Investor Roundtable and Meeting with Global Credit Rating Agencies in New York

1^st Vice Minister Hosts Investor Roundtable and Meets with Officials from Global Credit Rating Agencies

First Vice Minister Kisun BANG hosted an investor roundtable on February 13 and had meetings with high-ranking officials from major global credit rating agencies on February 14.

Investor Roundtable

Amid prolonged external uncertainties driven by major economies’ continued monetary tightening, forecasts of slowing global growth and among others, the IR[1] was held in New York, U.S. to look into foreign investors’ perspectives and maintain their confidence on the Korean economy by making them well informed on Korea’s current economic situations.

1^st VM BANG gave a presentation at this event under the theme of “Korea’s Steadfast Economy.” The following is a summary of his presentation.

1. 2023 Economic outlook

Economic challenges in Korea would continue until the first half of this year given the expected global economic slowdown in 2023, but the country will see a gradual recovery heading toward the second half due to favorable factors like the recovery of the global economy.

2. Four questions about the Korean Economy

Amid heightened external uncertainties, VM BANG gave answers to the four questions that have been recently raised for the Korean economy.  

- Current/Trade Account: In 2022, Korea’s current account remains in surplus at around 30 billion dollars despite its trade deficit due to surging energy prices. Exports are projected to gradually increase given the semiconductor industry’s expected recovery from the second half, China’s reopening and among others.  

- Foreign exchange (FX) market and External Soundness: KRW serves as a bellwether for the global FX market as indicated by its rapid appreciation at the beginning of this year after considerable depreciation last year driven by a strong USD. Korea’s external soundness remains in good shape in consideration of its sufficient FX reserves, upward trends in net foreign assets, stable CDS premium levels and high credit ratings.   

- Short-term capital market: The short-term capital market hit hard by last year’s Legoland shock has been stabilized mainly as a result of policy efforts, and the government will also strive to thoroughly manage project-financing (PF) risks by ensuring a soft landing in the real estate market.   

- Debt Levels: Taking into consideration its relatively low short-term external debt/total external debt and high foreign currency liquidity coverage ratio (LCR), Korea’s debt servicing capacity is quite manageable and the possibility of government and household debts posing a risk to the economy is limited considering well-managed fiscal soundness and low delinquency ratios.   

3. Korea’s 2023 Economic Policy Directions

VM BANG introduced Korea’s 2023 economic policy directions that are aimed at overcoming economic challenges and boosting growth potential.

 - Overcome Economic Challenges: The government has made various policy efforts to reinvigorate the economy such as early fiscal execution (65% in the first half of 2023), all-round support to boost export, tax benefits for investments in national strategic technology and regulatory innovation.

- Boost Growth Potential: In an effort to improve economic fundamentals, the government has focused its policy capacity on the New Growth Strategy 4.0, structural reforms in three sectors of labor, education and pension and capital market accessibility enhancement in line with global standards

- Prepare for the Future: The government is committed to achieving economic sustainability by responding to climate change, managing supply chain risks and addressing demographic transition.       

VM BANG wrapped up his presentation by asking for continued confidence and investment in the Korean economy, noting that despite the global economy facing “the darkest hour”, Korea will be the first to awaken when the global economy meets the dawn.

After the presentation, participating investors asked questions mainly focusing on three issues: policy efforts for building growth engines, potential risk management, and reasons behind Korean won devaluation. His answers are as follows:   

1. Build Growth Engines

VM BANG highlighted that the government will endeavor to improve the global competitiveness of national flagship industries by strengthening tax benefits for investment in semiconductor and display and keep exploring and fostering new engines for export growth such as defense goods and nuclear power plants.

As for the possibility of global trade contraction caused by U.S. economic downturn and the prolonged Russia-Ukraine war, VM emphasized that export competitiveness will be enhanced by diversifying export markets alongside summit diplomacy and trade financing support.

2. Manage Potential Risks

Describing the new government’s commitment to sound fiscal policy, VM BANG stressed that the government will make sure the total expenditure growth rate and the managed fiscal balance are stably managed for the next five years with policy efforts including legalization of fiscal rules and expenditure restructuring.

Regarding global supply chain realignment, Korea has beefed up its efforts to localize the production of key parts and diversify overseas manufacturing bases in the wake of Japan’s export restrictions in 2019. VM BANG also introduced policy efforts to stably manage supply chains, including operation of the early warning system (EWS) and push toward legislation of the Basic Act on Supply Chain, and participation in the Indo-Pacific Economic Framework for Prosperity (IPEF).

Moreover, VM BANG mentioned the government’s other efforts to manage potential risks including measures to stabilize the real estate market by normalizing excessive regulations and achieving mid-term supply and demand balance and to reduce financial burdens of low income households, and to address demographic transition.

3. Tackle devaluation of the Korean won

VM BANG reiterated that Korea’s economic fundamentals have been stronger than those back in Asia’s financial crisis and global financial crisis, resulting in remarkably reduced concerns about Korea’s exchange rate volatility and external soundness.   

VM BANG also explained about the policy effort to improve accessibility of the FX and capital market to build the investment environment for foreigners in line with global standards. He touched upon the reformed measures, mentioning the onshore trading hours will be extended to 2 am of the following day and foreign financial firms will be allowed to directly participate in the domestic FX market starting from the second half of this year.

Participants expressed their confidence that Korea will overcome the current global economic slowdown as it has so far achieved unprecedented success over the years.

Meeting with high-ranking officials from global credit rating agencies

VM BANG had meetings with high-ranking officials from the big two credit rating agencies (Moody’s on February 13 and Standard and Poor’s (S&P) on February 14).

In a meeting with Moody’s, VM BANG spelled out Korea’s 2023 economic policy directions and discussed Korea’s economic outlook, external soundness and national credit rating.

Moody’s gave a positive assessment of Korea’s 2023 economic policy directions and projected that the Korean economy will see a recovery from the second half of this year given several factors like China’s reopening. As a mid-term outlook, it forecast that Korea will maintain its potential growth rate at 2 percent, which fares better than other advanced economies, highlighting that implementing structural reforms in the three sectors as planned would help the rate go up.

Moody’s said that there is no concern about Korea’s external soundness taking into account its sufficient FX reserves and current account surplus. It also noted that Korea’s national credit rating has remained sound as a result of Korea’s successful response to internal and external uncertainties led by several major events such as last year’s instability in the short-term capital market and the Russia-Ukraine war.

In particular, the global credit appraiser pointed out that Korea’s credit rating has stayed sound thanks to its policy efforts to implement labor market reforms, deal with demographic transition and increase productivity in addition to push toward fiscal soundness.

In a meeting with S&P, VM BANG explained Korea’s 2023 economic outlook announced by the government, introduced policy efforts to achieve economic rebound in the second half of this year, and discussed structural changes of the global economy and their possible impact on the Korean economy.

S&P viewed global economic fragmentation, supply chain realignment, transition to the green economy and so forth as key global changes in the wake of the Covid-19 pandemic and the Russia-Ukraine war. 

S&P mentioned that the impact may differ depending on each country’s situations, but when taken altogether, Korea is likely to be benefitted thanks to the government’s policy efforts such as reshoring and building a supply chain early warning system. The global credit appraiser added that despite shrinking global trade, Korea has a competitive edge over others as high-tech products such as semiconductors and batteries are increasingly important in the global trade landscape. 

Attachment: 2023 Investor Presentation material (Feb. 2023)