Presented at the Seminar on “Business opportunities in South Korea” sponsored by the Dutch-Korean Trade Club November 26, 2008 November 26, 2008 Jin-Su Park Jin-Su Park Korean Mission to the EU Korean Mission to the EU The Korean economy The Korean economy looks forward looks forward

Contents 1. Key Features 1. Key Features 2. Recent Developments 2. Recent Developments 3. Review of economic stability 3. Review of economic stability 4. Policy measures 4. Policy measures 5. Concluding Remarks 5. Concluding Remarks

1. Key Features KoreaNetherlands G D P (2006, billion USD) 1, Population (2006, thousand) 48,29716,344 Percapita GDP (2006, USD, PPP) 23,03836,548 Bilateral Export (2007, million USD) 4,489* 3,703* * Share in Korean exports and imports are around 1%

1) Industrial Structure (share %, 2007)

2) Exports (by Country) EXPORT/GDP RATIO : 47.6% 2) Exports (by Country) (share %, 2007) EXPORT/GDP RATIO : 47.6%

2) Exports (by products) 2) Exports (by products) (share %, 2007)

2. Recent Developments Q2Q3QYEAR* GROWTH INFLATION CURRENT ACCOUNT** * BOK estimates, ** Billion USD, *** IMF estimate 2009 *** 2% 4% +

3. Review of Economic Stability 1) SURGING Won/USD RATE

2) Comparing 1997 and 2008 Then 1) Now CAUSING FACTORS InternalExternal FOREIGNEXCHANGE FX Reserves (USD) 8.9 BN212.2 BN 2) ST EXTERNAL Debt/ FX Reserves FX Reserves 717 % 68 % 3) Total External Debt/ FX Reserves FX Reserves 1,957 % 173 % 3) BANKS NPL ratio NPL ratio 6.0 % 0.6 % 4) BIS ratio 7.0 % 12.0 % 5) CORPORATE Debt/equity Ratio % % 5) Interest Coverage Ratio % % 5) 1) late 1997, 2) as of Oct. 2008, 3) as of June 2008, 4) as of mar ) as of the end of 2007

Real estate Sector Real estate Sector ≒ Nominal GDP growth rate of the same period ( 6.5%) ♤ LTV ratio : 47.0 % (as of 2Q 2008) ♤ Price changes : 6.7% (YOY, 2001~2007) ← LTV limit : 60 % (direct regulation)

Share of Foreigners stock holding : ( ) 31% → ( ) 28.5%

4. Policy measures ① Stabilizing FX & financial markets ② Stimulating the economy ③ Easing regulations

Stabilizing the FX & Financial markets (FX Market) ♤ Increase the provision of USD Liquidity. Provided 30 bn USD to banks through currency swap. Secured additional funds through the Currency SWAP with the Fed (30 bn USD) ♤ Guarantee foreign debts of banks and foreign-currency denominated deposits

Stabilizing the FX & Financial markets (KW Markets) ♤ Increase Liquidity provisions through the BOK’s RP purchase BOK’s RP purchase. Expand the eligible securities for the BOK’s OMO. Provide liquidity to Security firms and asset mgt cos through the KSFC. Establish Security Stabilization Fund(target: 1bn USD) ♤ Lower Interest rates. Lower the policy rate of the BOK by 1.25%p

Stimulating the economy ♤ Increase fiscal expenditure( 11 tr. Kw). More investment on Social infrastructure. More Support to the vulnerable sectors such as SME and small retailers.farmers.fishermen. Increase the welfare expenditure to lower income households ♤ Lower taxes (2009, 10 tr. Kw). Lower Personal income tax rate by 2%p. Lower Corporate Income tax rate by 3%p to 5%p. Lower Real Estate Capital gain tax

Easing regulations ♤ Stimulate the real estate markets. Provide short-term liquidity to construction companies ♤ reconsider all the regulatory barriers on Corporate investment from the zero base. (EX) regulations on land uses or labor markets

5. Closing remarks □ The Korean economy is now in difficult Situations, even though its fundamentals remain sound. □ In response to this, the Korean govern’t has implemented every possible measure to stabilize the economy and secure the dynamic features of the economy

□ It is almost impossible to predict when the current business downturn will end, considering the huge amount of uncertainty lying ahead. □ But I believe that the Korean people will overcome the current turmoil as they did 10 years ago. o After 1997 crisis, we put safety nets such as deposit insurance and strengthen bank supervision

o We have experience on how to deal with financial mess. o Amid the turbulent years after the 1997 crisis, the Korean government showed its strong commitment to free and open economy by implementing comprehensive financial and economic reforms and refusing any protectionist measures. o Lastly, the korean economy is led by creative and highly efficient firms, and supported by the favorable infrastructures.

Dank U !