<기사>Presidential Office, WGBI Inclusion "A Case of Realizing a Global Hub Country in the Capital Market" (Comprehensive)

Success on the Fourth Attempt... Yongsan Also Rejoices
Reduction in Financing Costs and Increase in Foreign Exchange Market Liquidity

[Image source=Yonhap News]

The Presidential Office emphasized on the 9th that South Korea's successful inclusion in the World Government Bond Index (WGBI), one of the world's top three bond indices, "means that Korean government bonds are effectively recognized at an advanced country level," adding that "it will lower financing costs for our companies and stabilize the foreign exchange market."

FTSE Russell, the Financial Times Stock Exchange based in the UK, announced on the 8th (local time) its plan to include South Korea in the WGBI as part of the 'October 2024 Bond Market Country Classification.'

A senior official from the Presidential Office said in a phone interview with Asia Economy on the same day, "With the decision to include Korea in the WGBI, overseas funds will flow into the domestic market, contributing to reduced financing costs for the government and companies due to interest rate stability, and securing stable fiscal management." The official also evaluated, "The government's continuous efforts to improve national credit ratings, especially maintaining sound fiscal management, played a significant role in the index inclusion."

President Yoon Seok-yeol, who is on a state visit to Singapore, was briefed on the related matters locally. It was reported that he welcomed the success of Korea's inclusion in the WGBI on the fourth attempt since becoming a watchlist country in September 2022.

Regarding the short-selling ban issue pointed out by FTSE Russell, the index provider, a Presidential Office official stated, "We are preparing legal, technical, and institutional measures to block illegal short selling," adding, "If illegal short selling is completely blocked, lifting the short-selling ban around March next year should not pose significant problems."

The WGBI, an index operated by FTSE Russell, is considered one of the world's top three bond indices alongside Bloomberg-Barclays Global Aggregate Index and JP Morgan Emerging Market Bond Index. Considering that funds tracking the WGBI amount to $2 trillion to $2.5 trillion, it is expected that at least $50 billion (approximately 70 trillion KRW) will gradually flow into the Korean government bond market starting from November next year when the index is actually reflected.

A Presidential Office official explained, "It is particularly meaningful that countries other than those with reserve currencies, such as China, Australia, and Canada, have had their bonds recognized," adding, "As demand for Korean government bonds in won increases, the supply and demand in the foreign exchange market will improve, potentially lowering the won-dollar exchange rate." The official further expressed expectations, saying, "The decline in bond yields and won appreciation could become a driving force for the KOSPI index rise, bringing positive effects to the domestic financial investment market."

"Our Capital Market Recognized as Meeting Global Standards"

In particular, the Presidential Office explained that inclusion in the WGBI, a government bond index followed by global funds, is an evaluation that Korea's capital market, including the government bond market, meets global standards, representing a case of realizing Korea as a global hub country in terms of capital markets.

The Presidential Office stated, "The inclusion in the WGBI was actively pursued by the Lee Myung-bak administration in 2008 as part of overcoming the global financial crisis, and attempts were made in the previous administration but did not succeed," emphasizing, "It is a long-cherished project that was ultimately achieved through the strong policy drive of the Yoon Seok-yeol administration, which made 'government bond market advancement' a national agenda, rapidly improving foreign investor accessibility and government bond market infrastructure."

It added, "As a result of strengthening communication with global investors and improving government bond and foreign exchange market systems, inclusion was achieved within two years," and evaluated, "This outcome is a remarkable achievement brought about by strong government-level institutional improvements and communication efforts related to foreign investor accessibility, as well as the international community's high evaluation of Korea's solid economic fundamentals, including sound fiscal discipline."

A Presidential Office official said, "Besides the psychological effect of enhancing economic national prestige, securing stable global government bond demand will stabilize interest rates, significantly reducing financing costs for economic agents and increasing liquidity in the foreign exchange market," adding, "The government will actively communicate with global investors and continuously review and supplement related systems to ensure that the WGBI inclusion proceeds smoothly as planned."