Korea’s Economic DevelopmentKorea’s Economic Developmentand Policy Directionsand Policy Directions forfor 2004 2004

Gwang Lim KIM

Vice Minister Ministry of Finance and Economy

Republic of Korea

18 March 2004

Table of ContentsTable of Contents

I.I. Recent Economic Developments Recent Economic Developments

II.II. Major Policy Directions for 2004Major Policy Directions for 2004

III.III. Current Issues & Policy MeasuresCurrent Issues & Policy Measures

IV.IV. Mid- to Long-term Growth StrategyMid- to Long-term Growth Strategy

3

GDP GrowthGDP Growth Industrial Output GrowthIndustrial Output Growth

3.7

1.93.1

6.3

2.3

0

1

2

3

4

5

6

7

01 02 03 1Q 03 2Q 03 3Q 034Q

Korean Economy On Track to RecoveryKorean Economy On Track to Recovery

14.4 15.9

25.6

32.7

45.9

8.0

20.7

0

10

20

30

40

50

02 03 1Q 03 2Q 03 3Q 03 4Q 04 Jan 04 Feb

6.1

3.2 3.2

7.8

4.8

0.7

8.0

0

2

4

6

8

10

01 02 03 1Q 03 2Q 03 3Q 03 4Q Jan 04

(%) (%)

3.8 (e)

ExportsExports FX ReservesFX Reserves

(%) (US$ bn)

74.0

96.0 102.8

121.4

155.4163

0

20

40

60

80

100

120

140

160

180

99 00 01 02 03 Feb 04

(US$ bn)

4

ConsumptionConsumption InvestmentInvestment

-3.4 -3.7

-7.0

-4.6-3.1

1.6

-2.3

-10

-8

-6

-4

-2

0

2

4

01 02 03 1Q 03 2Q 03 3Q 03 4Q Jan 04

Domestic Demand Remains SluggishDomestic Demand Remains Sluggish

1.5

-1.7-2.5 -2.2 -2.5

8.3

6.6

-4

-2

0

2

4

6

8

10

01 02 03 1Q 03 2Q 03 3Q 03 4Q Jan 04

(%) (%)

Consumer Sentiment IndexConsumer Sentiment Index

90.491.5

94.696

98 96.3

86889092949698

100

Sep 03 Oct Nov Dec Jan 04 Feb

Source: NSO

Business Survey IndexBusiness Survey Index

87

83

8685

87

91

78808284

86889092

Oct 03 Nov Dec Jan 04 Feb Mar

Source: BOK

Table of ContentsTable of Contents

I.I. Recent Economic Developments Recent Economic Developments

II.II. Major Policy Directions for 2004Major Policy Directions for 2004

III.III. Current Issues & Policy MeasuresCurrent Issues & Policy Measures

IV.IV. Mid- to Long-term Growth StrategyMid- to Long-term Growth Strategy

6

Fiscal Fiscal

PolicyPolicy

Fiscal Fiscal

PolicyPolicy

MonetaryMonetary

PolicyPolicy

MonetaryMonetary

PolicyPolicy

Exchange Rate Exchange Rate

PolicyPolicy

Exchange Rate Exchange Rate

PolicyPolicy

Expansionary Macro PolicyExpansionary Macro Policy

Frontload budget in 1H

Maintain low interest rates

Market determines FX rate

based on economic fundamentals

& demand and supply

7

Strictly apply laws and principles to illegal Strictly apply laws and principles to illegal activitiesactivities

Bring labor relations up to global standards by easing lay-off requirements

Strictly apply laws and principles to illegal Strictly apply laws and principles to illegal activitiesactivities

Bring labor relations up to global standards by easing lay-off requirements

Improve LaborImprove Labor

RelationsRelations

Improve LaborImprove Labor

RelationsRelations

Deregulation Deregulation Deregulation Deregulation

Remove regulations that hinder investment, bringing real benefits to companies.

Form a task force to review financial regulations and supervision

Remove regulations that hinder investment, bringing real benefits to companies.

Form a task force to review financial regulations and supervision

Boosting InvestmentBoosting Investment

Promote investment

Create jobs

→→Elevate income-earning capacity

Resolve credit delinquents and unemployment issues→

Table of ContentsTable of Contents

I.I. Recent Economic Developments Recent Economic Developments

II.II. Major Policy Directions for 2004Major Policy Directions for 2004

III.III. Current Issues & Policy MeasuresCurrent Issues & Policy Measures

IV.IV. Mid- to Long-term Growth StrategyMid- to Long-term Growth Strategy

9

The National Assembly Voted to Impeach President RohThe National Assembly Voted to Impeach President Roh

President Roh’s executive authority has been suspended and taken over President Roh’s executive authority has been suspended and taken over immediately by Prime Minister Goh Kunimmediately by Prime Minister Goh Kun

The Constitutional Court will now make a final decision on the impeachment

The National Assembly Voted to Impeach President RohThe National Assembly Voted to Impeach President Roh

President Roh’s executive authority has been suspended and taken over President Roh’s executive authority has been suspended and taken over immediately by Prime Minister Goh Kunimmediately by Prime Minister Goh Kun

The Constitutional Court will now make a final decision on the impeachment

Resilience to Political Uncertainty Resilience to Political Uncertainty

The Decision has Limited Impact on the Korean EconomyThe Decision has Limited Impact on the Korean Economy

Korea has established a mature and stable economic system, and has Korea has established a mature and stable economic system, and has demonstrated its resilience to a variety of economic shocksdemonstrated its resilience to a variety of economic shocks

The government will remain fully committed to pushing forward with its current economic policies and structural reform

The Decision has Limited Impact on the Korean EconomyThe Decision has Limited Impact on the Korean Economy

Korea has established a mature and stable economic system, and has Korea has established a mature and stable economic system, and has demonstrated its resilience to a variety of economic shocksdemonstrated its resilience to a variety of economic shocks

The government will remain fully committed to pushing forward with its current economic policies and structural reform

10

Minimize the Minimize the

negative effects negative effects

on other financial on other financial

sectors and the sectors and the

real economyreal economy

Minimize the Minimize the

negative effects negative effects

on other financial on other financial

sectors and the sectors and the

real economyreal economy

Credit Card CompaniesCredit Card Companies

LG CardLG CardLG CardLG Card

Other Card CompaniesOther Card CompaniesOther Card CompaniesOther Card Companies

Strengthened Monitoring & Improved SystemStrengthened Monitoring & Improved SystemStrengthened Monitoring & Improved SystemStrengthened Monitoring & Improved System

Restructuring process is underwayRestructuring process is underway

- Merging with affiliated financial institutions, - Merging with affiliated financial institutions,

recapitalization, etc.recapitalization, etc.

Restructuring process is underwayRestructuring process is underway

- Merging with affiliated financial institutions, - Merging with affiliated financial institutions,

recapitalization, etc.recapitalization, etc.

Monitor the management of card companies on a Monitor the management of card companies on a continuous basiscontinuous basis

Strengthen the supervisory system related to the Strengthen the supervisory system related to the management of credit card companiesmanagement of credit card companies

Monitor the management of card companies on a Monitor the management of card companies on a continuous basiscontinuous basis

Strengthen the supervisory system related to the Strengthen the supervisory system related to the management of credit card companiesmanagement of credit card companies

Finalized Restructuring Plan (Jan. 2004)Finalized Restructuring Plan (Jan. 2004)- Business normalization is currently underway by KDB- Business normalization is currently underway by KDB

Will be sold after business normalizationWill be sold after business normalization

Finalized Restructuring Plan (Jan. 2004)Finalized Restructuring Plan (Jan. 2004)- Business normalization is currently underway by KDB- Business normalization is currently underway by KDB

Will be sold after business normalizationWill be sold after business normalization

11

Soft-landing for Household DebtSoft-landing for Household DebtSoft-landing for Household DebtSoft-landing for Household Debt

Support for Credit DelinquentsSupport for Credit DelinquentsSupport for Credit DelinquentsSupport for Credit Delinquents

Manage household loans at an appropriate level & Manage household loans at an appropriate level & Encourage conversion of short-term to long-term loansEncourage conversion of short-term to long-term loans

- Establish Korea Housing Finance Corp. (Mar. 2004)- Establish Korea Housing Finance Corp. (Mar. 2004)

Develop a loan screening system based on income and Develop a loan screening system based on income and repayment abilityrepayment ability

- Build infrastructure such as individual credit DB- Build infrastructure such as individual credit DB

Manage household loans at an appropriate level & Manage household loans at an appropriate level & Encourage conversion of short-term to long-term loansEncourage conversion of short-term to long-term loans

- Establish Korea Housing Finance Corp. (Mar. 2004)- Establish Korea Housing Finance Corp. (Mar. 2004)

Develop a loan screening system based on income and Develop a loan screening system based on income and repayment abilityrepayment ability

- Build infrastructure such as individual credit DB- Build infrastructure such as individual credit DB

Activate systems to support credit delinquents who Activate systems to support credit delinquents who borrowed from multiple financial institutionsborrowed from multiple financial institutions

Carefully select candidates to prevent moral hazardCarefully select candidates to prevent moral hazard

Activate systems to support credit delinquents who Activate systems to support credit delinquents who borrowed from multiple financial institutionsborrowed from multiple financial institutions

Carefully select candidates to prevent moral hazardCarefully select candidates to prevent moral hazard

Promote Promote

stability in the stability in the

financial market financial market

and prevent and prevent

systemic riskssystemic risks

Promote Promote

stability in the stability in the

financial market financial market

and prevent and prevent

systemic riskssystemic risks

Household Debt & Credit DelinquentsHousehold Debt & Credit Delinquents

12

Meaningful Progress at the Second Round of Six-Party TalksMeaningful Progress at the Second Round of Six-Party Talks

All parties expressed their commitment to a nuclear-weapon-free Korean All parties expressed their commitment to a nuclear-weapon-free Korean Peninsula, and to resolving the nuclear issue peacefullyPeninsula, and to resolving the nuclear issue peacefully

Agreement to establish a working group and to hold the next round of talks no later than the end of second quarter of this year

Meaningful Progress at the Second Round of Six-Party TalksMeaningful Progress at the Second Round of Six-Party Talks

All parties expressed their commitment to a nuclear-weapon-free Korean All parties expressed their commitment to a nuclear-weapon-free Korean Peninsula, and to resolving the nuclear issue peacefullyPeninsula, and to resolving the nuclear issue peacefully

Agreement to establish a working group and to hold the next round of talks no later than the end of second quarter of this year

The North Korean Nuclear IssueThe North Korean Nuclear Issue

Likelihood of Peaceful and Diplomatic ResolutionLikelihood of Peaceful and Diplomatic Resolution

Korea and the U.S share a very clear vision for Korea and the U.S share a very clear vision for dismantlement of North Korea’s nuclear program

The Korean government will continue to induce a positive stance from North Korea, while maintaining close coordination with U.S and Japan

Likelihood of Peaceful and Diplomatic ResolutionLikelihood of Peaceful and Diplomatic Resolution

Korea and the U.S share a very clear vision for Korea and the U.S share a very clear vision for dismantlement of North Korea’s nuclear program

The Korean government will continue to induce a positive stance from North Korea, while maintaining close coordination with U.S and Japan

Table of ContentsTable of Contents

I.I. Recent Economic DevelopmentsRecent Economic Developments

II.II. Major Policy Directions for 2004Major Policy Directions for 2004

III.III. Current Issues & Policy MeasuresCurrent Issues & Policy Measures

IV.IV. Mid- to Long-term Growth StrategyMid- to Long-term Growth Strategy

14

Expanding Mid- to Long-term Growth PotentialsExpanding Mid- to Long-term Growth Potentials

Build Northeast Asian Business Hub

- Develop Free Economic Zones

- Focus on strategies to make Korea a financial and logistics hub of NE Asia

Foster Services Industries- Further liberalize services market & attract foreign investment

- Ease regulations regarding services industries

Continue Market Reforms

-Execute the 3-Year Market Reform Plan, outlined late last year

Formulate Innovative Growth Strategy- Nurture top 10 growth drivers of next generation

- Accelerate technological innovation for high value-added industry

15

Develop asset management Develop asset management industry as a key driverindustry as a key driver

Develop asset management Develop asset management industry as a key driverindustry as a key driver

Enhance the attractiveness of Enhance the attractiveness of financial markets by developing financial markets by developing fixed income, equity and foreign fixed income, equity and foreign exchange marketsexchange markets

Enhance the attractiveness of Enhance the attractiveness of financial markets by developing financial markets by developing fixed income, equity and foreign fixed income, equity and foreign exchange marketsexchange markets

Foster regional leadership by Foster regional leadership by establishing a Korea Investment establishing a Korea Investment Corporation (KIC) and developing Corporation (KIC) and developing specialized areas (restructuring, specialized areas (restructuring, infrastructure financing)infrastructure financing)

Foster regional leadership by Foster regional leadership by establishing a Korea Investment establishing a Korea Investment Corporation (KIC) and developing Corporation (KIC) and developing specialized areas (restructuring, specialized areas (restructuring, infrastructure financing)infrastructure financing)

A “Niche Financial Hub” Focusing on Asset ManagementA “Niche Financial Hub” Focusing on Asset Management

Attract advanced foreign Attract advanced foreign financial institutionsfinancial institutions

Attract advanced foreign Attract advanced foreign financial institutionsfinancial institutions

Financial HubFinancial HubFinancial HubFinancial Hub

Reinforce Reinforce competitiveness of competitiveness of domestic financial domestic financial

institutionsinstitutions

Reinforce Reinforce competitiveness of competitiveness of domestic financial domestic financial

institutionsinstitutions

Thank you!