S. Korean gov't takes active role in promoting exports, FDI

By Lee Joon-seung

SEOUL, Jan. 25 (Yonhap) -- The South Korean government will take an active role in bolstering exports and attracting more foreign investment to help overcome economic challenges facing the country, policymakers said Sunday.

Government officials and think tanks said global economic conditions, which
started cooling off from the second quarter of 2008, nose-dived coming into this
year. The World Bank predicted worldwide growth to edge up 0.9 percent this
year, down from the 2.5 percent gain estimated for the previous year, with the
state-run Korea Development Institute forecasting South Korea's gross domestic
product (GDP) to gain just 0.7 percent for the whole of 2009.
Such a development in conjunction with the liquidity crunch caused by the U.S.
financial crisis has seriously affected South Korea's ability to export goods and
to attract new foreign direct investment (FDI), crucial for economic growth.
Export volume of US$371.5 billion in 2007 accounted for 38.3 percent of South
Korea's $969.9 billion GDP in 2007.
The need to fuel exports and increase investments took on more urgency following
the announcement by the Bank of Korea that fourth quarter exports plummeted 11.9
percent on-quarter in the steepest drop since Seoul started tallying in 1970.
The contraction in exports caused companies to cut back on investment, which
declined 16.1 percent on-quarter, with industrial production and domestic
consumption falling accordingly.
"The decline in exports and related repercussions is creating unprecedented
challenges that require preemptive measures by the government," said Knowledge
Economy Minister Lee Youn-ho said in a report made to lawmakers earlier in the
month.
Seoul said it expects growth to move up 1 percent on-year to $426.7 billion in
2009, down from its previously set target of $450 billion, which cannot be
reached. However, even the adjusted target may be hard to reach.
To overcome the present crisis that experts say will be most severely felt in the
first half of this year, the ministry in charge of industry, commerce and energy
said it will lead a special inter-governmental task force charged with making
policies and responding quickly to market demands.
The task force -- made up of officials from the Small and Medium Business
Administration, regional governments, umbrella business groups and the Korea
Trade-Investment Promotion Agency -- will work together to prevent a possible
collapse of the country's export infrastructure and help companies expand into
relatively untapped emerging markets in the Middle East and Latin America, while
increasing market shares in advanced economies.
The task force will be designed from the outset to help particular industries
expand their overseas market presence.
The depreciation of the Korean won versus the dollar is one tool that can be used
to raise price competitiveness of locally made goods abroad.
As part of this effort, the government has increased funds set aside to cover
export insurance by 40 trillion won to 170 trillion this year. The funds can
cover export insurance and be given as emergency relief to cash-strapped small-
and medium-sized enterprises.
Other measures call for helping companies take part in trade fairs and hosting
events to allow foreign buyers to meet manufacturers.
The ministry said it will spend 70 percent of the 140 billion won in state funds
earmarked for export marketing support in the first half of 2009.
On ways to fuel FDI, the ministry said it predicts that advantageous foreign
exchange rates will get foreign businesses to invest money in the country in ways
that could include takeovers or buying stakes in both public companies and those
that received bailout support following the 1997-98 Asian financial crisis.
There are 14 companies that received bailout funds in the past, while stake
purchases in 33 state-run companies may be possible.
Companies like Hynix Semiconductor Inc., Daewoo Shipbuilding and Marine
Engineering Co. and Hyundai Engineering and Construction Co. received fresh funds
from creditors, including state-run financial institutions.
Fueling investment will help maintain upward momentum in the sector that grew
11.3 percent on-year in 2008. FDI contracts that were secured reached $11.7
billion in 2008.
The numbers come after inbound investment fell from 2005-2007, with the
government pushing to attract $12.5 billion in FDI by the end of the year.
"Key among the government's efforts will be attracting M&A money as South Korea
implements restructuring of the public sector and seeks new owners of companies
that received bailout funds," said Moon Sung-wook, head of the ministry's foreign
investment policy division.
In 2008, mergers and acquisition (M&A) investment shot up 78.2 percent on-year to
4.4 billion won.
More details on how to sell government stakes in these companies are to be
decided next month in a meeting involving the Financial Services Commission.
"Nothing has been decided since the weak stock market may make it hard for the
government to receive a good price for its stakes," an anonymous source said.
Related to the current crisis, think tanks supported efforts by the government to
take active measures.
"The shock of the global slump is affecting the national economy more seriously
than previously anticipated, and since it may be hard for conditions to rebound
on their own, the government should take steps to reduce the blow," said Kwon
Soon-woo, director of macroeconomic research at the Samsung Economic Research
Institute.
Other private-sector economists from Hyundai Research Institute said Seoul must
use all available means to help local companies deal with the crisis, but without
violating international trade rules.
They pointed out that despite weak domestic demand, South Korea's growth grew 4-5
percent from 2004 largely as the result of robust exports.