The Presidential Council on National Competitiveness focuses on heading regulatory reform and deregulatory measures to create a business-friendly environment for both domestic and foreign companies, strengthening Korea's economic growth potential, and expanding social capital.
Amid falling inbound investment due to the global financial crisis, the Korean government is taking steps to attract more foreign direct investment (FDI). A couple of months ago, the PCNC, presided over by President Lee Myung-bak, announced new measures aimed at attracting more FDI. The new measures include increasing the size of the government's cash grants to foreign investors and temporarily removing the minimum investment requirements imposed on those wanting state subsidies.
Under the current law, the current level of cash grants equals about 5 to 10 percent of total funds invested by a foreign company. Also, to be eligible for cash grants, foreign firms need to have invested $10 million or more.
The government will scrap these rules in order to offer benefits to more firms and will increase the cash grants to account for about 10-30 percent of total funds invested by foreign firms.
To strategically attract those foreign firms that will also benefit the Korean economy better, the government will first select 100 foreign firms that are “strategically important” to the Korean economy and offer them incentives in return for investing here.
Meanwhile, cash grants for firms that have or plan to build research centers here will also be expanded. FDI has long been an important means to help the domestic economy and create employment. With these steps, the PCNC is sending out clear signals that foreign investors are welcome in Korea.
To understand more about the Council’s work and the impact of its policy decisions, I interviewed Mr. Kang Man-Soo, Chairman of PCNC. The following are excerpts:
Korea has a brilliant track record of economic growth. However, we are experiencing low investment associated with decelerated growth of below 5% since 2000's. Subdued employment and rapid population ageing have also become major challenges to mid- and long-term prospects of the Korean economy. Moreover, underlying but significant issues such as strengthening the rule of law, expanding social trust, improving the productivity of the public sector, and promoting productive labor relations need to be addressed. In this context, the PCNC was established along with the inauguration of President Lee Myung-bak in February, 2008 as a key advisory body to the President.
PCNC focuses on heading regulatory reform and deregulatory measures to create a business-friendly environment for both domestic and foreign companies, strengthening Korea's economic growth potential, and expanding social capital by making advancements in laws, regulations and institutional infrastructure based on global standards. I was appointed as the Chairman in February of this year, following my term as the Minister of Strategy and Finance.
PCNC is comprised of government members; heads of business associations; representatives from the ruling party, labor unions, consumer groups; foreign business leaders; and experts from various sectors of the economy. In particular, we value the representation of foreign businesses at the PCNC, and the President of the EUCCK is also a member of the PCNC.
Since the establishment of the PCNC, meetings attended by the President have been held every month. During these meetings, new institutional reform and deregulatory measures are presented and discussed among its members and relevant government ministers.
PCNC has about 30 members representing all sectors of the economy. In addition to the monthly plenary meeting, 4 sub-councils in the areas of regulatory reform, legal and institutional advancement, industrial competitiveness, and public sector reform, were created to promote in-depth discussions. PCNC members participate in one of these sub-councils, and conduct studies on key national competitiveness issues in the respective areas.
In addition, PCNC is able to operate advisory committees for selected issues that require more expertise, continuous feedback and review. Such committees invite experts from various sectors outside PCNC members. One of them is the Advisory Committee on the Romanization of Korean. It was established to revise the current romanization system which is seen by most foreign businesses in Korea as being complicated and misleading. Measures for adopting a more internationally recognized Romanization system was recently discussed at the PCNC meeting and work is in progress.
The vision of the PCNC is to build a first class advanced country. To do so, we will strengthen competitiveness for a new economic paradigm by expanding domestic demand, maintaining a current account surplus, and strengthening economic potential.
In order to achieve this vision, the PCNC identifies 5 key missions, which are: tackling the crisis, sustaining growth, promoting future growth engines, mobilizing global capacity, and accumulating social capital.
History has shown us that countries that have equipped themselves with new innovative ideas have always come out of crises more competitive than before. The PCNC will continue to implement measures to overcome the challenges of the global economic crisis, and prepare for the dawning of a new post-crisis economic paradigm.
This unprecedented global economic crisis has left us in a survival game filled with doubts and uncertainty. International organizations such as the IMF and OECD project the Korean economy to recover faster than other countries. In addition, recent quarter-on-quarter growth is showing signs of recovery. However, I believe that we have yet to be fully optimistic for recovery, and outlooks on the aspects of recovery and duration of crisis are still uncertain.
We have to be very cautious about prospects of the Korean economy since fiscal stimulus such as massive tax cuts and front-loaded spending are major engines of recovery. The stimulus measures are not able to replace private spending and investment on a sustainable basis. In particular, Korea's economic outlook will depend highly on the recovery of the global economy including the EU and the US, due to our high dependence on the external sector such as exports.
Therefore, the Korean government will focus on policies to sustain the recent trend of economic recovery, while preparing a "Plan B" for the worst case scenario.
The government plans to continue implementing efforts to expand domestic demand, restoring growth and economic vitality. Such efforts will include, among others, continued deregulation and tax cuts to promote private investments, corporate and financial restructuring, and job creation and sharing.
Although it is unclear when we will fully recover from the crisis, I want to emphasize that Korea has always taken crises and turned them into opportunities.