Overcoming the Global Financial Crisis
                - Korea ’s Experience -



                     January 11, 2010


...
Ⅰ.       Current Status of the Korean Economy


                     Korea’s Resilience
            Ⅱ.       amidst the Gl...
I.     Current Status of the Korean Economy

    II. Korea’s Resilience amidst the Global Crisis

    III. Korean Economic...
GDP Growth Comparison by Country

                                              GDP Growth Rates (YoY, %)
       Asian Fin...
Where Korea Stands : GDP Growth, Export Growth


                  GDP Growth Rates Trend                                 ...
Where Korea Stands : Employment, Inflation

                         Employment Trend                                     ...
Where Korea Stands : Stock Market, Bond Interest
  STOCK, RATE
                         Stock Market                      ...
Where Korea Stands : Capital Market

                   Exchange Rate                                                KOSPI...
Where Korea Stands : External Debt

       Foreign Liability Structure Improved                           Improving Debt S...
<Appendix> Dramatic Improvement in Economy since Lehman
 Collapse


                                                      ...
Assessing Economic Recovery (1)

     Contribution by Domestic Demand and                                          Contrib...
Assessing Economic Recovery (2)

           Relatively Fast Recovery of Domestic Demand in Second Half
       Domestic dem...
I.     Recent Macroeconomic Developments

    II. Korea’s Resilience amidst the Global Crisis

    III. Korean Economic Po...
Reasons Behind Korea’s Fast Recovery

                                            Fast Recovery




           Relatively ...
Corporate Sector (1) : Improved Financial
Structure
                                                      Corporate Financ...
Corporate Sector (2) : Export Competitiveness

       Technological Competitiveness Index of Major Export Products (World’...
Banking Sector (1) : Improved Soundness
                                                                 Soundness of Bank...
Banking Sector (2) : Preventing Real Estate Bubbles

   Real Estate
       The LTV ratio in the US & UK is around 70~80%, ...
Government Sector : Maintaining Fiscal Soundness

     Government Finance

     Maintaining a surplus in the consolidated ...
How Korea Affected by the Recent Financial Crisis
   Expansion Channels
        Financial Channels : Instability in advanc...
How Korea Affected by the Recent Financial Crisis
                  Balance of Capital account                            ...
Swift Policy Responses : FX Market Stabilization Measures

      Resolute actions to supply foreign currency liquidity was...
<Appendix> Improving Access to FX Liquidity

    Coupon (%)

   9.5



                                                 PO...
Swift Policy Responses : Financial Market Stabilization
       Lowering interest rates, and mobilized various means to inj...
Swift Policy Responses : Financial Market Stabilization

         Stabilizing Market & Address Credit Crunch

            ...
Swift Policy Responses : Export Support Measures
    Support for exporting SMEs with foreign currency liquidity supply and...
Swift Policy Responses : Boosting Demand by Public Exp.
      Tax Cut & Public Spending amounting to 6.9% of GDP from 2008...
<Appendix> Details of Tax Policies

                                       Oil price refund for workers and self-employed ...
<Appendix> Details of Fiscal Spending

                                                    Oil price subsidies for low inc...
<Appendix> Comparison of Fiscal Expansion (2008~2009)




         (% to GDP)                                             ...
Swift Policy Responses : Job Creation/Working Class

       Job Creation & Job Sharing: Enhancing Job Safety for Underpriv...
<Appendix>        International Community’s Assessment

     Fitch      Raised Korea’s credit rating outlook from ‘negativ...
I.     Recent Macroeconomic Developments

    II. Korea’s Resilience amidst the Global Crisis

    III. Korean Economic Po...
Challenges Facing the Korean Economy
  (1) Diminishing economic
     vitality                                             ...
Challenges Facing the Korean Economy

   (3) Weakening base for job creation                                      Services...
Challenges Facing the Korean Economy

  (4) Future threat (e.g. low fertility rate/rapid ageing and climate change)

     ...
Challenges facing the Korean Economy

   (5) Social and economic dual structure
                                          ...
Policy Directions for a Leap Forward
                   <Successfully Overcoming the Crisis>


       Consolidation of    ...
Ⅲ. Korea Economic Policy Directions

                     1. Consolidation of Economic Recovery
                     2. Jo...
Consolidation of Economic Recovery
(1)
   (1) Maintaining expansionary policies
         Keep up expansionary macroeconomi...
Consolidation of Economic Recovery (2)

    (3) Enhance crisis management capability
         (Financial sector) Improve p...
Ⅲ. Korea Economic Policy Directions

                      1. Consolidation of Economic Recovery
                      2. ...
Job Creation (1)
    Recent Trends
       Decelerate the employment downturn through the Hope Employment Project and
     ...
Job Creation (2)
     Strategies for job creation
     Consolidate national efforts by the “National Employment Strategy C...
Job Creation (3)
   (2) Advancement of the services industry
      Deregulation in high value-added service industries suc...
< Appendix > Importance of the Services Industry

                                Weakening growth
                       ...
< Appendix> What’s Wrong with Services?

           Services are still reluctant to try to induce FDIs to compensate
     ...
Job Creation (4)
    (3) More flexible labor market
        Plural union is going to be permitted in July 2011, and Full-t...
Job Creation
(5)
   (5) Expand human resources
                                                                   Private ...
Ⅲ. Korea Economic Policy Directions

                    1. Consolidation of Economic Recovery
                    2. Job ...
Stabilizing the Livelihood of the Common People
(1)

     (1) Stabilizing the market and real estate prices

        (Mark...
Stabilizing the Livelihood of the Common People (2)

  (3) Support poverty-escape through work and education

        Supp...
Ⅲ. Korea Economic Policy Directions

                    1. Consolidation of Economic Recovery
                    2. Job ...
Green Growth and Energy Conservation (1)

   (1) Nurturing the green industry
       Discover a new growth potential by nu...
Green Growth and Energy Conservation (2)

  (3) Building energy-saving economic structure
     Plans to achieve the target...
Ⅲ. Korea Economic Policy Directions
                      1. Consolidation of Economic Recovery
                      2. J...
’
Successfully Hosting the G20 and Enhancing Koreas Global Standing

   (1) Successful hosting of the G20 Summit
         ...
’
Successfully Hosting the G20 and Enhancing Koreas Global Standing

   (3) Strengthening global financial cooperation
   ...
<Appendix> Building Global FTA Networks

      Promote trade liberalization and economic reforms
      Secure new growth e...
Byongwon Bahk Slideshow Presentation
Byongwon Bahk Slideshow Presentation
Byongwon Bahk Slideshow Presentation
Byongwon Bahk Slideshow Presentation
Byongwon Bahk Slideshow Presentation
Byongwon Bahk Slideshow Presentation
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Byongwon Bahk Slideshow Presentation

  1. 1. Overcoming the Global Financial Crisis - Korea ’s Experience - January 11, 2010 Byongwon Bark 1
  2. 2. Ⅰ. Current Status of the Korean Economy Korea’s Resilience Ⅱ. amidst the Global Economic Crisis Ⅲ. Economic Policy Direction for the Future Byongwon Bark 2
  3. 3. I. Current Status of the Korean Economy II. Korea’s Resilience amidst the Global Crisis III. Korean Economic Policy Directions Byongwon Bark 3
  4. 4. GDP Growth Comparison by Country GDP Growth Rates (YoY, %) Asian Financial Crisis Global Financial Crisis 15 10 5 0 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 1Q09 2Q09 3Q09 (5) V-Shaped Economic Recovery (10) Korea US Japan Taiwan China Source: Bloomberg Byongwon Bark 4
  5. 5. Where Korea Stands : GDP Growth, Export Growth GDP Growth Rates Trend Export Growth (%) (YoY %) 8 35.6 27.7 6 30 16.4 18.1 4 2.6 3.2 7.8 3.1 10 2 0.2 0.1 0.9 (9.0)8.5) ( 0 (19.5) -10 (18.5) (19.9) (12.6) (21.0) (17.9) (22.5) (21.9) -2 -3.4 -2.2 (29.4) (34.5) -4 -30 -4.2 -6 -5.1 1Q.07 3Q 1Q.08 3Q 1Q.09 3Q -50 08-Jan 08-Sep 08-Dec 09-Mar 09-Jun 09-Sep Korea Japan Taiwan Singapore Source: Bank of Korea, as of Sep 2009. Byongwon Bark 5
  6. 6. Where Korea Stands : Employment, Inflation Employment Trend Inflation Rates (YoY ,Ten thousand) (YoY, %) 300 8 ( 200 6 100 0 4 -100 2 -200 -300 0 JULY.08 NOV.08 MAR.09 JULY.09 NOV.09 -400 Employment exclude public sector -2 -500 08JAN Apr Jul Oct 09.JAN Apr Jul Nov Consumer infltion Core inflation Source: Bank of Korea, as of Sep 2009. Byongwon Bark 6
  7. 7. Where Korea Stands : Stock Market, Bond Interest STOCK, RATE Stock Market Interest Rate Trend (%) (%) 120 1,682.8 14 10,428.1 12 10,546.4 100 3,277.1 10 80 8 6 60 4 40 2 0 20 JAN.07 JULY.07 JAN.08 JULY.08 JAN.09 JULY.09 0 Government (3years) Corporate(AA,3years) 08JAN Apr Jul Oct 09.JAN Apr Jul Oct Dec Corporate(BBB,3years) US Korea China Japan Byongwon Bark 7
  8. 8. Where Korea Stands : Capital Market Exchange Rate KOSPI and CDS KOSPI Index CDS (bps) 1,700 1,600 1,800 500 1,700 450 1,500 1,600 400 1,400 1,500 350 1,300 1,400 300 1,200 1,300 250 1,200 200 1,100 1,100 150 1,000 1,000 100 900 900 50 800 0 800 KOSPI CDS- KOR JAN.08 JUNE.08 JAN.09 JUNE.09 DEC.09 MAR APR MAY JUN JUL AUG SEP OCT NOV DEC W/$ Won/100Yen CDS-ROK : CDO of 5yr Korea Government Bond Byongwon Bark 8
  9. 9. Where Korea Stands : External Debt Foreign Liability Structure Improved Improving Debt Soundness (USD bn) Short-term Long-term 50% 97.1 96.5 450 100% 425.5 89.9 397.5 400 381.1 380.2 90% 369.1 80.5 350 44.6 73.9 80% 235.9 40% 300 251.2 70% 230.0 232.9 223.0 250 39.6 39.6 38.7 37.1 60% 200 30% 50% 150 189.6 65.4 151.1 146.1 147.3 146.3 3Q 08 4Q 08 (63%) 09 1Q 2Q 09 3Q 09 100 3Q08 4Q08 1Q09 2Q09 3Q09 Short Term Debt Ratio (LHS) Current Foreign Debt Ratio (RHS) Byongwon Bark 9
  10. 10. <Appendix> Dramatic Improvement in Economy since Lehman Collapse Changes Aug. 2008 Dec. 2008 DEC. 2009 since Dec. 08 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)% 1 As of quarter-end 2 As of June 2009 3 As of 31 Decenber Byongwon Bark 10 - 10 -
  11. 11. Assessing Economic Recovery (1) Contribution by Domestic Demand and Contribution by Government and Private Net Export Sector (YoY, %) (YoY, %) 8 8 6 5.3 5.3 6 4.1 4 4 1.7 1.0 2 1.6 5.3 1.9 1.9 1.3 2 3.8 0.6 0 1.1 2.5 0.3 - 1.5 - 0.1 -2 0 0.2 0.5 -4 0.6 - 0.4 - 3.5 - 3.4 - 5.4 -2 -4 - 4.1 -6 - 6.1 - 5.7 - 7.4 -4 -8 -10 -6 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 -8 Domestic Demand(ex cept inventor y) 1Q.08 2Q.08 3Q.08 4Q.08 1Q.09 2Q.09 3Q.09 Inventor y Net ex por t Government Private Source: Bank of Korea, as of Sep 2009. Source: Bank of Korea, as of Sep 2009. Byongwon Bark 11
  12. 12. Assessing Economic Recovery (2) Relatively Fast Recovery of Domestic Demand in Second Half 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. GDP/GDI TREND (YoY, %) 8.0 6.0 5.4 5.9 5.7 5.5 5.3 4.9 4.0 4.5 4.2 4.3 3.9 3.7 3.1 2.0 2.4 2.0 0.9 0.0 0.2 - 2.0 - 2.6 - 2.2 - 4.0 - 3.4 - 4.2 4.4 - 6.0 - 6.2 - 8.0 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 GDP GDI Source: Bank of Korea, as of Sep 2009. Byongwon Bark 12
  13. 13. I. Recent Macroeconomic Developments II. Korea’s Resilience amidst the Global Crisis III. Korean Economic Policy Directions Byongwon Bark 13
  14. 14. Reasons Behind Korea’s Fast Recovery Fast Recovery Relatively Sound Banking and Swift Fiscal and Financial Corporate Sector Policy Responses Enhanced corporate management after the Efforts to Stabilize the F/X Market Asian Financial Crisis(1997) Proactive financial measures - Improved financial soundness (debt ratio, interest coverage ratio) − Lowering policy rates - High rebound in export (LCD, auto) − Provision of Won liquidity Relatively sound banking sector compared to − Corporate restructuring other country (BIS, NPL ratio) and prevent − Bank Recapitalization real estate failure Stimulus package: 4.9% of GDP (08-09) Relatively strong fiscal soundness Fiscal expansion, Tax cuts Strengthening corporate Minimize GDP contraction and fundamentals Return economy to pre-crisis levels Byongwon Bark 14
  15. 15. Corporate Sector (1) : Improved Financial Structure Corporate Financial Soundness Equity to Total Asset Ratio Debt to Equity Ratio Korea US Germany Japan Korea US Germany Japan (07) (07) (05) (07) (07) (07) (05) (07) 46 44 34 30 116 127 191 232 Continuous Decline on Debt Ratio Interest Coverage Ratio (%) 425 (%) 450 600 400 336 336 483 460 350 500 Asian Crisis 414 300 363 235 221 400 351 250 322 196 264 200 300 Asian Crisis 145 131 150 114 111 105 116 131 200 141 146 100 107 115 100 64 71 50 0 0 19961997 19981999 20002001 2002 20032004 20052006 20072008 19961997 19981999 20002001 2002 20032004 20052006 20072008 Source: FSS Source: FSS Byongwon Bark 15
  16. 16. Corporate Sector (2) : Export Competitiveness Technological Competitiveness Index of Major Export Products (World’s Top 100 Companies) Semiconductor Cellular Phone LCD Ship Steel 100.4 96.3 96.1 95.5 95.4 Diversified Export Markets (2008) Diversified Export Items (2008) Semiconductor Others China 7.8% Chemicals 20.8% 21.7% 8.9% Others 35.3% Automobile Middle East 8.3% 6.3% Mobile EU Central & Communicatio 13.9% South America n 7.9% Textile 8.5% Flat Panel Japan 3.2% North America Computer 3% Display 6.7% ASEAN 11.0% AutopartsSteel 7.1% Shipbuilding 4.4% 11.7% 3.3% 10.2% Byongwon Bark 16
  17. 17. Banking Sector (1) : Improved Soundness Soundness of Bank Loans 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% * As of December 2008 NPL Ratio BIS ratio 15 13.6 16 14.6 14 12.4 14.3 12.3 8.8 12.7 10 7.4 12 Asian Crisis 10.8 10.8 11.3 12 6.0 10 10.5 10.5 10.5 3.3 9.1 5 2.4 2.7 8.2 1.9 8 1.3 0.9 0.7 1.1 1.6 Asian Crisis 7 6 0 4 1996 1998 2000 2002 2004 2006 2008 3Q09 1997 1999 2001 2003 2005 2007 ‘09.6 Source: FSS Source: FSS Byongwon Bark 17
  18. 18. Banking Sector (2) : Preventing Real Estate Bubbles 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 Housing Price Declines in Major Countries Housing Price Index of Major Countries 0 US A UK CHN KO R 120 - 2.17% - 10 - 12.6% 100 - 20 - 19.6% 80 - 30 60 1 23 4 56 7 - 32.5% 2006 2007 2008 2009 - 40 USA UK CHN KOR Source: S&P Case-Shiller index, National wide Index Source: FSS △ highest point, ■ lowest point Byongwon Bark 18
  19. 19. Government Sector : Maintaining Fiscal Soundness 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. Consolidated Fiscal Balance (% of GDP) Public Debt 3.5% 250% 4% 217.2% G20 average : 72.5% 3% 200% 2% 1.0% 1.2% 150% 1% 0.6% 0.4% 0.4% 87.0% 0% 100% 74.9% 62.7% (1)% 50% 35.6% (2)% 0% (3)% (2.3)% KOR JAN USA FRC UK 2003 2004 2005 2006 2007 2008 2009 Reference: OECD Economic Outlook (June 2009) E: Estimates (0.6% when excluding supplementary budget) 32.6% for Korea, when excluding supplementary budget Byongwon Bark 19
  20. 20. How Korea Affected by the Recent Financial Crisis Expansion Channels 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 Foreign Net Buying of Listed Bonds Foreign Net Buying of Stocks * Trillion Won * Trillion Won 12 8 10 6 4 8 2 6 0 4 -2 2 -4 -6 0 -8 -2 Jan08 May08 Sep08 Jan09 May09 Sep09 -10 -4 Jan08 May08 Sep08 Jan09 May09 Sep09 -6 Foreign net buying of listed bonds in 4th quarter of 2008 : Foreign net buying of stocks in second half of 2008 : -5.3 trillion won -20.7 trillion won Byongwon Bark 20
  21. 21. How Korea Affected by the Recent Financial Crisis Balance of Capital account Exchange Rate & CDS Premium 100 1700 800 50 700 0 1500 600 -50 Jan08 May 08 Sep08 Jan09 May 09 Sep09 500 -100 1300 400 -150 300 -200 1100 200 -250 100 -300 900 0 Jan08 Sep Mar Nov0 * Hundred million $ KRW/US$ KRW/ US$ CDS premiun CDS Stock Price Index Export Growth to G3 Region 2,000 700 650 40 1,800 600 30 1,600 550 20 1,400 500 10 450 0 1,200 400 - 10 1,000 350 - 20 300 - 30 800 250 - 40 600 200 - 50 Jan08 May08 Sep08 Jan09 May09 Sep09 Jan08 May 08 Sep08 Jan09 May 09 Sep09 KOSPI KOSDAK USA JPN EU Index at the end of each month Byongwon Bark 21
  22. 22. Swift Policy Responses : FX Market Stabilization Measures Resolute actions to supply foreign currency liquidity was possible by the sufficient foreign exchange reserves and the currency swap with the US. Addressing F/X Market Uncertainties Monthly changes in foreign exchange reserves (USD100 mil) (USD100 mil) Liquidity Provision - Direct FX liquidity provision : USD55bn 2900 200 Government Guarantee 2700 - Borrowings of banks up to USD 100bn 100 2500 Currency Swap Line - USD90bn with US, China and Japan 2300 0 2100 (100) Increasing FX Stabilization Fund - Issuing USD3bn Global Bond 1900 (200) Chiang Mai Initiative 1700 - Creating reserve pool of USD 120bn 1500 (300) (To be implemented in March 2010) Jan08 May08 Sep08 Jan09 May09 Sep09 Byongwon Bark 22
  23. 23. <Appendix> Improving Access to FX Liquidity Coupon (%) 9.5 POSCO Hana Bank was the sole bank to utilize the 8.5 KOGAS government guaranteed funding program KEXIM KEXIM KDB KB Woori Bank ROK 7.5 Issuance Woori IBK KHNP Hana HyunDAI Capital 6.5 Suhyup KDB KB ROK 5yr KEPCO Korea National KHC A2/A Housing 5.5 T+400.0 Corporation Shinhan KNOC NACF 4.5 Dec-08 Feb-09 Apr-09 May-09 Jul-09 Sep-09 NOV-09 Korea Global Bond Issued in 2009YTD: USD20.1 bn * Size of the bubble represents relative size of the bond. * Total Issuance Volume of US$18.6 bn, as of September 23, 2009 Byongwon Bark 23
  24. 24. Swift Policy Responses : Financial Market Stabilization Lowering interest rates, and mobilized various means to inject liquidity into the market, targeting where the credit crunch is most serious. Policy Rates in Major Economies Proactive Financial Measures (%) After the collapse of the Lehman 6 Brothers (08.9.15), policy rates were lowered by 325bs. (5.25% → 2.00%) UK 5 4.50%p Improving capital adequacy of Banks - Bank Recapitalization Fund : KRW20 tn Korea 4 3.25%p - As of Nov 2009, KRW4 tn has been provided Euro zone 3.00%p Corporate restructuring funds to 3 purchase insolvent bonds - KRW40 tn operated by KAMCO - As of Nov 2009, KRW0.8 tn has been provided. 2 US 1.87%p Bond Market Stabilization Fund (Of KRW10 1 tn, KRW4.1 tn has been executed) Japan 0.40%p 0 Corporate Bank P-CBO FI bonds Total bonds bonds ABCP Korea US Euro UK Japan Invested * Source : Each Respective Central Bank amount 11,993 4,329 5,500 19,253 41,075 Byongwon Bark 24
  25. 25. Swift Policy Responses : Financial Market Stabilization Stabilizing Market & Address Credit Crunch M1Monthly Balances Proactive Financial Measures (조원 390 ) Provision of won liquidity (KRW 27 tn) through open market operations such as 370 BOK’s purchase of RP and treasury bonds 350 SME Support - Increased guarantee through Kodit and Kibo (year on year KRW22.5 tn increase) 330 - Roll-over SME loans maturing in 09 (KRW160 tn) 310 - Prompt supply of funds through a Fast Track SME liquidity provision program (KRW21.7 tn) 290 Tax incentives to activate funds 270 - long-term stock funds : income tax credit for payments and exemption of dividend 250 income tax Jan08 May08 Sep08 Jan09 May09 Sep09 - long-term bond funds : exemption of dividend income tax * Source : Central Bank Byongwon Bark 25
  26. 26. Swift Policy Responses : Export Support Measures Support for exporting SMEs with foreign currency liquidity supply and increase of export insurance Daily Average Export Growth Measures to Support Export (USD100 mil) (%) Supply of foreign currency liquidity to 20 50 exporting & importing companies 18 40 16 - USD10 bn of export bill loans 30 14 - USD11 bn of export bill rediscounts 20 12 10 Increased export insurance 10 - Export insurance 0 8 (KRW130 tn, 08) →(KRW170 tn, 09) -10 6 -20 Reducing protectionism in trade through 4 international policy coordination such as 2 -30 the G20 0 -40 - At the G20 Summit in April 2009, summits promised to work together to keep Jan08 May08 Sep08 Jan09 May09 Sep09 Export per day Rate of increase a standstill against protectionist movements * Source : Each Respective Central Bank Byongwon Bark 26
  27. 27. Swift Policy Responses : Boosting Demand by Public Exp. Tax Cut & Public Spending amounting to 6.9% of GDP from 2008 to 2010 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) 2008-2009* KRW 16.4 Tn KRW 33.2 Tn KRW 49.6 Tn (4.9%) 2010 KRW 13.2 Tn KRW 7.7 Tn KRW 20.9 Tn (2.0%) * 64.8% of Total Expenditure to be Disposed in 1H 2009 KRW 70.5 Tn (6.9%) Byongwon Bark 27
  28. 28. <Appendix> Details of Tax Policies Oil price refund for workers and self-employed KRW3.5 tn Tax credits to address Heating oil consumption tax cuts during winter KRW0.1 tn high oil prices (June 08) Oil price subsidies for public transportation and logistics KRW1.5 tn Tax credits to overcome global financial crisis Income tax credit and tax exemption for long-term funds KRW1.3 tn (Oct. 08) Corporate tax cuts KRW9.0 tn Income tax cuts KRW3.6 tn Tax credits to support working class and create jobs (Dec. 08) Comprehensive property tax cuts and adjustment of KRW1.5 tn assessment standards EITC for more people KRW4.7 tn Increase of temporarily granted investment credit KRW3.0 tn Tax credits to stimulate Treasury bond interest income tax exemption for foreigners KRW0.1 tn economic recovery (April 09) Income tax credit for employees of job-sharing companies KRW1.3 tn Tax credits for automobile Consumption tax cuts for trading old car for new one - industry (June 09) * 08년 정기국회, 09년 임시국회에서 추진 Byongwon Bark 28
  29. 29. <Appendix> Details of Fiscal Spending Oil price subsidies for low income class & KRW2.4 tn increased public transportation 2008 Supplementary budget Support for farmers, fishermen, and retail dealers KRW0.4 tn (KRW4.6 tn) Energy conservation and securing foreign resources KRW1.8 tn Invigorating regional economies through SOC expansion KRW4.6 tn Support for regional SMEs, self-employed and farmers & KRW3.4 tn fishermen 2008 Amended budget Improving welfare for low income class KRW1.0 tn (KRW10 tn) Support for unemployed KRW0.3 tn Increasing regional financial support KRW1.1 tn 2008 FI contribution (KRW1.4 Additional contributions to credit guarantee funds and KRW1.4 tn tn) technology credit guarantee funds Support for low income class KRW4.2 tn Maintaining jobs & increasing employment opportunities KRW3.5 tn 2009 Supplementary budget Support for SMEs and self-employed KRW4.5 tn (KRW17.2 tn) Invigorating regional economies KRW3.0 tn Investing in green growth KRW2.0 tn * 64.8% of Total Expenditure to be Disposed in 1H 2009 Byongwon Bark 29
  30. 30. <Appendix> Comparison of Fiscal Expansion (2008~2009) (% to GDP) Fiscal spending 6.1 Tax credits 6 5.6 5 4.7 2.8 2.8 0.5 4 3.2 3 1.9 2.0 2 4.2 3.2 1.5 0.7 2.4 1.1 1 1.5 0.2 0.4 0.5 0.9 KOR UK FRC USA JPN OECD Average Reference : OECD Economic Outlook( June 2009) Byongwon Bark 30
  31. 31. 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 Byongwon Bark 31
  32. 32. <Appendix> International Community’s Assessment Fitch 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. Washington Post “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.” OECD 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% Byongwon Bark 32
  33. 33. I. Recent Macroeconomic Developments II. Korea’s Resilience amidst the Global Crisis III. Korean Economic Policy Directions Byongwon Bark 33
  34. 34. Challenges Facing the Korean Economy (1) Diminishing economic vitality 우리나라 GDP성장률 추이(%) Korean GDP Growth Rate Trend(%) 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 (2) High external dependency External Dependency 150 127 130 Domestic economy : very vulnerable 110 92 to external shocks due to the weak 90 75 58 domestic demand (e.g. service 70 50 industry) 30 30 24 10 -10 TAW KOR DEU CHN JPN USA Byongwon Bark 34
  35. 35. Challenges Facing the Korean Economy (3) Weakening base for job creation Services to GDP Ratio (‘06) OECD Avg. = 71% Korea = 58% 80% Underdevelopment of the services 70% sector and the weakness in the 60% intermediary industry 50% → Weakness in the link between growth 40% and employment F R S U K U I T G E J P S E C A O K N A A R N P N R ◆ Structural problems in the service sector Excessive competition : Small self-employed businesses • Excessive numbers entering including wholesale, retail, restaurants, accommodations the industry - (Taxi): Per 1,000 people (Seoul)7.0, (Tokyo)4.3, (New York)1.5 • Low profit margin, poor treatment - (Restaurant) : Per 1,000 people (KOR)12.7, (JPN)7.1, (US)2.4 • Social instability High entry-barrier: professional services including • Restricted entry legal, medical, accounting, financial, and education • Excessive profits - (Lawyers) : Per 1,000 people (KOR)0.17, (JPN)0.19, (US)3.73 • Discontent among - (Accountants) : Per 1,000 people (KOR)0.25, (JPN)0.63, (US)1.12 clients Byongwon Bark 35
  36. 36. Challenges Facing the Korean Economy (4) Future threat (e.g. low fertility rate/rapid ageing and climate change) 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 Population Trend (million people) Energy Consumption by Region (Million bbl/day) 60 2018 120 108 50 the others china, india, middle east 65 year s ol d 100 advanced 83 40 0- 14 year s ol d 32 80 30 2016 63 23 60 33 20 18 20 15- 64 year s ol d 40 4 10 20 42 43 38 0 0 1970 1990 2010 2030 2050 1980 2006 2020 Byongwon Bark 36
  37. 37. Challenges facing the Korean Economy (5) Social and economic dual structure 정규직-비정규직/수출-내수기업 비교 Comparisons of Regular/Temporary Widening gap Worker and Export/Domestic Business 200 250 between Regular - Temporary workers, 220 180 160 200 144 Conglomerates – SMEs and 150 140 120 120 Export - Domestic Business 100 100 80 65 60 Shrinking middle-class and obstacle to 50 40 20 0 0 social integration R egular Tem porary Exp o rt Do mes ti c Value added per worker wage (Manufacturing industry, (Ten thousand won, 8. 09) million won, 08) (6) Immaturity of social consciousness and practices Legal Observation and Economic Growth (KDI) Disregard for law & order and authorities, backward labor-management relations → KOR undermining national competitiveness Growth Rate 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-Order Index Byongwon Bark 37
  38. 38. Policy Directions for a Leap Forward <Successfully Overcoming the Crisis> Consolidation of Stabilizing Livelihood of Job Creation Economic Recovery the Common People < Expanding Growth Foundation> Successful Hosting of the G20 and Enhancing Green Growth & Preparing for the Future Korea’s Global Standing Energy Conservation “2010 : Beyond the Crisis, Towards an Advanced Country” Byongwon Bark 38
  39. 39. Ⅲ. Korea Economic Policy Directions 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 Byongwon Bark 39
  40. 40. Consolidation of Economic Recovery (1) (1) Maintaining expansionary policies Keep 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 2014 Unwind exceptional/temporary measures, and prepare supplementary measures 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 Byongwon Bark 40
  41. 41. Consolidation of Economic Recovery (2) (3) Enhance crisis management capability (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 (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 Byongwon Bark 41
  42. 42. Ⅲ. Korea Economic Policy Directions 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 Byongwon Bark 42
  43. 43. Job Creation (1) Recent Trends Decelerate the employment downturn through the Hope Employment Project and Job Sharing - Job market is in a better condition when compared to other nations Difficult 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 weakening In 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 Financial Crisis and Changes in Employment Figures Unemployment Rates (October 2009) 700 30 (thousand people, YOY) (%) 25 Unemployment rate 200 20 Youth unemployment rate -300 7 9 11 1 3 5 7 9 11 15 -800 10 5 -1300 Asian financial crisis(97.7-98.12) 0 Global financial crisis(08.7-09.12) -1800 USA FRC DEU JPN KOR Byongwon Bark 43
  44. 44. Job Creation (2) Strategies for job creation 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 (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 Byongwon Bark 44
  45. 45. Job Creation (3) (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 facilities Swiftly 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 generations Prepare plans to grow service industries with high job creation effects, such as social services, media, and contents industry Growth Rate of jobs per billion won Manufacturing and Service Industry (%) 35 30 14 12.6 30 12 25 22 10 8.9 19 8.2 7.9 20 18 7.6 8 6.6 15 13 6 3.9 3.9 9 10 4 5 2 0 0 85~90 90~95 95~00 00~05 95 00 07 M act ur e anuf Ser vi ce Manufacture Service Byongwon Bark 45
  46. 46. < Appendix > Importance of the Services Industry Weakening growth (Potential Growth rate in the 4% range) High external dependency (Exports+Imports/GDP= Low employment, Services Industry 92%) Youth unemployment (Youth unemployment in 70% of employment, 60% of GDP the 7% range) Productivity is half that of advanced nations Chronic service Low productivity in account deficit domestic demand industries (annually around (VAT per person for a domestic $20billion deficit) demand-oriented company : 45% of an export company) In services industry, deregulation and opening markets to enhance competition are key policy directions Not merely a matter of ‘cost’, but fixing the problem requires “decisive action” Byongwon Bark 46
  47. 47. < Appendix> What’s Wrong with Services? Services are still reluctant to try to induce FDIs to compensate factors 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 Trade Specialized Index of Service industry Relative Competitiveness Advantage 0.3 Index of Service Industry 3 0.2 2.5 0.1 2 0 1980 1990 2000 2005 1.5 -0.1 -0.06 -0.04 0.74 -0.13 1 -0.2 -0.13 0.74 0.5 0.66 0.72 -0.3 -0.4 0 1980 1990 2000 2005 KOR USA UK JPN KOR USA UK JPN TSI index : if TSI > 0 export specialized, TSI < 0 import specialized RCA index : if RCA > 1 relative superior, RCA < 1 relative inferior Byongwon Bark 47
  48. 48. Job Creation (4) (3) More flexible labor market Plural 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 culture Promote 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) (4) Improve the effectiveness of employment measures 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 Byongwon Bark 48
  49. 49. Job Creation (5) (5) Expand human resources Private Tutoring Cost (trillion won) 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 (6) Expand investments and enhance efficiency Regulation Reform Satisfaction Index Efforts to improve business environment (March09. Federation of Korean Industries) 70 61 - Comprehensively review investment 60 (YOY, %) environments 50 44 47 - Better living conditions for foreign investors and 40 27 professionals to work in Korea 30 20 R&D investment to be based on performance 9 9 10 - Introducing measures such as “Honorable Failure” 0 Good Normal Poor 08 year 09 year Byongwon Bark 49
  50. 50. Ⅲ. Korea Economic Policy Directions 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 Byongwon Bark 50
  51. 51. Stabilizing the Livelihood of the Common People (1) (1) Stabilizing the market and real estate prices (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 (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 Byongwon Bark 51
  52. 52. 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 Byongwon Bark 52
  53. 53. Ⅲ. Korea Economic Policy Directions 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 Byongwon Bark 53
  54. 54. Green Growth and Energy Conservation (1) (1) Nurturing the green industry 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) (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 Byongwon Bark 54
  55. 55. Green Growth and Energy Conservation (2) (3) Building energy-saving economic structure 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 technology Set and supervise energy conservation target for each institution Establish an overseas resource development plan reflecting the accomplishment of summit meetings (March.2010) Carbon Emission Projection and Energy Consumption Criteria Reduction Target (million ton) (TOE / thousand$) 0. 4 1000 0. 34 900 813 BAU △ 30% 800 0. 3 700 594 600 567 0. 21 0. 20 500 0. 2 0. 14 400 298 0. 11 300 0. 1 200 100 0 0 E : Estimation KOR US A UK J PN OECD 1990 2005 2020( e) 2020 Byongwon Bark 55
  56. 56. Ⅲ. Korea Economic Policy Directions 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 Byongwon Bark 56
  57. 57. ’ Successfully Hosting the G20 and Enhancing Koreas Global Standing (1) Successful hosting of the G20 Summit Successfully hosted Finance Ministers Meetings and Finance Deputies Meetings - operating two working groups and one expert group and establishing a network with global think tanks Discussion 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 growth Bridge between advanced and developing countries - Forming Global Financial Safety Nets - Developing agendas to facilitate the development of poorest countries (2) Consistent expansion of ODA 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. Byongwon Bark 57
  58. 58. ’ Successfully Hosting the G20 and Enhancing Koreas Global Standing (3) Strengthening global financial cooperation Active participation in IFI resource replenishment → a responsible donor of the international community Stronger 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 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) Byongwon Bark 58
  59. 59. <Appendix> Building Global FTA Networks Promote trade liberalization and economic reforms Secure new growth engine by strengthening Korea’s competitiveness EFTA Russia Canada China Japan USA EU Turkey Mexico ASEAN GCC India MERCOSUR Singapore Peru New SACU Chile Australia Zealand Effective Negotiating Preparing Byongwon Bark 59

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