[VIEWPOINT]Long way to go on hub planRecently, the government announced a plan to develop South Korea into an international financial hub, which includes three major objectives: the establishment of a financial infrastructure, nurturing of leading financial markets and industries, and shaping of policies to strengthen international ties.
Under the plan, the government would try to improve the financial infrastructure by loosening foreign currency regulation, instituting fundamental reform of financial regulations and renovating the financial supervisory system.
To become a financial hub, Korea needs a few leading markets and businesses, and so the government decided to back the bond market, restructuring market and derivatives market, which it has determined to have relative advantages. It also specifically named asset-management, private investment funds and investment banking as businesses to be nurtured.
To strengthen the international network, the government plans to globalize the Korea Exchange and organize an international advisory group. Moreover, the deputy prime minister is involved as a key promoter.
In short, the plan is an improved, reinforced version of the financial hub roadmap announced in 2003 in many ways. First, the 2003 outline was very loose in terms of time. Its goal was to nurture the asset-management business by 2012 and add several other fields by 2020. However, the new plan reflects the government’s desire not to wait until 2012 but to develop those fields in which Korea has a relative edge right away. While the plan mentions no specific timeframe, the overall timeline has been moved up, considering its emphasis on the early development of several leading industries.
Second, in order for a country to become a financial hub, free transactions of foreign currency are a prerequisite. The 2003 plan did not specifically mention the issue, but the new plan contains the policy objective to move up the deadline for free foreign exchange trade, which is expected to be attained from 2009 to 2011. Also, free foreign exchange trading will start in the fields that have fewer obstacles as early as the second half of this year.
Third, the 2003 roadmap ambiguously defined the entity responsible for the financial hub promotion project and the administrative structure, but the new plan has resolved most of these issues.
The responsibility and authority over the financial hub project lie mostly with the deputy prime minister for the economy and the Ministry of Finance and Economy. Moreover, the financial hub taskforce, whose activities have been insignificant so far, is expected to be expanded considerably.
The government will not only convey its desire to turn Korea into a financial hub to the international community to get its help, but will also create an international advisory group in order to use its special knowledge overseas.
The changes the government has made are truly welcome. However, the new plan still lacks a few things. Most important, if the financial supervisory and regulatory systems were to be completely overhauled according to the government’s will, the government must open the legal services market.
Nations with a competitive financial industry have a regulation system that protects all forms of investment unless specifically exempted, the so-called “negative list” approach, which originated from British and American laws. However, Korea has a “positive list” system.
To convert the current system to one based on a “negative list,” foreign legal experts, especially those specializing in British and American laws, are indispensable. It cannot be overemphasized that Korea needs to open its legal services market soon.
The financial industry requires flexibility of the labor market more than any other industry. Nevertheless, the labor flexibility of the Korean financial industry is the lowest among OECD member nations because of the powerful union here.
Finally, if Korea wants to become a world-class financial hub, its citizens have to have a deep understanding of the benefits they can enjoy by becoming one. However, the government’s efforts to advertise the goal and the advantages are still insufficient.
Hopefully, the government will correct its shortcomings immediately and develop the country into an internationally-known financial hub in the near future.
* The writer is the chairman of the Seoul Financial Forum. Translation by the JoongAng Daily staff.
by Kim Ki-hwan