1. Overview
In the face of the global economic crisis, the Korean Government has been going full speed ahead in search of solutions. Since the G-20 Financial Summit in November 2008, the country has taken responsive measures faster than any other country in the world. This attests to the characteristics of Koreans who have demonstrated strong determination in tiding over crises facing them. Accelerated and compressed economic growth in the past as well as experience in riding out the financial crisis in 1997 are also serving as the cornerstone for the country in overcoming the current crisis.
CEO-turned President Lee Myung-bak has put his administration into an emergency management mode with the conviction that a crisis is an opportunity. He has stressed that Korea must perceive the current crisis as a chance to join the ranks of advanced countries just as businesses that make investments for qualitative growth in times of recession emerge with a stronger competitive edge when the economy recovers. His commitment has awoken the civil service to the seriousness of the situation.
In contrast, the opposition parties have leveled criticism at such recent key Administration slogans as “speedy solutions” and “preemptive countermeasures.” Worse yet, they have been blocking the bills in the National Assembly intended to help boost the economy. Under these circumstances, however, the Lee Myung-bak Administration has steered clear of political offensives and channeled all its efforts
into reviving the economy with a firm belief that the public will give a fair evaluation of its endeavors. This year is expected to be a test whether President Lee’s nickname “Bulldozer” is meant to describe a leader who weathers this kind of crisis with unwavering commitment, rather than one who only pushes ahead with plans recklessly.
2. Korean Government Policies to Fight the Crisis
The Korean Government successfully concluded three bilateral currency swap arrangements with the United States, China and Japan, respectively. It was particularly significant that the U.S. Government announced its plan to expand its exclusive currency swap lines with advanced countries to other emerging economies, including Korea. The country clinched the two additional currency swap agreements with China and Japan, two of the biggest foreign currency reserve holders in the world, on December 13 at bilateral summits. Each of these amounted to US$30 billion. With this, the Republic heavily dependent on trade will be able to effectively secure additional foreign exchange reserves, thereby dispelling a concern that a foreign exchange crisis similar to that of 1997 might occur again.
In his New Year Policy Address to the Nation last week, President Lee unveiled his plan to put the Government into an emergency economic rescue mode. In line with this plan, the Meeting for Emergency Economic Measures, presided over by the President, was established. Under the emergency government, Cheong Wa Dae and relevant ministries and agencies will come together to speed up policy decisions and to promptly implement them.
In addition, the Emergency Economic Situation Room, equivalent to a war room, was installed in Cheong Wa Dae to facilitate crisis management. At the Situation Room, the first Meeting for Emergency Economic Measures was convened today.
Other functions of the Emergency Economic Situation Room include taking stock of the budget execution and collecting petitions on obstacles such as conflicting ideas among ministries and agencies that might occur in the process of implementing policies in order to coordinate and address them.
The briefings by ministries and agencies on their undertakings for 2009 were made to the President at the end of 2008 earlier than usual. Previously, the briefing sessions took place for three months from January to March every year. However, the sessions for 2009 were completed over two weeks at the end of December. This was done in accordance with the President’s intention that in the face of the
unprecedented economic crisis, this year’s budget spending should be front-loaded at the earliest possible date. In addition, all ministries and agencies should greet the New Year with a renewed sense of crisis.
The President also received briefings from state-invested corporations for the first time. It was carried out according to the realization that people can directly feel the effect of the implementation of policy by those organizations in their everyday lives.
President Lee has repeatedly emphasized that green growth is the best way to create jobs. In his January 2 New Year Policy Address, he said that his Administration would strive to explore new growth engines in three sectors?green technological industries, hi-tech fusion industries and high value-added service industries.
To this end, the Government plans to prepare a basic law on green growth and submit it to the National Assembly in February. During the same month, the Government will install a Green Growth Council directly under the President, which will be co-chaired by the Prime Minister.
In fact, the country has already started planning and implementing some of the Green New Deal projects. The major thrust will be on developing original technologies in new and renewable energy involving solar power, wind power and fuel cells. Over the next four years, the Government will invest 50 trillion won
(US$38.1 billion) in this project with a view to producing 960,000 new jobs.
The Government is moving fast to come up with preemptive policy measures, particularly in the area of market stabilization, promotion of domestic demand and support for small and medium-sized businesses as well as middle- and low-income families.
In the area of market stabilization, the Government will offer payment guarantees for foreign debts incurred by the nation’s banks. Through this, US$100 billion in foreign debts owed by the financial institutions will be covered for the next three years. Beginning last October, the Bank of Korea already began reducing its benchmark interest rate to 3 percent from 5.25 percent. The Government has also
established a 10 trillion-won fund for stabilization of the bond market. For the purpose of bolstering foreign currency liquidity and finances of export and import industries, the Government has set aside US$55 billion.
In order to boost domestic demand, the Administration has used the 2008 supplementary budget totaling 4.6 trillion won and reimbursed 3.5 trillion won in oil tax rebates. During 2009, the Government will implement a 13 trillion-won tax cut and make a 11 trillion won outlay for public works. Deregulation in the reconstruction sector as well as comprehensive real estate tax reductions are being carried out in an attempt to shore up the sagging construction and real estate industries. All in all, the Government eyes spending 3.7 percent of the GDP to revitalize the economy.
A variety of policies are being planned or are already being carried out for smaller businesses and lower income families. They include increasing the government’s stake in the state-owned banks in the amount of 3.3 trillion won. It will also make an additional investment of 1.1 trillion won to raise the capital of financial guarantee insurance institutions to help small- and medium-sized companies.
The Government will also bolster its vested interest in the Housing Finance Corporation in a bid to steer a general reduction in home loan rates. By the end of February, the Government plans to introduce a 20 trillion-won fund for the purpose of beefing up the assets of the nations’ banking institutions.
