Deputy Prime Minister and Minister Hong Nam-ki of the Ministry of Economy and Finance (MOEF). (Photos: MOEF)

Deputy Prime Minister and Minister Hong Nam-ki of the Ministry of Economy and Finance (MOEF) will participate in the 2019 Annual Meetings of the Board of Governors of the World Bank Group (WBG) and the International Monetary Fund (IMF) slated for Oct. 14-20 in Washington DC.

Deputy Prime Minister Hong will lead a Korean delegation to the annual meetings. The delegation includes the governor of the Bank of Korea and heads and representatives of commercial banks, including Shinhan Financial Group, Kookmin Financial Group, Hana Financial Group, NH Financial Group, Woori Bank, Korea Development Bank, IBK, and Korea Eximbank as well as representatives of other financial institutions and the financial industry, including Korea Asset Management Corp., Korea Deposit Insurance Corp., Korea Federation of Banks, and the Korea Financial Investment Association.

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.

The Annual Meetings occur ahead of the meetings of the International Monetary and Financial Committee and the Development Committee. At the conclusion of their meetings, the International Monetary and Financial Committee and the Development Committee, as well as several other groups, issue communiqués.

At the Annual Meetings, the Board of Governors makes decisions on how current international monetary issues should be addressed and approves corresponding resolutions.

The Annual Meetings are chaired by a Governor of the IMF and the Bank, with the chairmanship rotating among the membership each year. Numerous seminars are held in conjunction with the meetings, including seminars conducted by staff members for members of the press. The Annual Meetings Program of Seminars is designed to foster creative dialogue among the private sector, government delegates and senior IMF and Bank officials.

Govt Works on Boosting Exports

Deputy Prime Minister Hong Nam-ki presided over the 23rd Ministerial Meeting on Boosting the Economy held on September 11. How to boost exports was the main topic of discussion, along with ways to develop the content industry.
Ministers also reviewed measures to promote public equity funds for real estate development aimed at attracting private sector money into nonresidential construction. DPM Hong commented on the August job data at the beginning of his keynote address.

The following is a summary of Deputy Prime Minister Hong’s keynote address:
The economy added 452,000 jobs year-on-year in August, a 29-month high, with the employment rate hitting a record high of 67 percent and the unemployment rate dropping to 3 percent, the lowest in August since 1999.

Manufacturing jobs declined at a much slower rate year-on-year in August, losing 24,000, compared with 94,000 in the previous month and 143,000 in the first quarter. Services added more than 100,000 jobs for the second consecutive month in August, and temporary jobs, which have been falling for 35 months since September 2016 took an upturn. The job data improved in August, and the government will work for this positive trend to continue.

The government has prepared strategies to support its export-boost measures announced so far, which contain the 3 different approaches to 3 different markets. There are 3 plans for high tech supplies development, global value chain security and FTA expansion.

- Strategic markets in Southeast Asia and Northeast Asia: Help companies enter the regional manufacturing system and increase K-pop marketing;

- New markets in Latin America, Middle East and Africa: Work on government-level cooperation, such as on large infrastructure project development; and

- Major markets in the US, China, Japan and EU: Work on the exporting of high-end consumer goods beyond intermediate goods.

3 plans for high-tech supplies development, global value chain security and FTA expansion

- Invest 2.7 trillion won for the next 3 years from 2020 to 2022 in global R&D and overseas M&A to help the manufacturing of high-tech supplies;

- Increase the trade insurance support by 3.7 trillion won in 2020 for global value chain security; and
- Work on FTA 2.0, a strategy for expanding FTAs.

The government has been working on plans to encourage the content industry, whose market is rapidly expanding in line with ever-developing global platforms and virtual reality.

Govt. to Further Promote Innovation

Deputy Prime Minister Hong presided over the 3rd Ministerial Meeting on Innovation-driven Growth, that is, the 21st Ministerial Meeting on the Economy of this year, on August 21. DPM Hong talked about getting through the ever-increasing global uncertainties by adopting both short-term and long-term policies.
The following is a summary of Deputy Prime Minister Hong’s keynote address.

Promoting Innovation

“We will pursue the following to accelerate industrial innovation,” he said, through: 

1. Industrial innovation: Build platforms for innovation-driven growth, focusing on data, network and AI, and work on industrial convergence in new industries, in particular a system on a chip, bio- health and future cars;

2. Corporations’ innovation competencies: Promote ‘open innovation,’ encourage firms to invest in intellectual properties and process innovation, and support the cooperation between universities and businesses, as well as open innovation among manufacturers and suppliers;

3. Innovation in public services: Work on innovation in public services and infrastructure, and address problems arising from ageing population and environmental protection.

To support those policies, the government will work on human resources development and deregulation.

- Develop over 2000,000 of qualified workforce, including AI professionals, in 2019-2023; and

- Work on deregulation through regulatory sandboxes and negative list approaches, and promote government-wide an ‘in-advance deregulation’ based on the analysis of the future - Encourage workers to embrace innovation and challenges.

The 2020 investment will be concentrated on innovation, with its focus on the three core technologies of data, network and AI, and the three new key industries of a system on a chip, bio- health and future cars, which are expected to have a large effect on other industries. The government will invest a total of 4.7 trillion won in the above in 2020. - Invest a total of 1.7 trillion won in the three core technologies of data, network.

Consumer Price Index

The Consumer Price Index was 104.81 (2015=100) in August 2019. The index increased 0.2 percent from the preceding month and was unchanged from the same month of the previous year. The index excluding food and energy was 105.76 in August 2019.

It increased 0.1 percent from the preceding month and rose 0.8 percent from the same month of the previous year.
The index for Food and non-alcoholic beverages; housing, water, electricity, gas and other fuels; communication; recreation and culture; and restaurants and hotels increased 1.0 percent, 0.1 percent, 0.4 percent, 0.8 percent, and 0.3 percent, respectively, from the preceding month.

The index for furnishings, household equipment & routine maintenance decreased 0.3 percent from the preceding month. The index for alcoholic beverages and tobacco; clothing and footwear; health; transport; education; and miscellaneous goods and services remained unchanged from the preceding month.

Production Trend

The Index measuring all industry production in July increased by 1.2 percent from the previous month. The Index of Construction industry went down, but the one for the mining & manufacturing industries and the service industry went up from the previous month.

The Index of all industry production in July increased by 0.5 percent from the same period of the previous year. The Index of service industry and the one for mining & manufacturing industries rose compared the same period of the previous year.

Consumption Trend

The Retail Sales Index in July decreased by 0.9 percent from the previous month and 0.3 percent from the same period of the previous year.

Investment Trend

The Equipment Investment Index in July increased by 2.1 percent from the previous month but decreased by 4.7 percent from the same period of the previous year. The Domestic Machinery Shipment Index in July fell by 12.1 percent from the same period of the previous year.

Composite Economic Indexes

The Composite Coincident Index in July increased by 0.1 percent from the previous month. The Cyclical Component of Composite Coincident Index, which reflects current economic situations, decreased by 0.1 points from the previous month.

The Composite Leading Index in July showed no change from the previous month. The Cyclical Component of Composite Leading Index, which predicts the turning point in business cycle, decreased by 0.3 points from the previous month.

MOEF Minister Hong Nam-ki holds bilateral talks with IMF Managing Director Christine Lagarde at the Group of 20 finance ministers and central bank governors meetings in Fukuoka, Japan, on June 8.

2020 Budget Proposal

The government proposed an expanded budget for 2020, worth 513.5 trillion won, with its focus on boosting the economy and promoting innovation. Total expenditures will be increased by 43.9 trillion won, or 9.3 percent, compared with the 2019 budget. The 2019-2023 fiscal management plan has been drawn up to secure fiscal soundness and continue to pursue innovation and inclusiveness.

Key policies of 2020 budget proposal

- Promote innovation, increasing R&D budgets to 24.1 trillion won;

- Boost exports, investment and consumption - Strengthen social safety nets - Improve the quality of citizen life; and

- Strengthen national defense and diplomacy.

The government revenues are projected to be 482.0 trillion won, an increase of 1.2 percent compared with 2019, growing slowly due to the weak semiconductor industry and fiscal decentralization. The total government expenditures will be 513.5 trillion won, an increase of 9.3 percent from the previous year.

Deficits in the consolidated fiscal balance will rise compared with 2019 from 1.9 percent to GDP to 3.6 percent. Government debt is expected to rise compared with 2019 from 37.1 percent to GDP to 39.8 percent. Treasuries to fund deficits will grow from 33.8 trillion won in 2019 to 60.2 trillion won.

Key Policies of 2019-2023 National Fiscal Management Plan

- Fiscal resources management will be focused on innovation and inclusiveness: The government will work to prepare for the future, such as accelerating innovation and changing demography, as well as to boost the economy. Inclusiveness will be pursued through stronger social safety nets and job security, efforts being made to improve the quality of life, such as through fine dust reduction and community SOC projects; and

- The government will work to ensure fiscal sustainability through spending restructuring and a broader tax base. - The government will work on innovation in the public procurement system to stimulate technology development and help increase industrial competitiveness, and will build a next generation budget and accounting system, which integrates fiscal, economic and administrative data.

Mid-term Fiscal Outlook and Fiscal Management Goals

- Total government revenues are projected to increase at an average of 3.9 percent every year in 2019-2023; and

- Total government expenditures will be managed to increase at an average of 6.5 percent every year in 2019-2023.

MOEF to Work Closely with BOK and Financial Regulators to Avoid Sudden Volatility

Deputy Prime Minister Hong presided over a meeting on current financial markets on August 7, an emergency gathering where the Bank of Korea Governor and the heads of Korea’s two financial regulators, Financial Services Commission and Financial Supervisory Service, participated.

The participants pledged close cooperation to avoid sudden volatility. The following is a summary of DPM Hong’s keynote address.

The current volatility in the financial market was due to a number of risks posed upon us for a short period of time. Rising concerns over a global economic slowdown, uncertainties about the Fed’s rate cuts, US announcement of additional tariffs on Chinese goods, sudden devaluation of the yuan, and US designation of China as a currency manipulator.

Global stock markets have been suffering amid escalating US-China trade tensions. Internally, exports have been falling and investment has yet to recover. Japan’s trade controls will add difficulties to Korea’s manufacturing, which has been suffering low earnings. However, we should not be too anxious. Korea’s external soundness is strongest in history with record-high FX reserves and foreign net lending of more than $400 billion.

Korea’s economic fundamentals remain strong despite difficulties at home and abroad according to international credit agencies. This was proved by the overseas sales of sovereign debt last June, as well as the sales of corporate bonds. There have been steady inflows of foreign capital into Korea’s stock market.

The government will thoroughly monitor the market situation and respond timely and effectively according to the contingency plans which include measures to bolster demand in the stock market, such as allowing stock buybacks and tightening short-selling rules.

With regard to the FX market, the government will work to avoid a herd mentality. We will work hard to help exports, as well as investment, recover in the second half: 75 percent of the supplementary budget, passed last week, will be spent in August and September, and the government will work on difficulties in carrying out projects, whether they are private or public, by addressing problems faced by each and every project.

We will continue to call on Japan to retreat its trade restrictions, implementing short-term measures to minimize corporate damage, as well as long-term measures to strengthen industrial competitiveness.