implemented in March 2010)1500
17001900
21002300
25002700
2900
Jan08 May08 Sep08 Jan09 May09 Sep09(300)
(200)
(100)
0
100
200
Monthly changes in foreign exchange reserves
(USD100 mil) (USD100 mil)
23Byongwon Bark
<Appendix> Improving Access to FX Liquidity
Korea Global Bond Issued in 2009YTD: USD20.1 bn
Hana Bank was the sole bank to utilize the government guaranteed funding program
Korea NationalHousing
Corporation
Woori BankIssuance
ROK
ROK 5yr
A2/A
T+400.0
KDB
KEXIM
Hana IBK
KB
KHNP
KNOC
Woori
POSCO
KEPCO
KOGAS
Shinhan
KB
Suhyup
4.5
5.5
6.5
7.5
8.5
9.5
Dec-08 Feb-09 Apr-09 May-09 Jul-09 Sep-09
Coupon (%)
KEXIM
* Size of the bubble represents relative size of the bond.* Total Issuance Volume of US$18.6 bn, as of September 23, 2009
KDB
NACF
KHC
HyunDAI Capital
NOV-09
24Byongwon Bark
Proactive Financial Measures
0
1
2
3
4
5
6
Korea US Euro UK Japan
(%)
Korea 3.25%p
US 1.87%p
Euro zone 3.00%p
Japan0.40%p
Swift Policy Responses : Financial Market Stabilization
* Source : Each Respective Central Bank
Policy Rates in Major Economies
UK 4.50%p
Lowering interest rates, and mobilized various means to inject liquidity into the market, targeting where the credit crunch is most serious.
Improving capital adequacy of Banks- Bank Recapitalization Fund : KRW20 tn - As of Nov 2009, KRW4 tn has been provided
Corporate restructuring funds to purchase insolvent bonds
- KRW40 tn operated by KAMCO- As of Nov 2009, KRW0.8 tn has been provided.
After the collapse of the Lehman Brothers (08.9.15), policy rates were lowered by 325bs. (5.25% → 2.00%)
Bond Market Stabilization Fund (Of KRW10 tn, KRW4.1 tn has been executed)
Corporate bonds FI bonds Bank
bondsP-CBOABCP Total
Invested amount 11,993 4,329 5,500 19,253 41,075
25Byongwon Bark
Proactive Financial Measures
(조원)
* Source : Central Bank
M1Monthly Balances
Provision of won liquidity (KRW 27 tn) through open market operations such as BOK’s purchase of RP and treasury bonds
Tax incentives to activate funds- long-term stock funds : income tax credit
for payments and exemption of dividend income tax
- long-term bond funds : exemption of dividend income tax
250
270
290
310
330
350
370
390
Jan08 May08 Sep08 Jan09 May09 Sep09
SME Support- Increased guarantee through Kodit and Kibo
(year on year KRW22.5 tn increase)- Roll-over SME loans maturing in 09
(KRW160 tn)- Prompt supply of funds through a Fast Track
SME liquidity provision program (KRW21.7 tn)
Swift Policy Responses : Financial Market Stabilization
Stabilizing Market & Address Credit Crunch
26Byongwon Bark
Swift Policy Responses : Export Support Measures
* Source : Each Respective Central Bank
Measures to Support Export
Support for exporting SMEs with foreign currency liquidity supply and increase of export insurance
Supply of foreign currency liquidity to exporting & importing companies
- USD10 bn of export bill loans- USD11 bn of export bill rediscounts
Increased export insurance- Export insurance
(KRW130 tn, 08) →(KRW170 tn, 09)
Reducing protectionism in trade through international policy coordination such as the G20- At the G20 Summit in April 2009, summits promised to work together to keep a standstill against protectionist movements
Daily Average Export Growth
0
2
4
6
8
10
12
14
16
18
20
Jan08 May08 Sep08 Jan09 May09 Sep09-40
-30
-20
-10
0
10
20
30
40
50
Export per day Rate of increase
(USD100 mil) (%)
27Byongwon Bark
Swift Policy Responses : Boosting Demand by Public Exp.
Tax cuts for economic recovery and job creation (2008∼2010) : KRW29.6 tn - deductions for personal and corporate income taxes (KRW20.1 tn), policies for addressing high oil prices and provision of temporary tax credit (KRW9.5 tn)
Increased fiscal spending (2008~2010) : KRW40.9 tn- A supplementary budget to address high oil prices, and amended budget to address economic crisis (2008) : KRW16 tn- supplementary budget to create jobs and support working class (April 2009) : KRW17.2 tn
More than 60% executed in first half. Of the budget allocated for 4th quarter, KRW13.6 tn was frontloaded in the 3rd quarter.
Tax Cuts Public Spending Total (% of GDP)
KRW 16.4 Tn KRW 33.2 Tn KRW 49.6 Tn (4.9%)2008-2009*
KRW 13.2 Tn KRW 7.7 Tn KRW 20.9 Tn (2.0%)2010
KRW 70.5 Tn (6.9%)* 64.8% of Total Expenditure to be Disposed in 1H 2009
Tax Cut & Public Spending amounting to 6.9% of GDP from 2008 to 2010
28Byongwon Bark
<Appendix> Details of Tax Policies
* 08년 정기국회, 09년 임시국회에서 추진
Tax credits to address high oil prices (June 08)
Oil price refund for workers and self-employed KRW3.5 tn
Heating oil consumption tax cuts during winter KRW0.1 tn
Oil price subsidies for public transportation and logistics KRW1.5 tn
Tax credits to overcome global financial crisis
(Oct. 08)Income tax credit and tax exemption for long-term funds KRW1.3 tn
Tax credits to support working class and create jobs (Dec. 08)
Corporate tax cuts KRW9.0 tn
Income tax cuts KRW3.6 tn
Comprehensive property tax cuts and adjustment of assessment standards KRW1.5 tn
EITC for more people KRW4.7 tn
Tax credits to stimulate economic recovery (April 09)
Increase of temporarily granted investment credit KRW3.0 tn
Treasury bond interest income tax exemption for foreigners KRW0.1 tn
Income tax credit for employees of job-sharing companies KRW1.3 tn
Tax credits for automobile industry (June 09) Consumption tax cuts for trading old car for new one -
29Byongwon Bark
<Appendix> Details of Fiscal Spending
* 64.8% of Total Expenditure to be Disposed in 1H 2009
2008 Supplementary budget(KRW4.6 tn)
Oil price subsidies for low income class & increased public transportation
KRW2.4 tn
Support for farmers, fishermen, and retail dealers KRW0.4 tn
Energy conservation and securing foreign resources KRW1.8 tn
2008 Amended budget(KRW10 tn)
Invigorating regional economies through SOC expansion KRW4.6 tn
Support for regional SMEs, self-employed and farmers & fishermen
KRW3.4 tn
Improving welfare for low income class KRW1.0 tn
Support for unemployed KRW0.3 tn
Increasing regional financial support KRW1.1 tn
2008 FI contribution (KRW1.4 tn)
Additional contributions to credit guarantee funds and technology credit guarantee funds
KRW1.4 tn
2009 Supplementary budget(KRW17.2 tn)
Support for low income class KRW4.2 tn
Maintaining jobs & increasing employment opportunities KRW3.5 tn
Support for SMEs and self-employed KRW4.5 tn
Invigorating regional economies KRW3.0 tn
Investing in green growth KRW2.0 tn
30Byongwon Bark
<Appendix> Comparison of Fiscal Expansion (2008~2009)
OECD AverageKOR JPN
4.7
USA
5.6
FRC
0.7
UK
6.1
1
2
3
4
5
6
1.9 2.0
Fiscal spending
Tax credits
3.2
2.8
1.5
2.8
1.5
0.4 0.50.2
2.4
3.2
4.2
0.5
Reference : OECD Economic Outlook( June 2009)
(% to GDP)
0.9
1.1
31Byongwon Bark
Swift Policy Responses : Job Creation/Working Class
Job Creation & Job Sharing: Enhancing Job Safety for Underprivileged Class
Including the Youth, Women and the Elderly
Hope work project & youth internship program for SMEs and public sector
Nurturing global youth leaders and future industries leaders (100,000 persons)
Increasing job sharing in private sector through more support for job maintenance and greater tax credits
Stronger education & training programs linking job counseling, training and job brokerage
Support for Working Class : Support for Low Income Class and Self-employed
Establishment of policies worth KRW10 tn to address high oil prices, such as oil price refunds (June 2008)Support for low income class through supplementary budget including temporary relief and increased emergency welfare
Increased educational welfare through more college scholarships and student loan interest deductions
32Byongwon Bark
“Korean economy is Sweet Spot for investors.” (Sep 6)“Korean economy is Sweet Spot for investors.” (Sep 6)
“Less than a year later, that swoon is so over. Asia‘s fourth largest economy has
suddenly got its swagger back.”
Washington Post
Projects Korea‘s economic growth in 2010 to be highest among OECD members (June)Projects Korea‘s economic growth in 2010 to be highest among OECD members (June)
The Korean economy hit the bottom as a result of aggressive fiscal policies, and is
expected to fully recover after this year. (June 24, 2009 OECD Economic Outlook)
* Growth Outlook for Korean Economy: ’09년 △2.2% → ’10년 3.5%
OECD
Raised Korea’s credit rating outlook from ‘negative’ to ‘stable’ (Sep 2)Raised Korea’s credit rating outlook from ‘negative’ to ‘stable’ (Sep 2)
Pre-emptive supplementary budget and other efforts of government to tackle crisis,
and improved macroeconomic indicators & foreign currency liquidity were praised.
Fitch
<Appendix> International Community’s Assessment
33Byongwon Bark
I. Recent Macroeconomic Developments
II. Korea’s Resilience amidst the Global Crisis
III. Korean Economic Policy Directions
34Byongwon Bark
(1) Diminishing economic vitality
Challenges Facing the Korean Economy
Due to sluggish investments and low fertility and a fast ageing population, growth rate to gradually decrease
Developing new growth engines, but their performance not satisfactory
우리나라 GDP성장률 추이(%)Korean GDP Growth Rate Trend(%)
Domestic economy : very vulnerable to external shocks due to the weak domestic demand (e.g. service industry)
127
9275
58
30 24
-10
10
30
50
70
90
110
130
150
TAW KOR DEU CHN JPN USA
External Dependency(2) High external dependency
35Byongwon Bark
Challenges Facing the Korean Economy
◆ Structural problems in the service sector
High entry-barrier: professional services including legal, medical, accounting, financial, and education- (Lawyers) : Per 1,000 people (KOR)0.17, (JPN)0.19, (US)3.73- (Accountants) : Per 1,000 people (KOR)0.25, (JPN)0.63, (US)1.12
• Excessive numbers entering the industry
• Low profit margin, poor treatment
• Social instability
• Restricted entry• Excessive profits• Discontent among
clients
Excessive competition : Small self-employed businesses including wholesale, retail, restaurants, accommodations- (Taxi): Per 1,000 people (Seoul)7.0, (Tokyo)4.3, (New York)1.5- (Restaurant) : Per 1,000 people (KOR)12.7, (JPN)7.1, (US)2.4
(3) Weakening base for job creation
Underdevelopment of the services sector and the weakness in the intermediary industry
→ Weakness in the link between growth and employment 40%
50%
60%
70%
80%
F
R
N
U
S
A
U
K
I
T
A
G
E
R
J
P
N
E
S
P
C
A
N
K
O
R
OECD Avg. = 71% Korea = 58%Services to GDP Ratio (‘06)
36Byongwon Bark
Reduced labor population is expected to lead to lower growth rate* One of the lowest total birth rate, fastest ageing society* Fertility rate : (96) 1.6 (00) 1.14 (03) 1.18 (05) 1.08 (06) 1.12 (07) 1.25 (08) 1.19
Increased competition for resources, tighter regulations for energy use due to climate changes are expected
0
10
20
30
40
50
60
1970 1990 2010 2030 2050
15- 64 year s ol d
0- 14 year s ol d 65 year s ol d
2016
2018
(4) Future threat (e.g. low fertility rate/rapid ageing and climate change)
Challenges Facing the Korean Economy
Population Trend (million people) Energy Consumption by Region(Million bbl/day)
38 42 43
418
3320
23
32
0
20
40
60
80
100
120
1980 2006 2020
the otherschina, india, middle eastadvanced
63
83
108
37Byongwon Bark
(5) Social and economic dual structure
(6) Immaturity of social consciousness and practices
Challenges facing the Korean Economy
Widening gap between Regular - Temporary workers, Conglomerates – SMEs andExport - Domestic Business
Shrinking middle-class and obstacle to social integration
정규직-비정규직/수출-내수기업 비교
wage(Ten thousand won, 8. 09)
120
220
0
50
100
150
200
250
Regular TemporaryValue added per worker(Manufacturing industry,
million won, 08)
144
65
020406080
100120140160180200
Export Domestic
Disregard for law & order and authorities, backward labor-management relations →undermining national competitiveness
Insufficient social capital, a prerequisite for an advanced nation
* If the level of observance of law & order is raised to that of OECD average, 1% point increase in growth is expected (KDI, ‘07)
Legal Observation and Economic Growth (KDI)
Legal-Order Index
Gro
wth
Rate
KOR
Comparisons of Regular/Temporary Worker and Export/Domestic Business
38Byongwon Bark
Policy Directions for a Leap Forward
“2010 : Beyond the Crisis, Towards an Advanced Country”
Successful Hosting of the G20 and Enhancing
Korea’s Global Standing
Green Growth &Energy Conservation
Preparing for the Future
< Expanding Growth Foundation>
<Successfully Overcoming the Crisis>
Consolidation of Economic Recovery
Job CreationStabilizing Livelihood of
the Common People
39Byongwon Bark
1. Consolidation of Economic Recovery
2. Job Creation
3. Stabilizing the Livelihood of the Common people
4. Green Growth and Energy Conservation
5. Successful Hosting of the G20 and Enhancing Korea’s Global Standing
6. Preparing for the Future
Ⅲ. Korea Economic Policy Directions
40Byongwon Bark
Consolidation of Economic Recovery (1)
(1) Maintaining expansionary policiesKeep up expansionary macroeconomic policies for the time being- Frontloading fiscal expenditure (60% in the first half)- Reduce the size of the fiscal deficit gradually (-2.9% of 2010 GDP) to reach a
balance in 2013 or 2014Unwind exceptional/temporary measures, and prepare supplementarymeasures to avoid unexpected shocks- Credit guarantee : Delay maturity until the first half of 2010- Guarantee for banks’ debt in foreign currency: to be expired at the end of 2009
(2) Addressing risk factors in economy
(Economic structure) Transform the current export-led economy by boosting up domestic demand, especially in services(Household, Firms) Ensure stable debt management to stem potential issues of insolvency(Public institutions) Enhance productivity and pursue cost effectiveness through management reform- Lead the way in improving labor relations, reform irrational welfare policies(Competitiveness report) Analyze strengths and weaknesses of the Korean economy and propose response measures
41Byongwon Bark
(Financial sector) Improve prudential regulations, reflecting international discussion, such as in the G20(Foreign currency sector) Enhance soundness in the foreign currency market through measures such as short-term foreign debt management(Early warning system) Strengthen crisis-related supervision and coordination capabilities across ministries
(4) Improving the industry fundamental
Consolidation of Economic Recovery (2)
(3) Enhance crisis management capability
(SME) Select prospective R&D tasks (350) suitable for SMEs and support its development and sales(Venture) Promote venture investment fund (3.5 trillion won by 2012), deregulate M&A related measures(IT) Support for next generation technology development in such as AMOLED system semi-conductors(Agricultural) Transform agriculture a competitiveness-conscious business(Parts · material industry) Support R&D for 20 parts and materials that are expected to rise in demand
42Byongwon Bark
1. Consolidation of Economic Recovery
2. Job Creation
3. Stabilizing the Livelihood of the Common people
4. Green Growth and Energy Conservation
5. Successful Hosting of the G20 and Enhancing Korea’s Global Standing
6. Preparing for the Future
Ⅲ. Korea Economic Policy Directions
43Byongwon Bark
Job Creation (1)
Unemployment Rates (October 2009)Financial Crisis and Changes
in Employment Figures
-1800
-1300
-800
-300
200
700
7 9 11 1 3 5 7 9 11
Asian financial crisis(97.7-98.12)
Global financial crisis(08.7-09.12)
(thousand people, YOY)
Decelerate the employment downturn through the Hope Employment Project and Job Sharing
- Job market is in a better condition when compared to other nationsDifficult to improve the employment conditions in a short time- Employment market recovers slower than the overall economy and the effects of
short-term employment policies appear gradually weakeningIn particular, difficulties in youth · irregular workforce · self-employed labor market would likely continue for a while* Employment increase (YoY, October 2009) : (Permanent) +490,000, (Temporary) -250,000,
(Self-employed) -270,000
Recent Trends
0
5
10
15
20
25
30
USA FRC DEU JPN KOR
Unemployment rate
Youth unemployment rate
(%)
44Byongwon Bark
Job Creation (2)
Consolidate national efforts by the “National Employment Strategy Council”Continue government support through fiscal projects- Hope Employment Project, Affordable Housing for the Low-Income Class, 4-River Project,
Stimulate small venture businesses- Private investment is also expected to recover gradually (Korean Development Bank, 2010
Facility Investment Research: 12.2% increase on 2009)
Promote structural and fundamental measures to advance the services industry, enhance labor flexibility, facilitate investment, and induce FDIs
Strategies for job creation
(1) Establish the National Employment Strategy Council
Operate the “National Employment Strategy Council” on a sun set basis, to be chaired by the President and with participation from a broad spectrum of experts in education, labor, industry and welfare - As part of the Emergency Economy Council, to be held at least once each month
Prepare short and long term counterplans by all areas related to job creation- Fiscal support for job-related areas, Advancement of the Services Industry, Labor Market Structural Reform, Industry-University Partnership and Improving the Education System
45Byongwon Bark
Job Creation (3)
Growth Rate of Manufacturing and Service Industry (%)
8.2 7.96.6
8.97.6
3.9 3.9
12.6
02468
101214
85~90 90~95 95~00 00~05
Manufacture Service
jobs per billion won
19
139
18
30
22
05
101520253035
95 00 07Manuf act ur e Ser vi ce
(2) Advancement of the services industry
Deregulation in high value-added service industries such as medical, education, tourism- Efforts to quickly introduce measures for open-investment medical facilitiesSwiftly conclude and announce plans to advance the professional services market and follow-up measures※ If professional service market is expanded to be on par with an advanced economies,
94,000~268,000 high value-added jobs will be created for young generationsPrepare plans to grow service industries with high job creation effects, such as social services, media, and contents industry
46Byongwon Bark
Low productivity in domestic demand industries(VAT per person for a domestic
demand-oriented company: 45% of an export company)
Services Industry
Weakening growth (Potential Growth rate
in the 4% range)
Low employment,Youth unemployment(Youth unemployment in
the 7% range)
High external dependency
(Exports+Imports/GDP= 92%)
Chronic service account deficit(annually around $20billion deficit)
< Appendix > Importance of the Services Industry
70% of employment, 60% of GDPProductivity is half that of advanced nations
In services industry, deregulation and opening markets to enhance competition are key policy directionsNot merely a matter of ‘cost’, but fixing the problem requires “decisive action”
47Byongwon Bark
< Appendix> What’s Wrong with Services?
Services are still reluctant to try to induce FDIs to compensatefactors of productivity lacking in them
Services still refuse to open the market, even domestically
Services did and do not attempt to export or to move abroad
Services have not been exposed to competition from abroad
0.74
0.74
0.66 0.72
0
0.5
1
1.5
2
2.5
3
1980 1990 2000 2005KOR USA UK JPN
RCA index : if RCA > 1 relative superior, RCA < 1 relative inferior
Relative Competitiveness Advantage Index of Service Industry
-0.06 -0.04
-0.13 -0.13
-0.4
-0.3
-0.2
-0.1
0
0.1
0.2
0.3
1980 1990 2000 2005
KOR USA UK JPN
Trade Specialized Index of Service industry
TSI index : if TSI > 0 export specialized, TSI < 0 import specialized
48Byongwon Bark
Job Creation (4)
Maintain government-supported jobs until the private sector find its stride - Extend “Hope Employment Project” until first-half 2010, with specific improvements- Expand social service sector’s employment (2009: 129,000 → 2010: 140,000)
Resolve supply and demand mismatch through proactive labor market policies - Expand Job offering/Job Seeking DB, employment support system based on
industry-university partnership, reinforcing personnel at Employment Support Centers
(4) Improve the effectiveness of employment measures
(3) More flexible labor marketPlural union is going to be permitted in July 2011, and Full-time union staff will be prohibited in July 2010 (time-off allowed to some works of unions) - Minimize negotiation costs with rationalization of valid period for wage negotiations
Improve the substitute labor system in the essential public service → spread rational management-labor culturePromote flexible work hours and wages for job creation- Expand flexible working hours, more peak salaries and positional/performance benefits- Diversify labor structure such as part-time workers, wider exceptions for the limit on
irregular workers’ employment length (e.g. a lecturer with a master’s degree)
49Byongwon Bark
Job Creation (5)
(6) Expand investments and enhance efficiency
(5) Expand human resourcesPrivate Tutoring Cost (trillion won)
9
4447
27
61
9
0
10
20
30
40
50
60
70
Good Normal Poor08 year 09 year
(YOY, %)
Efforts to improve business environment- Comprehensively review investment
environments - Better living conditions for foreign investors and
professionals to work in Korea
R&D investment to be based on performance - Introducing measures such as “Honorable Failure”
Train workforces required by industry- Reinforce industry- university partnership- Support for winners of World Skills Competition
More autonomy and responsibility, and more competition in the education sector- Amend high school education system- Teacher evaluation system (March 2010),
more information disclosure for university
Regulation Reform Satisfaction Index (March09. Federation of Korean Industries)
50Byongwon Bark
1. Consolidation of Economic Recovery
2. Job Creation
3. Stabilizing the Livelihood of the Common people
4. Green Growth and Energy Conservation
5. Successful Hosting of the G20 and Enhancing Korea’s Global Standing
6. Preparing for the Future
Ⅲ. Korea Economic Policy Directions
51Byongwon Bark
Stabilizing the Livelihood of the Common People (1)
(Market prices) Maintain mid-term inflation target of 3.0±1.0%. Implement price stabilization policies for each sector
- Deregulate entrance regulations for items closely related to the lives of the common people, strengthen supervision of anti-trust
(Real Estate) Expand housing supply, additionally designate areas that require compulsory reporting for sales in case of market instabilities
(1) Stabilizing the market and real estate prices
(2) Expand social safety net for the vulnerable low-income class
Increase support for the vulnerable low-income class- Childcare support for youth single mothers (under the age of 24)- Introduce the serious disability pension, expand beneficiaries of the basic elderly
pension and medical support for the senile dementia
Better housing welfare by supplying more long-term public rental housings
52Byongwon Bark
Stabilizing the Livelihood of the Common People (2)
(3) Support poverty-escape through work and education
Support self-sustainability of recipients of the basic livelihood security through measures such as “Hope Deposit”
Contingent loan for students to be available in 1st Semester, 2010→ Reduce parents’ burden in paying school fees, prevent students falling
into credit impairment
Increase support to aid self-recovery of common people- Set up microcredit branches in multiple regions from December 2009 and
gradually increase them up to 200~300 (over 2 trillion won over the next 10 years)
Improve conditions for small businesses and traditional markets- Allow employment insurance and unemployment benefits to the self-employed- Create a common logistics system, place a ceiling on credit card service charges for SMEs
53Byongwon Bark
1. Consolidation of Economic Recovery
2. Job Creation
3. Stabilizing the Livelihood of the Common people
4. Green Growth and Energy Conservation
5. Successful Hosting of the G20 and Enhancing Korea’s Global Standing
6. Preparing for the Future
Ⅲ. Korea Economic Policy Directions
54Byongwon Bark
Discover a new growth potential by nurturing green industry and technology- Green certification program (Jan 2010), Long-term & low-interest rate green loans- Concentrate on core green industries (e.g. secondary batteries) and expand
Green ODA to promote green industry’s in developing countries
Increase support for “New Growth Engine Projects”- Adjust tax exemption for R&D expenditures to be the highest in the world
Encourage low-carbon, environment-friendly living-style (e.g. reducing garbage)
Green Growth and Energy Conservation (1)
(1) Nurturing the green industry
(2) Implementing the 4-river project without a hitch
Implement 4-river project to ensure water supply, prevent flooding, and promote regional development along the river
- Complete 60% of construction during ‘10: Start construction during March 2010
Operate the Unified Project Maintenance System to systematically supervise the projects involving multiple corporations
55Byongwon Bark
Plans to achieve the target of greenhouse gas reduction (30% of BAU, 2020)- Comprehensively review methods to allocate emission rights and establish a trading
center, etc (in the first half of 2010)Instill a energy conservation structure through gradual reflection of energy costs to prices and development of carbon reduction technologySet and supervise energy conservation target for each institutionEstablish an overseas resource development plan reflecting the accomplishment of summit meetings (March.2010)
Carbon Emission Projection and Reduction Target (million ton)
Energy Consumption Criteria(TOE / thousand$)
298
594
813
567
0100200300400500600700800900
1000
1990 2005 2020( e) 2020
BAU △ 30%
Green Growth and Energy Conservation (2)
(3) Building energy-saving economic structure
0. 34
0. 21
0. 140. 11
0. 20
0
0. 1
0. 2
0. 3
0. 4
KOR USA UK J PN OECDE : Estimation
56Byongwon Bark
1. Consolidation of Economic Recovery
2. Job Creation
3. Stabilizing the Livelihood of the Common people
4. Green Growth and Energy Conservation
5. Successful Hosting of the G20 and Enhancing Korea’s Global Standing
6. Preparing for the Future
Ⅲ. Korea Economic Policy Directions
57Byongwon Bark
Successfully hosted Finance Ministers Meetings and Finance Deputies Meetings- operating two working groups and one expert group and establishing a network with global think tanksDiscussion on establishing a post-crisis global economic management mechanism
- IFI governance reform including IMF’s 5% quota transfer - Ensuring economic recovery through orderly implementation of exit strategy- Establishing G20 framework for sustainable and balanced growthBridge between advanced and developing countries
- Forming Global Financial Safety Nets- Developing agendas to facilitate the development of poorest countries
(1) Successful hosting of the G20 Summit
Korea expanded the size of its ODA after obtaining OECD DAC membership
- ODA/GNI percentage : (09) 0.11% → (10) 0.13% → (12) 0.15% → (15) 0.25%
Korea developed localized ODA models such as KSP.
(2) Consistent expansion of ODA
Successfully Hosting the G20 and Enhancing Koreas Global Standing’
58Byongwon Bark
FTAs with major partners including US, EU, and India, are being completed. - FTAs with US and EU will swiftly be taken into effect, and we laid foundations for FTA negotiations with emerging economies such as MERCOSUR, SACU, Turkey, and Russia.Measures to improve FTAs- Developing a country-of-origin management system and building the FTA support center- Creating the FTA portal website and enhancing FTA education & consulting services- Increasing competitiveness of industries that are likely to be affected by FTAs
(agriculture, livestock industry etc)
Active participation in IFI resource replenishment → a responsible donor of the international communityStronger regional financial cooperation in Asia, such as the launching of CMI multilateralism Establishment of financial cooperation network with Islamic countries
(4) Expanding and utilizing FTAs
(3) Strengthening global financial cooperation
Successfully Hosting the G20 and Enhancing Koreas Global Standing’
59Byongwon Bark
Promote trade liberalization and economic reforms
Secure new growth engine by strengthening Korea’s competitiveness
EU
EFTA
GCC
China
Russia
India
Turkey
ASEAN
Singapore
Japan
Australia New
Zealand
Canada
Mexico
Peru
MERCOSUR
Chile
Effective Negotiating Preparing
USA
<Appendix> Building Global FTA Networks
SACU
60Byongwon Bark
KORUS FTA negotiations officially launched
KORUS FTA negotiations completed
8 rounds of negotiations (Washington, Seoul, Seattle, Jeju)
Feb 3 2006
June2006~
Mar 2007
Apr 2 2007
Sep 7 2007
Ratification bill submitted to the Foreign Affairs, Trade and
Unification Committee
Dec18 2008
Apr 22 2009
KORUS FTA ratification bill
passed by the Foreign Affairs, Trade and Unification Committee
KORUS FTA ratification bill
submitted to National Assembly
<Appendix> KORUS FTA Status
61Byongwon Bark
1. Consolidation of Economic Recovery
2. Job Creation
3. Stabilizing the Livelihood of the Common people
4. Green Growth and Energy Conservation
5. Successful Hosting of the G20 and Enhancing Korea’s Global Standing
6. Preparing for the Future
Ⅲ. Korea Economic Policy Directions
62Byongwon Bark
50%
60%
70%
80%
90%
20~24 25~29 30~34 35~39 40~44 45~49 50~54
Fertility Rate in OECD Countries
0명
0.5
1.0
1.5
2.0
2.5
KOR JPN DEU OECD UK FRC USA
OECD High fertility (1.8 or higher)
OECD Low fertility (1.4 or lower)
Korea (1.19)
Comparisons of Women’s Economical Activities by Age Group
Formulate the “2nd low-fertility /ageing society plan”- Support pregnancy, birth, and childcare, as well as strengthen groundwork for
co-existence of work and family- Support women’s re-entry into the labor market and increase childcare facilities at work- Install incentives in various policies for multi-child families- Increased support for large families, strive for a happier and healthier family- Promote the “Increase Korean Population” policy, including immigration and nationality
policies to attract talented foreign professionals to Korea
(1) Preparing for low-fertility /ageing society
Preparing for the Future (1)
63Byongwon Bark
Preparing for the Future (2)
(2) Ensure sustainable finances
Better managements of government debts(below 40% of GDP)
Improved fiscal management system- Restrict the increase of total project costs within 1% through better performance-evaluation system
- Introduce Tax Expenditure Budget SystemPrepare for fiscal risks, by reforming the pension and the health insurance systems
Demand for a Statistic and Status of Reflection in Statistics Service
162 139 104 97
75 9991 105
232 225
160 143
0
100
200
300
400
500
600
02 04 06 07
Not reflectedPlannedCompleted
- 6000
6001200180024003000
08 20 30 40 50 60- 20020406080100
Reserve(L) Balance(R)
National Pension Finance Estimation (trillion won)
(3) National StatisticsImprove statistics service to the level commensurate by the policy demands - Reflect changes to socio-economic variables such as green growth and multi-cultural families
64Byongwon Bark
2010 Projections
Employment situation will improve as the economy recoversEven though the recovery may be slower than the real economic recovery
Oil prices may rise, but consumer prices will stay stable due to steady exchange rates and the deflation gap
Imports will increase at a faster pace than exports with the domestic market recovering and the oil prices rising→ The surplus is expected to be much smaller than this year
Increased exports and improved domestic demands (consumption/ investment) based on global economic recovery* Global economic growth outlook (IMF, Oct. 2009) : (‘09) △1.1% → (‘10) 3.1%
Yet uncertainties and risks in the international financial market still exist(oil prices/H1N1 flu)
GDP Growth : approx. 5%
Consumer Prices : approx. 3%
Increased employment : approx. 200,000 jobs
Current Account : approx. US$ 15 billion
65Byongwon Bark
Thank you.