Korea's Deputy Prime Minister and Finance Minister, Lee Hun-Jai was in Hong Kong on Friday as part of a global roadshow to meet investors - in the wake of recent political upheavals and elections.
His message was upbeat, and delivered to a full room. "Korea is a much stronger place," Lee said, recalling the last time the MOFE had done a roadshow in the wake of the Asian financial crisis. "Our banks are sounder and better capitalised. Our corporate sector is profitable. Our regulation and supervision has increased."
He did not seek to avoid the central subject of interest. "I know many of you have followed the impeachment in Korea and the general assembly elections. I am proud that through these political events we have demonstrated the maturity of our market economy. Economic policy has not been compromised. The election result will create an even more favourable environment for pursuing our policy agenda. Our commitment to pushing forward reforms remains stronger then ever. Our new pro-growth economic policies will stay on course."
He noted that, "After the election result there have been some concerns. However, while the Uri Party now enjoys a majority, if you look at the elected assemblymen, they are very moderate reformists and therefore their policies and the direction of the government are the same. The Grand National Party is also moderate. I hope the election will give more power and support to the government's position. Added to that I can also say that President Roh continues to have free market economic principles. I believe there will be no obstacles in the continuance of market reforms to create greater transparency."
He said there were grounds to be more optimistic on the economy. "Already we're seeing signs the recovery is taking form," he commented. "GDP growth has been rising. Korea received $8.6 billion of foreign portfolio investment in the first quarter - that's 65% of the total inflow for the whole of 2003."
In a question from the floor he was asked about recent government comments that it would seek to create 380,000 new jobs and keep interest rates at their current low levels.
"We believe the key to creating more jobs is to boost investment in Korea," he said. "We believe that is crucial, and with more investment, more jobs will be created. We also believe structural reforms are a prerequite to increasing investment and creating more jobs. Our past policy was to focus on export-driven and manufacturing industries. We believe we need to change that, and create more jobs in knowledge-based services. To boost investment we will deregulate to create a business-friendly environment for people who want to do business in Korea."
But he added, "The government needs to take the lead in creating more jobs and so we will probably create more jobs in public services."
On the subject of interest rates he answered, "Can Korea keep its rates low in an environment where the US is raising rates? I believe our rates should be driven by fundamentals and so if there are no inflationary pressures, and there is not significant degree of growth in the economy, then we will not have to increase our interest rates. If the US does raise rates, there will be impacts. In my view, the result will be a strong dollar, which will mean a weak won. That will help our export competitiveness considerably, and will lead to more inward investment in Korea and therefore could help Korea."
A further question from the floor asked what the government was doing to drive more Korean money into the equity market, which is currently 43% owned by foreigners and the cheapest in the world (For more on this topic see the April issue of FinanceAsia magazine).
"There is an imbalance," he readily admitted. "On the one side, foreign ownership is large and on the other, we do have large amounts of savings. We're trying to develop pension funds to invest in the local equity market, and we are also trying to smooth out the imbalances in the real estate market. This is a focus of our government."
A final area that was touched on was the ever-present issue of North Korea. "Through the six party talks we've created a process for the resolution of the nuclear issue peacefully. We have created a working group to prepare for the next round of talks by the end of June."
One fund manager raised the question of the potential costs of reunification with the North. He said cost assumptions were very difficult to make, and would not be drawn on numbers.
"I do not believe there is a possibility of unification in the near future, but I do believe that relations between the South and the North will become closer."
