Byongwon Bahk Slideshow Presentation

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

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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.

(%)

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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

(

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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

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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

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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)

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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

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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.

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I. Recent Macroeconomic Developments



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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

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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

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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)

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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

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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

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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.

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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


* 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

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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


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


USA JPN EU

Export Growth to G3 Region

-300

-250

-200

-150

-100

-50

0

50

100

Jan08 May 08 Sep08 Jan09 May09 Sep09

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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)

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<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

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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

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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


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

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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) (%)

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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

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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



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(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


◆ 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)


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

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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

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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

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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

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(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

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2. Job Creation






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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

(%)

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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

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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

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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”

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< 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

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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)

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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)

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2. Job Creation






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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

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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

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2. Job Creation






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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

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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

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2. Job Creation






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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’

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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’

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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

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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

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2. Job Creation






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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)

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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

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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

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Thank you.

Byongwon Bahk Slideshow Presentation

Education

Transcript of Byongwon Bahk Slideshow Presentation