Byongwon Bahk Slideshow Presentation

Overcoming the Global Financial Crisis
- Korea ’s Experience -

January 11, 2010

Byongwon Bark 1

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

I. Current Status of the Korean Economy

II. Korea’s Resilience amidst the Global Crisis

III. Korean Economic Policy Directions

Byongwon Bark 3

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

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

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


Byongwon Bark 6

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

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

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

<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 -

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

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

Byongwon Bark 12

I. Recent Macroeconomic Developments



Byongwon Bark 13

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

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

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

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

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

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

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

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

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

<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

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

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

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

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

<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

<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

<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

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

<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

I. Recent Macroeconomic Developments



Byongwon Bark 33

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


(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


(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

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

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

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

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

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


2. Job Creation
Global Standing

Byongwon Bark 42

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

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

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

< 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

< 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

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

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


2. Job Creation
Global Standing

Byongwon Bark 50

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

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


2. Job Creation
Global Standing

Byongwon Bark 53

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

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

2. Job Creation
5. Successful Hosting of the G20 and Enhancing
Korea’s Global Standing

Byongwon Bark 56

’
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

’
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

<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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