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South Korea to unveil raft of initiatives at G-20

DUBAI — South Korea will unveil a raft of important economic initiatives at the Seoul Group of 20 summit that was flagged off today, disclosed Dr Shin Hyun-Song, the Economic Adviser to South Korea President Lee Myung-bak, in an exclusive interview with Khaleej Times.

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The G-20 Summit will see multifarious governments lock horns over the contentious currency issue. Seoul has often been accused by fellow G-20 members of artificially keeping its currency weak in order to ratchet up its exports prospects among other things.

There are also allegations that despite being one of the world’s strongest economies, the country does little to help weaker and emerging economies take advantage of its stronger growth.

The G-20 summit is thus the perfect opportunity for South Korea to showcase its caliber as a leader for developing countries.

The Korean International Trade Association, or KITA, has forecast that if chairing of the G-20 summit upgrades the country’s credit rate by even a notch, South Korea will be able to save a whopping $250 million annually while borrowing foreign capital.

The country has the world’s 12^th largest economy. It is further expected to have the fifth fastest growth rate among G-20 nations this year and move up to fourth place in 2011. The G-20 Finance and Central Bank Deputies Meeting reported that the estimated growth rate for South Korea is 6.1 per cent this year. If the country sustains this growth trajectory, its economy will achieve the fourth largest growth rate worldwide next year at 4.5 per cent.

The International Monetary Fund predicts that Korea’s consumer prices will grow by 3.1 per cent, the third-biggest growth among 33 advanced countries. The organisation has emphasised that Korea’s growth in consumer prices will be three per cent in the period between 2012 and 2015 and will be one of the fastest rates in the world.

Dr Shin Hyun-Song agreed to answer three key questions that we asked.

KT: How will your government balance consumption pressures and growth at a time of increasing scrutiny on climate change and low carbon economic development?

Dr Shin Hyun-Song: Korea managed positive growth in 2009 in spite of the global financial crisis, and was one of the few countries in the OECD to manage positive growth.

Korea did not suffer a bank solvency crisis as in many of the advanced countries, attesting to the prudent banking regulation and other macro prudential policies such as loan-to-value ratio limits and debt-to-income limits on household borrowing in place before the crisis.

Also important was the swift policy action to stimulate the economy in response to the crisis, both with monetary policy and fiscal policy. The strong fiscal position of the South Korean government enabled us to increase expenditure prudently.

Fiscal policy stimulus was especially swiftly administered and bolstered demand during the crisis. For all these reasons, South Korea was able to weather the crisis and benefit from the recovery after the crisis.

KT: South Korea also needs a policy shift to more imports rather than exports. Its alleged beggar-thy-neighbours policy is seen as a detriment to emerging economies. Currency disagreements will also dominate the G-20 summit. What, in your opinion, is the solution to this contentious issue? More so as the US and China are unwilling to relent their positions on the subject and neither are the other countries, including Germany and your own government. Are we heading for another post-1930’s style protectionist phase by individual governments?

Dr Shin Hyun-Song: The Seoul Summit already has a successful basis from the agreement reached at the finance ministers and central bank governors meeting in Gyeongju in October, which produced many significant advances in meeting the challenges of coordinating macroeconomic policies among the major G-20 economies.

In particular, the meeting managed to generate consensus on market-determined exchange rate systems, refraining from competitive devaluations and for advanced countries to exercise care with monetary policies that may cause instability in currency markets.

Most importantly, the meeting generated consensus that the G-20 should work on “indicative guidelines” for external balance for member countries, and that countries would use a full range of policies — monetary, fiscal, financial sector and structural policies — to remedy imbalances.

Many commentators have commented that the agreement exceeded expectations. South Korea’s aim is to allow more concrete agreements to be forged on the basis of this consensus. In so doing, South Korea will have played a key role in international economic policy cooperation that avoids beggar-thy-neighbour policies.

KT: As South Korea prepares to take centre stage amongst developing economies, what are the other issues that are close to your heart?

Dr Shin Hyun-Song: South Korea is putting on the table the important new initiative on development. We believe that the best cure for poverty is a period of sustained economic growth.

As such, we believe that aid should be directed to those activities that promote growth, such as infrastructure investment, human capital and trade. We will be unveiling a range of initiatives at the Seoul summit.

patrick@khaleejtimes.com