[Gwanga in] Prime Minister Han Deok-su Shares Behind-the-Scenes Stories of the 'Davos Forum'

Foreign Investment Attraction Signal Clearly Delivered to the International Community
South Korean Prime Minister: "All Ministries to Communicate with the Public... Will Provide 'Forward Guidance'"

[Asia Economy Reporter Koo Chae-eun] “The 'economic big shots' of Davos reportedly said they 'heard exactly what they wanted to hear' from President Yoon Suk-yeol.”

This is an afterword of the 2023 World Economic Forum (WEF, Davos Forum) conveyed by Prime Minister Han Duck-soo. It was reported from overseas sources including scholars and ministers that the sales diplomacy of 'Team Korea' was highly effective at the Davos Forum, where a South Korean president attended for the first time in 8 years, along with the heads of the six largest conglomerates and eight ministers.

In a recent phone interview with Asia Economy, Prime Minister Han said, “Especially, the keynote speech by the president (leading the restoration of the global supply chain) was quite similar in thought to the economic big shots, which greatly increased interest in Korea,” adding, “It clearly sent a signal to the international community that Korea is ‘friendly to foreign investment.’”

Prime Minister Han is paying close attention to the evaluation of Korea at the Davos Forum because he sees foreign direct investment as essential to overcoming this year’s macroeconomic difficulties.

The government is currently facing two dilemmas. Stimulating the economy through fiscal spending raises concerns about inflation. Although tax cuts are promoting private corporate investment, it is not easy due to external factors such as high inflation and high interest rates. To overcome this, it is important to maintain fiscal soundness while attracting limited corporate investment and activating foreign investment.

Prime Minister Han said, “Domestic (corporate) investment is difficult because interest rates are high and production costs have increased, so various factors must be considered. However, foreign investors make decisions considering multiple factors,” adding, “I believe the efforts such as the 19% flat tax rate (for foreign workers) will show results. Many major companies are trying to establish their bases in Korea.”

In fact, despite global economic uncertainties such as high inflation and supply chain crises, foreign direct investment inflows into Korea reached a record high of $30.45 billion last year. There is also an interpretation that overseas investors, seeking to relocate production bases outside China amid US-China trade friction, are recently focusing on Korea via Singapore.

(Source: Ministry of Trade, Industry and Energy, Unit: USD)

Regarding the January trade deficit, Prime Minister Han said, “It is too early to judge the whole by looking at just one month,” and pointed out, “Global growth rates are declining, and to curb inflation, interest rates are being raised, pushing the economy toward a recession, which has affected our exports as expected.”

He added, “However, imports are also expected to be similarly affected later.” Prime Minister Han said, “Currently, energy prices are high in imports, so the decrease in imports is smaller than the decrease in exports,” adding, “But the overall demand reduction will also affect imports, so the deficit trend is not expected to continue (after January).” He further said, “In a few months, we will know whether the trend we predicted is occurring or if unexpected factors arise.” This is interpreted as meaning that ‘rising international energy prices → decreased international demand → falling international energy prices’ could influence a shift to a trade surplus.

He then said, “Overall, the government expects a slight surplus in the goods balance this year.” Earlier, the government projected a $23 billion surplus in the goods balance for 2023 in the economic policy direction announced at the end of last year.

Prime Minister Han said that in a situation where the effects of rising interest rates are expected to become more pronounced, each ministry plans to thoroughly communicate the macroeconomic situation to the public. He said, “I mentioned at the last Cabinet meeting that ministries should promptly inform the public about expected macroeconomic difficulties.” He added, “We must fully convey to the people ‘what is coming and how it is coming,’” and said, “All ministries will actively communicate, just as the Bank of Korea does with ‘forward guidance’ (the central bank’s preemptive announcement of future interest rates and monetary policy directions).”