[OUTLOOK]Keep building on last year’s effortsAfter the Roh Moo-hyun administration adopted its roadmap to make the country a Northeast Asian financial hub in December 2003, little progress was made in the first year. However, the roadmap produced considerable results last year.
More than a dozen policies were promoted last year and the most important of them all was the extensive revision, in June 2005, of the first roadmap. The original target year of 2020, that was set for the completion of the establishment of Korea as a financial hub, was moved forward to 2015.
Also, while the program concentrated on the asset management industry in its early stage, now bonds, derivative products and the restructuring sectors will also be promoted as leading industries.
In order to implement its ambitious plan, the government drastically relaxed foreign exchange restrictions last July, opening a way for not just Korean companies but also individuals to make investments in financial and real assets abroad. In December, the government announced the conversion of the remaining regulations on foreign exchange transactions into a declaration system from this year.
In November, it also announced that a new law for the integration of capital markets will be enacted within the first half of 2006 because the financial market is currently broken down into different businesses, such as securities, futures and asset management industries. Moreover, the government expressed its will to promote developing new financial products by changing the concept of financial products from an enumeration system to a blanket one.
In order to globalize the financial market, foreign companies can be listed on Korean exchanges under the same terms as Korean companies, from 2006. Overseas accounting corporations will be permitted to open branches in Korea starting from 2007. To boost the bond market, the government is to issue 20-year treasury bonds from this year.
The government deserves to be praised for having promoted so many policies in a short period of time. However, if we are to make Korea an international-class financial hub by 2015, many challenges still remain.
First of all, the sluggish corporate bond market has to be boosted. The government should work to expand both the supply and demand bases simultaneously. The remaining restrictions on investments also have to be lifted, and giving a benefit of tax rebate on the interest profits from bonds should be considered.
Secondly, while it certainly is advisable to encourage foreign companies to list on Korean exchanges, it is a backward concept to demand they produce official documents and reports in Korean. English is already a language universally used in global business, and insisting on the use of Korean will not help the globalization of the Korean financial market.
Thirdly, the government needs to establish a state-funded graduate school specializing in finance in order to secure the country a professional workforce. At the same time, it is equally important for the government to encourage professionals educated abroad to come and work in Korea. In order to attract them, the immigration law has to be revised as soon as possible.
Moreover, Korean law firms are still weak in providing the specialized legal services needed for international financial transactions. Therefore, the government might have to allow not just foreign accounting corporations but also law firms to operate in Korea. Once foreign law firms do business freely in Korea, the level of financial supervision and restriction will greatly improve in quality.
Currently, the individual income tax and corporate tax problems related to foreign investors are handled under the Special Tax Treatment Control Law. However, this is, at any rate, a temporary expedient. The individual income tax and corporate tax system, whose progressive rates are higher compared to those of rival nations, need to be revised. The high graduated tax rate discourages foreign companies and financial specialists from coming to Korea. Moreover, it does not help the distribution of income and even hinders the economic activities of Korean companies and individuals.
In order to create an efficient financial hub, the government has to set a calculated goal for each field. When there is a target, it is easier to evaluate the progress made. Then, working-level officials can actively implement the necessary policies at the right time and promote Korea’s establishment as a financial hub.
For the last year, the government has certainly made considerable efforts to build a financial hub. However, more reforms and innovations are needed this year if those efforts are to bear fruit.
*The writer is the chairman of the Seoul Financial Forum. Translation by the JoongAng Daily staff.
by Kim Ki-hwan