A Keynote Speech by President Lee Myung-bak
of the Republic of Korea
At the G20 Economic Summit

I thank His Excellency, George W. Bush for hosting this meeting.

The honorable international leaders who spoke yesterday evening and today all recognized that the world is experiencing the severest case of financial crisis and economic slump since the Great Depression of the 1930s.

Through a series of discussions, we came to know the cause of this crisis, and now it is incumbent on us all to act accordingly.

What is more important than anything at this juncture is close international cooperation.

Indeed, it must be said that today's G20 Economic Summit, the first of its kind for bringing together both the industrialized nations and the newly emerging economies, is a very timely and meaningful event. All eyes around the globe are upon this meeting. And its outcome can mean the difference between hope or disappointment for the international community.

It would be ideal for this summit to address the reform of international financial system aimed at preventing a recurrence of global financial crisis.  However, due to time constraint, priority should be given to the following topics: stabilization of the international financial markets and minimization of damage to the real economy. Considering the gravity of the matter and the worldwide attention it attracts, I hope we can produce constructive discussion and a feasible agreement.

In order to overcome the global financial crisis, it is crucial for individual countries to secure adequate liquidity above all else.

To this end, it is imperative that we all cooperate and thoroughly carry out existing liquidity-bolstering measures while formulating additional preemptive measures if necessary.

Drawing lessons from South Korea's own experiences during the 1997 Asian Financial Crisis, I would like to stress that these measures must be preemptive, decisive and sufficient if we are to maximize the desired effects.

In order to tackle the financial crisis head on, we need to expand foreign exchange supplies of individual countries.

In this vein, I would like to make the following two proposals:

First, I have to mention the fact that the United States has recently offered currency swap lines in a very timely fashion to South Korea and some other nations. Taking cue from the United States, I propose that other major economies make similar currency swap agreements with emerging markets and help them bolster foreign currency liquidity.

Second, while it is true that the IMF received more criticism than praise from emerging and developing countries in the past, the Fund has recently taken a very positive step to expand foreign currency liquidity across the globe by installing Short-term Liquidity Facility. However, in order to serve the needs of the wider international community, going beyond the emerging economies represented at this summit, IMF must boost its funds.

Therefore, I propose that measures be taken to expand financial resources of the IMF. Based on Korea's past experiences, I also suggest that credit guarantee programs be considered as a way to maximize gains from the institution's scarce resources. I fortunately had the opportunity to discuss these issues with the Managing Director of the IMF this morning.

There is concern that the current global financial instability might provoke economic stagnation in multiple nations, resulting in a worldwide and prolonged depression. This recession would, then, exacerbate the financial instability in a vicious cycle.

Seen in this light, the proactive measures taken by major economies in the recent months, such as slashing interest rates and enhancing liquidity, have been fitting and timely. In addition to these existing measures, G20 nations should, through closer policy coordination, strengthen counter-cyclical functions such as increase of government spending.

In this respect, I welcome China and Japan's decisions to drastically expand respective fiscal outlays with the aim of revitalizing the economy. The President of the European Commission just stated that the European Union will take similar measures, and this is a very encouraging, indeed.

I am glad to report that the Korean Government, too, has prepared a plan to expand fiscal expenditure and reduce taxes in the amount equivalent to 3.7% of the GDP.

Some countries may be apprehensive that high spending rate might corrode sound fiscal planning. However, as the previous speakers stated, we should remember that the greatest impact can be expected when all the countries collectively step up fiscal spending.

When allocating the increased budget, priority should be given to creating jobs and to strengthening social safety net that can protect the socially vulnerable.

In the meantime, during this period of economic hardship, we also have to be wary of the possibility of protectionism rising.

A single protectionist measure can breed a series of other measures intended exclude foreign competition, deteriorating economic stagnation globally.

When that happens, it is the economically disadvantaged emerging nations that suffer the most.

Thus, I urge all the participating nations to join in the "Stand-Still Declaration" which prohibits installation of new trade and investment barriers.

At the same time, I appeal to international leaders to take a lead in a swiftly concluding the WTO DDA negotiations that have been in the doldrums for some time.

As you are well aware, there are about half a dozen major issues that need to be addressed in order to enhance the international financial system. First of all, financial markets should be made thoroughly transparent and banking institutions should be held accountable for their actions. Second, international codes and standards should be made regarding oversight of the financial sector, and  international cooperation should be promoted in this respect.  Third, there is a rising voice calling for regulation of the credit rating agencies.  Fourth, there is a need to establish international accounting standards.  Fifth, people are increasingly arguing that functions of organizations such as IMF, FSF and BIS, set up for international financial stability, should be redefined or reinforced.

On the domestic front, some countries are discussing ways to reform their financial supervisory institutions.

In Korea's case, a comprehensive financial oversight agency was established during the 1997 Financial Crisis, out of the needfor better supervision of the sector.  It has a broad jurisdiction encompassing banks, securities firms, and insurance companies. I propose that the forum discuss implementation of such system as a way to increase oversight efficiency.

Next, a proper implementation system should be put in place in order to advance the agreements made in this meeting. While the G20 will take the lead in putting together this system, as have been mentioned by Brazil, Saudi Arabia and many more countries, both the developed countries and the emerging markets should participate in the implementation process.

As I conclude my remarks, it might be worthwhile to point out that historically, a system conceived during a crisis tended to go to extremes.  New remedial measures should focus on normalizing market functions rather than inhibiting them.

I earnestly hope that when the world leaders here return home, the global markets begin to regain trust and hope.

Thank you very much.