The Path Ahead :

Financial Policy of the New Administration

(15mins)

 

May 09, 2013

 

 

 

Financial Services Commission

Chairman

Je-Yoon Shin

 

 

 

 

 

 

 

 

 

 

 

 

 

1. Greetings

 

Let me thank

President 김석 of Samsung Securities for this wonderful event.

This year marks the 10th anniversary of Samsung Global Investors Conference.

I am so pleased to be in this special occasion and speak to many opinion leaders

& global investors.

Ever since its beginning, the Conference gathered experts from academic, rporate, and financial backgrounds.

Every year, global experts came together to seek creative solutions to economic & financial challenges.

Today, we are here to discuss new ways forward.

Ladies and gentlemen, The Park Geun-Hye administration was launched in Korea.

As the first head of the financial authority, I will talk about Korea's Economic Policy and Financial Policy.

That is: “Creative Economy” and “Creative Finance.”

 

 

2. Creative Economy

 

Ladies and gentlemen, We have many challenges.

On the external front―

A chain of crises is undermining global recovery.

Quantitative Easing measures are adding to the uncertainty.

 

Global financial linkages are stronger than ever.

A tiny drop of external risk can send massive ripples.

On the home front―

many challenges lie ahead.

Population is aging rapidly.

Korea is still an "aging" society.

But in 2017, it is expected to become an "aged" society.

That means, those aged 65 & older will take up over 14% of the total population.

Also, potential growth rate is slowing.

This might cause a low-growth phase.

However, it is not the time to jump at immediate challenges.

 

Korea needs to look at the big picture.

The Korean government needs to assess the situation―calmly.

The Korean people need to look beyond today, and towards a longer horizon.

 

If existing economic paradigms do not work, new ones must be defined.

The Park Geun-Hye Administration is ready to do the job.

We believe the key lies in creativity.

Therefore, our focus is to build

a “Creative Economy.”

Why “Creative Economy?”

It is bringing creativity and imagination into the industries.

Through “convergence,”

creative knowledge and technology will come together.

It will add value to the industries.

It will form new markets.

It will make jobs.

It will sharpen the economy’s competitive edge.

This is basically the essence of “Creative Economy.”

Ladies and gentlemen, The Korean economy is at the onset of a new growth phase.

Until now, our economic growth has been mostly quantitative.

It relied on conventional production function by using capital & labor as much as possible.

Today, our growth model is changing.

Now, growth is based more on knowledge, technology, and innovation.

Back in the 1960s and 70s, our growth was driven by light industries—like textile.

Cheap labor was our advantage.

Since the 1980s, the economy started to rely on heavy chemical industries.

Capital was rationed to these industries.

When the 1990s rolled in, we began to deliver growth through high value-added industries.

These industries included IT, semiconductors, and automobiles.

The value came from  converging capital and technology.

However, other concerns surfaced.

Population growth trended down.

Production costs started to rise.

Marginal productivity of capital & labor fell.

These trends caused concerns of—

a possible fall in growth potential and prolonged period of low-growth.

The conventional approach would be to put in more capital & labor.

Conventional approach has lost its edge.

We need a new production paradigm.

This is where creative knowledge, technologies, and ideas come in.

It is just like Psy’s “Kangnam Style.”

Psy’s “horse dance” was a creative idea.

It converged with “Youtube” technology.

This approach was distinguished from conventional ways.

What did it do?

It touched almost every part of the globe and brought in enormous profits.

Another example: Smartphones.

It is the convergence of a mobile phone,

computer, and touch-screen technology.

Smartphones caused a great shift in the international mobile market.

These are the examples of “Creative Economy.”

“Creative Economy” will maintain growth momentum―

especially during the transition phase.

It will breathe further vitality into the economy.

 

 

3. Creative Finance: Linchpin of Creative Economy

 

Ladies and gentlemen,

Let me move on to “Creative Finance.”

The shift to “Creative Economy” will present new opportunities as well as challenges

to Korea's financial industry.

In the development of the Korean economy, the financial sector was a reliable funding source for the real economy.

It served as the backbone of economic growth.

Over time, it became resilient enough to withstand financial crises.

This was demonstrated during the recent series of global crises.

For this, Korea’s financial system is often cited as an exemplary case.

Now, it is ready to take the next great leap forward.

Building on the solid infrastructure and expertise, we are prepared to undergo the transition to “Creative Finance.”

Ladies and gentlemen, It is difficult to translate a creative idea into commercial success.

Companies often face “death valleys” during the process.

“Creative Finance” aims to help companies overcome failures and stage a comeback.

Here is the basic idea.

Start-up and venture companies can use their ideas as collateral

—if they lack conventional collateral.

This makes it easier for them to receive funding.

It is just like “open music auditions.”

We have many open music auditions in Korea.

Very often, new stars are born.

These auditions connect broadcasting & entertainment companies with talented individuals.

In turn, the companies provide mass-production skills and marketing channels

to aspiring individuals.

I think this is the secret to K-pop’s success.

“Creative Finance” works the same way.

It connects creative ideas with the industries.

To bring this vision into reality, the new administration is devising measures

to support creative companies.

The measures will accommodate companies at different stages of growth.

Largely, the measures are tailored to support three types of stages.

First : the “start up” stage.

The New administration will improve the investment climate for promising start-ups.

Start-ups may have technologies that are not commercially-proven.

Still, they need investors to take the risk and invest in them.

So the government is working to introduce a new method of investment—

“crowd funding.”

 

Start-ups can receive funding from a large pool of small investors.

An evaluation system for technologies will be set up.

This will resolve “information asymmetry” among start-ups, financial companies, and investors.

“Intellectual property” fund will be established.

Intellectual property will be liquidized, and be used for creative companies.

This way, creative companies and investors will grow hand-in-hand.

Second : the “exit” stage.

The government will make it easier for investors to realize their gains.

Then, investors will feel less uneasy about taking risks with creative companies.

One way is to create the KONEX(Korea New Exchange) market.

This refers to the new capital market for creative SMEs.

The existing KOSDAQ market will also grow based on high-tech companies.

Another way is to promote mergers & acquisitions as the means to realize gains.

On this, policy financing institutions will work decisively to encourage private investment.

Third: the “restart” stage.

One-time failure should not leave a lasting stigma.

Companies should receive credit for trying their best.

If companies continue to lose out,

just because they failed once, “Creative Economy” will remain elusive.

 

We will do whatever is necessary to

give companies a second chance.

As a first step, the government will

eliminate the joint liability rule.

So when companies happen to fail,

they will take on significantly less

financial burden.

Along with this,

we will increase support for

companies that restart.

An exclusive fund for restarting companies

will take off.

Ladies and gentlemen,

“Creative Finance” is—

a reform on existing financial practices.

It is a shift of paradigm.

Above all,

it is a remarkable change in corporate finance.

To realize “intellectual collateral,”

“convergence,” and “support for start-ups,”

direct finance should rise

and play a bigger role.

There are core elements

of “Creative Finance.”

That is: a healthy capital market;

and strict market rules on transparency and fairness.

 

The Korean government will

foster investment banks and

permit contingent capital securities.

 

The capital market will be able to

expand corporate funding.

The market will be under strict oversight.

Investor protection will be improved.

Stock price manipulation will be subject to

immediate investigations and punishment.

Going forward,

“Creative Finance” will take center stage

in Korea’s capital market.

The market will offer more

attractive investment opportunities.

Ladies and gentlemen,

One more basic element of “Creative Finance”:

financial stability.

I think Korea’s financial system is

already outstanding in terms of

soundness and resilience.

Still, we plan to stay vigilant.

Because we know—

crisis always emerges from

the dark, hidden corners.

 

4. Closing

 

Distinguished guests,

There is an old Chinese saying,

“A gem cannot be polished without friction,

nor man perfected without trials.”

The current economic conditions

may be causing some friction.

But I think this is an opportunity to

polish and perfect our economy.

The Korean government will work harder

to improve economic fundamentals.

and boost creative capacity.

The government will also firmly establish

a safe and investor-friendly environment.

This will set the stage for a brighter future.

I believe today’s Conference

will give you a picture of that future.

Thank you for your interest

and investment in Korea.

I hope to see more of them coming.

Thank you.