Keynote Speech for the IIF Membership Meeting

Transcription

1 Keynote Speech for the IIF Membership Meeting - Deputy Prime Minister and Minister of Finance and Economy, Jin Nyum - I. Introduction International Financial Policy Division: ITN Mr. Chairman, Distinguished Members, Ladies and Gentlemen: It is my honor to be part of the Spring Membership Meeting of the Institute for International Finance, one of the most prestigious gatherings of international financiers. Let me begin by thanking the IIF Chairman, Sir John Bond and Managing Director Charles Dallara for hosting this meeting. I am sure that the discussions over the last two days have been very useful. Today, I would like to talk about: (i) the Asian economic outlook and challenges, (ii) the role of commercial banks in the crisis prevention and resolution, and lastly (iii), the Korea s economic reforms and remaining agenda. II. Asian Economic Outlook and Challenges Ladies and gentlemen: As most of you would agree, crisis-hit Asian countries have successfully recovered from the worst part of the financial crisis of However, they are still facing the risky combination of a global economic downturn and continued instability in their respective domestic environments. Furthermore, the interdependent nature of the global economy renders everyone vulnerable. This is particularly true for the emerging market economies, which are increasingly exposed to the synchronization of financial markets and the herd behavior of the market participants. To cope with such vulnerability and to maintain stability in the international financial market, it is vital that the leading economies such as the G-7 countries display decisive leadership and make concerted efforts in implementing forward-looking economic policies. As the leading economies take such initiatives, emerging market economies must enhance their own self-rescue efforts to maintain sound macroeconomic policies and strengthen their economic fundamentals by boldly implementing economic reform programs. Emerging economies should pay more attention to structural reforms that will strengthen financial systems, enhance corporate sector transparency, and provide appropriate governance structure.

2 On a regional scale, Asian countries must also strengthen financial cooperation to minimize their vulnerability to a financial contagion and recurring financial crises. More specifically, we must work together on projects like the Chiang Mai Initiative undertaken by the ASEAN+3 members. The fact that foreign exchange reserves for ASEAN+3 countries exceeds US$1 trillion, supports my belief that these ASEAN+3 countries have the capability and resources to cope with another potential financial crisis. As such, I welcome the positive developments in the bilateral currency swap arrangements made at a recent ASEAN+3 Finance Minister meeting. Also, we must step up our efforts to facilitate the exchange of information on short-term capital flows and establish a better early-warning system to prevent crises. III. Importance of Private Banks in Crisis Resolution Now, let me move on to discuss the role of private banks in crisis prevention and resolution. To begin with, I d like to express my deep gratitude to the private commercial banks, also members of the IIF, for their active role in providing a debt extension to Korean banks in the early stages of the crisis. Due to the broad participation by the foreign creditor banks in the debt extension program, we were able to tide over the severe shortage of foreign exchange flows in early In addition, the international banks subsequent purchase of Korea s four billion dollar issue of global sovereign bonds contributed to an early build-up of Korea s international reserves. After three successful years of reform and recovery, we were able to repay in full the restructured bank debts of $22 billion early this year and are repurchasing the IMF credit well ahead of schedule. This experience has clearly revealed the importance of the private sector for the orderly resolution of foreign exchange crises. Indeed, it is an example of a win-win strategy based on a closer cooperation among the parties involved. In this regard, I welcome the IIF s recent initiatives to establish a special committee and issue a set of guiding principles for private sector involvement in crisis prevention. I sincerely hope that the IIF and the private financial community will play a leading role in seeking common ground on the issue of private sector involvement, thereby achieving a positive outcome for the global community as well as for the individual institutions. IV. Korea s Economy Recent Economic Developments Ladies and Gentlemen, I would like to briefly touch upon recent economic developments in Korea.

3 After remarkable GDP growth of around 10% for two years, growth has slowed considerably since the fourth quarter of This was expected, given the domestic adjustments associated with extensive restructuring and a global economic slowdown. Recently, however, business and consumer sentiments are showing signs of recovery. This is backed by the first quarter GDP growth of 3.7%, representing growth of 0.3% on quarter-on-quarter basis. Nevertheless, we remain cautious. Uncertainties still remain, and it would be premature to say that the economy has taken a favorable turn. To cope with these uncertainties, we will continue to promote economic reform and restructuring. By focusing on maintaining the momentum of the economic reform, and in line with global recovery, the Korean economy is expected to improve in the second half of this year. Financial Reform Progress in Korea Now, let me turn to the structural reform issues. If we look back on the past three years, it is clear that truly momentous changes have occurred: Important institutional and cultural changes that have transformed the very fabric of Korea s economy. The government s reform efforts have been focused on the four main sectors? corporate, financial, public and labor. As today s audience represents the financial world, let me elaborate on the reforms to date and challenges in the financial sector. Th financial sector reform can be roughly divided into three stages. Stage 1: the Clean-up of Korea s Financial System. Stage 2: a Paradigm Shift of Market Participants, and Stage 3: The Development of Globally Competitive Financial Sector The reform efforts in the first stage have been primarily directed toward, first, eradicating past legacies of non-performing asset problems and restructuring the financial institutions and, second, strengthening institutional bases, i.e., the governance structure of financial institutions and supervisory institutions. Substantial progress has already been made on both fronts. In particular, Korea s government-led approach to clean up the balance sheets of banks has been successful with the infusion of large amounts of public funds. Since 1997, the government has shut down one quarter or more than 500 non-viable financial institutions. The work force in the financial sector was also decreased by one-third. Most Korean banks now have a BIS capital adequacy ratio of over 10% as of the end of 2000, compared with 7.04% in It was rigorous restructuring by any standard. Among major institutional reforms, the establishment of the Financial Supervisory Commission in April 1998 to strengthen the supervisory infrastructure was the most critical. Further, the partial deposit guarantee system introduced this year is designed to minimize the moral hazard problem and encourage bank restructuring. Furthermore, the concept of financial holding companies was introduced to embrace the worldwide trend of universal banking and consolidation. It could also serve as an interim mechanism for bank restructuring.

4 Accordingly, voluntary efforts for consolidation are also intensifying among private financial institutions. Despite significant progress to date during the first stage of reform, Korean financial sector still faces formidable challenges ahead in the second stage. In fact, this is more challenging, as it involves the change of behavior and mindset, to adapt to the new economic paradigm of market-led restructuring. Until February this year, our reform efforts have been focussed on putting into place basic infrastructure of a well-functioning market system. As of March of this year, with most of the infrastructure now in place, restructuring for the most part began to be driven by the market place?akin to Darwin s theory of survival of the fittest. Under the new system, the financial market will play a pivotal role by naturally weeding out nonviable companies on an ongoing basis. The improved corporate governance including strengthened minority shareholder s rights, outside directors and audit will provide internal control, while continuous market pressure including potential exit and M&A will provide external control. In this context, our further efforts will be geared to continued software enhancement: the ability to make profitable loans and manage business risks. While the adoption of the Forward Looking Criteria and the introduction of Prompt Corrective Actions, have gone a long way to improve lending and asset management practices, the ultimate discipline will be provided by the market. Of course, the divestiture of government shares in some banks at the earliest opportunity practicable, should also be a top policy priority. We recognize that the market-led restructuring process will be truly feasible, only if it is led by sound, privately-owned banks. On a longer time horizon, the challenge in the third stage is to develop Korean financial sector to be globally competitive. We will continue to deepen and broaden our financial sector, and accept global standards in all financial sectors. Particularly critical in this regard is the further deregulation in the financial market to facilitate the innovation and competition. For this purpose, let me stress that we plan to liberalize in time all remaining regulations in the financial sector, except those for prudential reasons and investor protection. Under increasingly liberalized financial environment, we invite foreign financiers to provide expertise and innovation, to help Korea s financial sector to be globally competitive. Korea s Vision for the Future Ladies and gentleman, While Korea remains committed to further reforms, restructuring itself is only a necessary condition, rather than a sufficient condition for Korea to join the ranks of advanced countries. That is why it is vital for Korea to have a long-term vision and strategy for the future. In recognition of this need, we are currently working on Vision 2011, outlining the ten-year strategy and vision for our country s future. I would like to highlight some salient features of this blueprint. The first is the establishment of a knowledge-based economy. To this end, we will continue to bolster the country s information technology framework, including

5 e-commerce and e-government, and focus on nurturing and producing a creative and talented workforce. The second is to realize Korea s potential to develop into a regional logistics hub. Well-developed seaports and the new Inchon International Airport will enable Korea to emerge as a logistical hub for Northeast Asia. Particularly important in this regard is the reconciliation and economic cooperation, between North and South Korea, following the historic summit meeting a year ago. The planed reconnection of the inter-korea railways, when extended to the Trans Siberia Railway in the future, will strengthen and support out objective of developing into a hub of Northeast Asia. V. Concluding Mr. Chairman and Distinguished Guests: It is our firm belief that we can turn the financial crisis of 1997 into a blessing in disguise, since it has given our nation the impetus for much needed reform and restructuring. In Korea, the old development model is rapidly falling apart and being replaced by the new system of a market-oriented economy. In fact, I believe that Korea is already a different country in that respect, offering ample opportunities for long-term investment. In closing, let me reiterate my firm commitment to uninterrupted reforms. There is no doubt that continued interest and cooperation from you, the international financial community, will help to accelerate the achievement of Korea s future success. We invite you to be partners in Korea s bright future and share the fruits of dynamic growth together. Thank you. Source: