Deputy Prime Minister and Minister of Strategy and Finance Choi Kyung-hwan will participate in the 2015 Annual Meetings of the World Bank Group (WBG) and the International Monetary Fund (IMF) slated for Oct. 9-11 in Lima, Peru.
Deputy Prime Minister Choi will lead a Korean delegation to the annual meeting. The delegation include the governor of the Bank of Korea and heads and representatives of commercial banks, including Kookmin, KEB Hana, Woori Financial Group, Shinhan, Korea Development Bank, IBK, and Korea Eximbank as well as representatives of other financial institutions and the financial industry.
The annual meetings bring together central bankers, ministers of finance and development, private sector executives, and academics to discuss progress on the work of the IMF and the World Bank Group. Also featured are seminars, regional briefings, press conferences, and many other events focused on the global economy, international development, and the world's financial markets.
Korea Calls for Well-Calibrated Monetary Policies At G20 Meeting
Deputy Prime Minister Choi attended the G20 Finance Ministers and Central Bank Governors Meeting in Ankara, Turkey from Sept., 4 to 5, where the finance ministers and central bank governors discussed the recent market volatility and measures to support global recovery including structural reform and investment.
Despite a few good signs shown in some economies, the global recovery still remains weaker than projected. Against this backdrop, the G20 agreed to take decisive action for sustainable recovery.
First, the G20 recognized the role of risk management to ensure financial stability. The G20 countries will continue to monitor key risk factors and their impact on the global economy, while addressing emerging risks if necessary. In regards to the U.S. Federal Reserve’s expected rate hike, DPM Choi underscored that it can add market instability and therefore its timing and pace should be cautiously calibrated to lower uncertainties. He also added that the G20 needs to help strengthen global financial safety nets.
Second, the G20 reaffirmed the importance of structural reform and macroeconomic policies for job creation. The financial leaders of major advanced and emerging economies disclosed their detailed implementation schedules. International bodies including the IMF and the OECD will also build a framework to monitor the implementation of structural reforms. Fiscal policies will be implemented in a flexible manner that is subject to near-term economic conditions.
DPM Choi mentioned that structural reform can improve economic fundamentals, encouraging growth and employment. He also referred to Korea’s structural reforms in the four major sectors of labor, public, education and finance.
Third, the G20 recognized that its top priority is to increase investment. That is why the financial leaders prepared country-specific investment strategies, which include enhancing the investment ecosystem and expanding infrastructure investment. The plan will be finalized at the G20 Summit in November. DPM Choi welcomed the comprehensive investment strategies and urged multilateral development banks to take active roles and better utilize resources.
Fourth, the G20 will closely monitor and respond to systemic risks that can undermine financial stability. The potential risks of rising corporate debt were discussed at the meeting as well. DPM Choi called for more discussion in a macro perspective regarding financial stability.
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Finance ministers and central bankers around the world pose during the IMF and World Bank's 2015 Annual Spring Meetings in Washington on April 18.
Korea-Brazil Bilateral Meeting
Korea and Brazil held the fifth finance ministers meeting on Sept. 5 on the sidelines of the G20 meeting. The two leaders discussed measures for economic cooperation in detail, in regard to infrastructure investment and people-to-people exchange as well as policy coordination at the G20. The two countries expect more active private sector level economic cooperation in the future.
S&P Raises Korea's Sovereign Credit Rating to AA-
Standard & Poor’s (S&P), one of the 3 major global credit rating agencies, raised Korea’s sovereign credit rating by one notch from A+ to AA- on Sept. 15 and affirmed that the country’s long term outlook is stable.
Korea has received an AA- rating from all of the 3 major credit rating agencies thanks to the latest S&P upgrade. So far only 8 countries of the G20 members have received AA- or higher ratings from all of the 3 major credit appraisers, and worldwide 22 countries have been evaluated AA- or higher.
Korea is the only country whose rating has been upgraded to AA- or higher by S&P since 2014, and the latest upgrade is meaningful given that the rating agency has been downgrading many sovereign ratings amid increasing uncertainties in emerging markets due to the expected US rate hike and Chinese economic slowdown.
Positive Effect on the Costs of External Borrowings Expected
As Korea is expected to be identified as an advanced economy in the global financial market considering the ratings it received, Korean corporations and financial institutions will be able to borrow overseas at lower costs. Global investors will also determine that the Korea economy will remain resilient even when market volatilities increase due to the Fed’s rate hike and China’s economic slowdown.
Vice Minister Joo Discusses Current Issues with the US and the IMF at the IDB Special Governors Meeting
Vice Minister of Strategy and Finance Joo Hyung-hwan chaired the Inter-American Development Bank (IDB) Special Governors Meeting held in Washington on Sept. 14, where the board of governors from 48 member countries reelected Luis Alberto Moreno as president of the IDB for the next 5 years.
On the sidelines of the meeting, Vice Minister Joo met with the governors from the Latin American countries and stressed the need for increasing Korea’s quotas in NewCo, which will be launched next year to strengthen support for the private sector by utilizing a capital transferred from the Inter-American Investment Corporation (IIC) and contributions from the IIC member countries.
Vice Minister Joo also had bilateral talks with N. Sheets, Under Secretary of the US Treasury for International Affairs and D. Lipton, the IMF’s First Deputy Managing Director, and discussed cooperation amid increasing global financial market volatility, which was triggered by concerns over the Chinese markets and the Fed’s expected rate cuts.
Particularly, during the talks with the U.S. treasury, Vice Minister Joo discussed the importance of a North East Asian Development Bank to regional security, whose establishment is premised on the North’s completely abandoning its nuclear weapons, and shared views regarding the functions of the bank.
Consumption, Investment And Employment Improve, While Production Falls due to Weak Exports
The Korean economy has been recovering from a slowdown in the second quarter as consumption, investment and employment are improving, but mining and manufacturing production decreased due to weak exports and inflation remains low.
The economy added 326,000 jobs year-on-year in July, led by the manufacturing sector. On a month-on-month basis, job growth accelerated from 21,000 to 122,000.
Consumer price inflation in August remained in the less than 1 percent range year-on-year at 0.7 percent as petroleum product prices fell and stable supplies of agricultural products due to favorable weather conditions pushed down prices. Core inflation, which excludes oil and agricultural products and is more related to demand, was recorded at 2.1 percent, staying in the two percent range.
Mining and manufacturing production declined in July compared with the previous month from a 2.5 percent increase to a 0.5 percent fall, as companies cut the production of electronic parts due to too much inventory. Both overseas and domestic shipments increased for two consecutive months.
Service output and retail sales rebounded in July from the previous month’s slump, recovering from the aftermath of the MERS outbreak, as the indices rose 1.7 and 1.9 percent, respectively.
Facilities investment rose for the second consecutive month in July, up 1.3 percent month-on-month, as investment in both machinery and transportation equipment increased. Construction completed increased for the third month in a row, up 0.8 percent month-on-month, backed by strong building construction.
The cyclical indicator of the coincident composite index rose 0.2 points in July from the previous month, while the cyclical indicator of the leading composite index stayed unchanged.
Exports fell 14.7 percent year-on-year in August partly due to temporary factors such as fewer days worked and the Tianjin explosions as well as low oil prices and delayed deliveries of drillship.
Stock market volatility increased in August due to concerns about China’s stock markets, the yuan depreciation and uncertainties regarding the Fed’s rate hike. The Korean won depreciated against both the US dollar and Japanese yen.
Both housing prices and Jeonse (lump-sum deposits with no monthly payments) prices continued to increase month-on-month in August, each rising 0.3 percent.
Consumption has been recovering from the aftermath of the MERS outbreak, but both the consumer and corporate sentiments have yet to fully pick up, and external uncertainties as to the Fed’s rate hikes and China’s stock market volatility are posing risks.
The government will continue to work on stimulating consumption, in particular early implementing the supplementary budget and expanding the Korea Grand Sale, a nationwide shopping promotion event, while accelerating the reform of the four areas of the public, education, labor and financial sectors.
The government will closely monitor internal and external economic developments and their impact on domestic financial markets, in particular regarding the concerns over the Chinese economy and the Fed’s rate hikes, and will be prepared to make appropriate responses if necessary.
