January 2005

1
Dynamic Korea A Nation on the Move
January 2005
Jinmyung Kim
Ministry of Finance and Economy, Republic of
Korea
2
Table of Contents

• Vision
• Challenges
• Responses and Strategic Initiatives
• Future Prospects
• Managing Changes

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I. Vision
1. Comprehensive Plan of the Vision
Dynamic Korea
Vision
Two pillars forachieving vision
Innovation
Integration
Upgrading Technology Manpower
Enhancing Social Well-being
BalancedNational Development
Northeast Asian Economic Hub
SevenStrategic Initiatives
Stable Labor Relations
Market Reform
Political, Administrative and Social Reform
Regain economic vitality and improve the welfare
of the needy
Short-termAction
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2. Core Concepts Dynamism Opportunities

• Why Dynamism?

• New and unpredictable changes in internal and
  external environment require dynamic responses

Vested Interests
Creation of New Opportunities
Re-igniting Dynamism
Political Leadership
Impediments to Dynamism

• What opportunities?

Individual

• Participation Participating in major political
  and social decision-making processes
• Competition Demonstrating talents and
  capabilities in a fair and competitive
  environment
• Innovation Fostering ideas and creativeness in
  an open environment

Region

• Balanced territorial development through
  productive competition among regions

Nation

• Stable growth of about 5
• An economic hub in Northeast Asia and a G-10
  status

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3. Two Pillars for Achieving the Vision
Innovation Integration
? For Dynamic Korea, upgrading innovation
integration capabilities is critical
Interaction between Innovation and Integration

• Innovation
• Refers to individual and organizational changes
  to increase productivity
• Refers to changes in institutions and policies
  affecting incentives and capabilities to
  innovate
• Integration
• Refers to efforts to lessen potential social
  tensionarising from innovation
• Refers to efforts to remove factors of
  socio-economicinequality, unleashing innovative
  potential of all
• ? Through proper policy measures,
  innovation and integration can be harmonized,
  creating synergy

• Enhancing productivity
• Reducing social conflicts
• Increasing economic stability

Accelerating Innovation
Innovation
Integration

• Synergistic Interaction

Inducing Integration

• Creating jobs
• Developing human capital
• Securing welfare resources

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II. Challenges
1. Challenges to the Korean Economy

• Current problems are structural in nature and
  due to continuing challenges

Slowdown in growth momentum

• Reduction in labor and capital inputs
• Inadequate technological and institutional
  capabilities

Increased social tension

• Intensified conflicts across regions, genders,
  generations and income groups
• Insufficient social safety net for the
  unemployed, and worsening income distribution

Rapid globalization

• Financial and corporate sectors under-prepared
  to meet global standards
• Increased pressure to liberalize agricultural
  and service sectors (DDA, FTA)

Emergence of China

• Fast growth of China in both traditional and
  hi-tech sectors
• Chinas increasing share of foreign investment
  into East Asia

Tensions on the Korean Peninsula

• Increased systemic risk due to political
  uncertainty in the Korean peninsula
• Intensified geo-political complexity in
  Northeast Asia

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III. Responses and Strategic Initiatives
1. Responses to Challenges
? Challenges demand proactive responses and
decisive actions
Big Challenges, New Opportunities
Preparation for Change Completed
A leading nation in the 21st century
Implementation
Dynamic Response
Road Map
Rapidly Changing Global Economic
Environment (no clear global forerunner)
Failed Response
A second-tier nation
? Following the efforts of the past year, now is
the time to accelerate change

• Need to step up changes in the face of
  intensifying global competition for innovation
  and change

Integrate capacity of the society
Understand the direction of responses and
changes
Implement counter-measures and changes swiftly
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2. Medium and Long-Term Strategic Initiatives (I)
Effects of 7 Major Strategic Initiatives

• Each initiative serves to overcome more than
  one challenge, for example
• - Northeast Asian Economic Hub effective in
  overcoming globalization, rise of China,
  relation with North Korea, and growth momentum
• - Balanced National Development effective in
  coping with social tension and growth
  momentum problems
• - Market Reform effective in overcoming growth
  momentum, globalization, and social tension
  
• Strong synergies are expected among 7
  initiatives to cope with challenges, for
  example
• - Political, Administrative and Social Reform
  serves as the driving force for all other
  initiatives and guarantees policy effectiveness
• - Cultivating Manpower enables all initiatives
  by providing adequately skilled workforce
• - Northeast Asian Economic Hub reinforces
  market reform while drawing on successful
  market reform of its own

North Korean Issues
Social Tension
Globalization
Breaking through 5 Major Challenges
Rise of China
Slowdown in Growth
Reform and Integration
Technology Manpower
PublicWelfare
Northeast Asian Hub
Implementing 7 Major Initiatives
Political,Administrative,and SocialReform
Balanced National Development
LaborManagementRelations
MarketReform
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2. Medium and Long Term Strategic Initiatives (II)
Upgrading Technology Manpower
Increase investment and consolidating
institutions for the advancement of science and
technology and accumulation of human capital

• Establish an advanced national system for
  technological innovation - Increase RD
  investment, - Integrate technological, human
  resources, and industrial development policies
  - Establish a new system for industry-academia
  collaboration
• Education reform Increase diversity and
  specialization through decentralization
  deregulation

Northeast Asian Economic Hub
Complete integration into the global economy for
entering a new era of peace prosperity in
Northeast Asia

• Achieve complete openness Expand FTA, Open
  agricultural market and service sectors
• Strategic inducement of foreign investment Lift
  remaining restrictions, Improve investment
  incentives
• Strengthen internal capabilities for a
  logistical, financial, and RD hub in the region

Stable Labor Relations
Establish a cooperative system between business
and labor

• New agreement in the Tripartite Committee
  Initiate talks at national, local, and
  occupational levels
• Strengthen preventive measures for labor
  disputes, Encourage resolution through private
  channels

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2. Medium and Long-Term Strategic Initiative (III)
MarketReform
Establish a transparent and fair corporate and
financial system meeting global standards

• Enhance corporate governance Introduce holding
  company system
• Restructure the financial industry Privatize
  financial institutions

BalancedNationalDevelopment
Open an era of balanced development driven by
regional autonomy

• Decentralization Transfer of education and law
  enforcement, Balance national and local taxes
  etc.
• Construct a new capital in Choongcheong Province
• Pursue new agricultural policy Promote
  enterprise-type farming, Modernize production and
  distribution

Enhancing Social Well-being
Ensure minimum living standard for all, and
encourage sound economic activities

• Stabilize real estate market Implement a
  comprehensive plan, Rationalize tax code, etc.
• Expand the social safety net Extend the
  coverage of welfare, Reinforce welfare delivery
  system, etc.
• Promote social equality Enhance female
  participation and representation etc.
• Lower private educational costs Encourage
  on-line learning, etc.

Political,Administrative,Social Reform
Remove barriers to ensure fair competition and
innovation

• Political and Social Reform Abolish corruption
  and cronyism, Ensure transparency of NGOs and
• 
  non-profit organizations
• Administrative Reform Fiscal and tax reform for
  accountability, equity and increased local
  autonomy

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Box 1 Northeast Asian Economic Hub and FTA
Free Trade Agreement
Northeast Asian Economic Hub
New era of peace prosperity in Northeast Asia
Current
Within 12 years
Mid to long-term plan
High
At early stageof discussion
Joint study being conducted
Political Stability?Cultural Unity
Korea?China?Japan
Degree ofCooperation
Regional Cooperation
EAFTA
EU
Singapore
Israel

• Monetary
• Financial
• Industrial

India

• Environ-
• ment

Chile (Feb.04)
Cooperation with North Korea
Japan
ASEAN

• Energy
• Railways
• IT
• ST

Canada

• FTA

New Zealand

• GaesungIndustrial Complex

• Tourism
• Cultural Exchange

US
Enhancing Internal Capabilities
Australia
Mexico
Peru
Panama

• Logistics
• Finance
• RD

Early start of negotiations agreed. (Jun. 2003)
Promotion Workshop (May 2003)
High
Economic Welfare
Low

• Prepared Roadmap for FTA promotion
  Lauched FTA Promotion Committee (Aug. 2003)

• Pursue regional cooperation in political,
  social and cultural areas as well as in
  economic area

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Box 2 Regional and National Development
? Cultivating regionally specialized industries
toward a multi-core, balanced territorial
development
New territorial Development Vision announced on
Jan. 29, 2004
Seoul Metro-Area
Kangwon
Northeast Asian Hub
Tourism, Health, BT, Animation
Finance, Logistics, Electronics, IT, Bio
Incheon
Seoul
Three Free Economic Zones
Choongcheong

• Logistics, Financial Services, etc.

Planned Site of New Capital
BT, Telecom equipment,Semiconductor, Display
Youngnam
Honam
Textiles, Electronics, AutoMachinery,
Petrochemicals, Shipbuilding, NT
Cultural Industry, Bio, Auto Optical Fiber
Cable, Machinery
Busan?Jinhae
Jeju
Gwangyang
Free International City
6 Industrial districts for foreign companies
4 Free Trade Zones 523 Industrial Complexes
Information, Bio, Tourism
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3. Capabilities to Achieve the Vision (I)
University Graduates as Portion of Total
Population (IMD 2001)
Highly skilled human resources

• Highly educated population
• - 40 of population aged 2534 are university
  graduates (Ranked 3rd globally as of 2001)
  
• Abundance of highly educated female workforce

47
40
39
38
Japan
Korea
US
Taiwan
World-class IT infrastructure

• Rapid buildup of world-class IT infrastructure
• - Internet accessibility (Ranked 3rd globally)
  - Proportion of Internet Users (Ranked 2nd
  globally)
• - High-speed Internet (Ranked 1st globally)
  - Share of mobile users is approx. 70

3rd among 30 countries with population of
more than 20 million
Internet Accessibility (IMD 2003)
1st
3rd
6th
7th
Broad industrial base and hi-techleading
companies

• High proportion of knowledge-intensive
  manufacturing
• - Ranked 2nd among OECD countries
• - global leader in IT home appliances, mobile
  phones, semiconductors, etc.
• Broad industrial base with global leading firms
• - Semiconductor (DRAM) Samsung (1st), Hynix
  (3rd)
• - L C D LG Phillips (1st), Samsung (2nd)
• - Automobiles Hyundai-Kia (9th)
• - Shipbuilding Hyundai (1st), Samsung (2nd),
  Daewoo (3rd)
• - Steel POSCO (4th)

Korea
Taiwan
US
Malaysia
3rd among 30 countries with population of
more than 20 million
Proportion of Knowledge Intensive Manufactures
(OECD 2000)
19.0
14.0
11.7
8.4
Ireland
Korea
Germany
OECD avg
High-end technology and mid-upper end
technology manufacturers
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3. Capabilities to Achieve the Vision (II)
LocationalAdvantage

• Strategically located at the center of Northeast
  Asia, one of the three largest economic zones
  in the world
• - accounting for nearly 20 of world GDP
• Gateway to major markets - Proximity to
  China, Japan, Southeast Asia, Central Asia

World GDP Share of 3 Economic Zones
36.7
2001 2016 2020
33.3
25.5
25.1
20.0
19.8
Flexibility

• Relatively flexible to reform and change
• - Evidenced by the extensive reform efforts and
  innovative policies
• following the financial crisis of 1997

4 Northeast Asian Economies
EU
NAFTA
Source DRI-WEFA
National Debt/GDP Ratio(2001)
73.0
59.7
51.5
Sound Government Budget

• Balanced and sound government budgeting
• - Accumulated Budget Deficit/GDP() 22.1
  (OECD Average 73.0)

22.1
Korea
US
Finland
OECDAverage
Source OECD
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IV. Future Prospects
1. Future Prospects (I)
? Narrow the gap with advanced economies and
become a G-10 nation
Koreas Competitiveness per capita GDP
WEFNational Competitiveness Ranking(2002)
Sweden
US
Taiwan
Australia
Singapore
Canada
10
UK
approx. 2010
Japan
2008
Germany
1997
20
Spain
Korea, 2002
Malaysia
Ireland
30
France
China
India
10,000
20,000
30,000
GDP per capita ( Based on US,2002)
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1. Future Prospects (?)
GlobalBusiness Environment

• Establishment of a transparent fair market,
  and a business- friendly environment
• - Elimination of restrictions limiting
  competition establishment of an advanced
  corporate governance model
• Corporate Management Efficiency Rate
• 20th(2002) ? around 10th(2008) (Source
  IMD)
• Market Concentration Rate 43(2002) ?
  Under 40(2006)

Corporate Management Efficiency Ranking
10th
20th
2002
2008
Science andTechnologyForerunner

• Consolidation of science technology research
  capability, and transition to an open reform
  system
• - RD investment
• approximately KRW17 trillion(2002) ? over
  KRW30 trillion(2007)
• - Research personnel approximately
  180,000(2002) ? 250,000(2007) - Level of
  science and technology 10th(2002) ? 8th(2008)
  (Source IMD)
• - Competitiveness of higher education
  28th(2002) ? 10th(2010) (Source IMD)

Level of Scienceand Technology
8th
10th
2002
2008
Foreign Investment toGDP Ratio(accumulated)
EconomicHubinNortheastAsia

• Developing into a logistical, financial and RD
  hub - Gwangyang and Busan maritime hubs in
  Northeast Asia Incheon International
  Airport 3rd largest international airport in the
  world
• - Come up as one of three Asian financial
  centers, specializing in asset
• management
• - Utilizing the economic free zones as
  international business centers
• Accumulated foreign investment to GDP
  ratio 9.2(2002) ? 12(2007)

12
9.2
2003
2007
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1. Future Prospects (?)
Trade Volume
MajorTradingEconomy

• Export structure based on High-tech high
  value-added brands
• - The 8th largest trading nation by 2010 (trade
  amount US750 billion)
• - Number of global leading products 353 (2003)
  ? approx. 1,000 (2008)
• - 10 next-generation businesses will
  significantly contribute to exports

8th
12th
2002
2010
HighLivingStandards

• Improving the quality of life
• - 5-day work week
• - Construction of more than 2.5 million homes
  and 700 thousand rental apartments
• - Development of new suburbs near Seoul metro
  area
• - Decrease of the unemployment rate to 5 for
  the young workforce within five years
• - Increase of national expenditure on the
  raising of children (30 as of 2003)

Youth Unemployment Rate
7.7
5
2003
2008
BalancedDevelopment

• Balanced development of metropolitan
  provincial, urban rural areas
• - Select a site and initiate construction for
  the new capital
• - Open the 1st phase of the Seoul-Busan express
  railway system in April 2004
• - Balance the budget ratio between the central
  and local governments - 5545
• - Increase farm household income by 50 until
  2008

Farm/Urban Income Ratio (per capita)
100
90
2002
2008
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V. Managing Change
1. Need to Manage Change

• Change Management is critical to achieve
  Dynamic Korea

Recognizing the Need to Change
Process of Managing Change

• Awareness of crisis
• Consensus to overcome difficulties

Clarifying Objectives and Establishing Vision

• Sharing the vision
• Establishing principles and procedures

CurrentStage of Korea
ImplementingChange
?

• Cultivating change-leading group
• Fostering and sharing success cases
• Recalibrating policy, procedure and system

Entrenching Change

• Fair compensation and rewards
• Feedback on change management process

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2. Conditions for Change (I)
? Positive perspective on Koreas future
Perception on Koreas Prospect
Perception of the challenges and potential to
overcome
Challenge is severe
(Unit )
(Unit )
can overcome challenge
90.4
90.1
87.0
73.3
44.7
69.6
68.3
67.3
58.9
56.3
55.1
29.3
26.0
Better
Same
Worse
???? ??
Increased SocialTension
Rapid Rise of China
Tensions onthe Korean Peninsula
Slowdown inGrowthMomentum
Rapid Globalization
?? ??? ??
Many indicated a positive view on the prospect of
the Korean economy
Many indicated a positive view on the potential
to overcome challenges despite the severity
Source KDI-Gallup Survey (General Public)
Source KDI-Gallup Survey (General Public)
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2. Conditions for Change (II)
? Shared view on the direction of change and key
policies
Survey on the key policies
Foreign Investment Inducement (Foreign Investors)
Financial Reform (Experts)
Decentralization (Experts)
Expanding Welfarefor the Needy (Experts)
80.2
68.3
59.3
54.8
45.2
40.7
31.7
19.8
Positive
Negative
Positive
Negative
Positive
Negative
Positive
Negative
Source KDI-Gallup Survey (December 2003)
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2. Conditions for Change (III)
? Formation of change-leading groups in various
sectors
Perception on the formation of change-leading
groups
(Question) Do you think change-leading groups
have been formed in each of
the following sectors?
Percentage of Positive Response
Experts
60.7
General Public
56.4
52.5
Foreign Investors
NGOs
Source KDI-Gallup Survey (December 2003)
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Thank you
Thank you!