U.S. Biz Experts Give Advice to Finance Minister

“Korea needs to cut taxes and adopt an expansionary fiscal policy to deal with its economic difficulty.”

“Secure dollars instead of focusing on interest rate policy.”

These are snippets of advice Strategy and Finance Minister Kang Man-soo received in meetings with chairmen and chief economists of leading U.S. financial institutions in New York.

○ Coordinated efforts needed

Goldman Sachs Co-president Jon Winkelried said overseas borrowing could get easier early next year, proposing securing long-term capital and supporting liquidity instead of stressing interest rate policy.

In other words, he meant Korea should secure dollars even at higher interest rates since the global financial market will have suffered from a lack of dollars by early next year.

Morgan Stanley Asia Chairman Stephen S. Roach blamed the situation on a crisis of leadership as well as a crisis of the market, urging all authorities to make concerted efforts.

This resonates with Kang’s comment emerging economies should also need joint efforts to weather the financial crisis. He said he has high hopes for “close cooperation among all economies” to secure dollars, while urging Washington to lead efforts to expand currency swap programs.

The Korean Strategy and Finance Ministry quoted former U.S. Treasury Secretary Robert Rubin as saying he has no idea why a Financial Times article said Kang planned to meet CEOs of major financial institutions. Rubin is now a director and senior counselor at Citicorp.

The minister also held talks with chief economists from major global banks on their opinions of Korea’s economic policies.

Citigroup’s chief economist Lewis Alexander said, “The Korean government needs to cut taxes and adopt expansionary fiscal policy since its budget has been in a surplus in recent years.”

HSBC economist Stephen King warned that emerging economies like Korea could suffer from a lack of dollars. “The nationalization of banks in advanced nations could lead them to focus domestically and reduce lending to foreign banks in emerging markets,” he said.

JPMorgan economist Bruce Kasman said, “The global economy began slowing down even before Lehman Brothers went under in September. It will begin recovering in the middle of next year.”

○ Bracing for economic slowdown

Kang said, “The impact of the U.S. financial crisis on Korea is limited since we have diversified our export markets. The current account deficit, which has grown due to surging oil prices, is expected to record a surplus in October.”

“Korea is preparing for the possibility of a global economic slowdown since the credit crunch will continue for an extended period.”

In talks with Henry Fernandez, chairman and CEO of Morgan Stanley Capital International, Kang discussed the possibility of upgrading Korea’s stock market to the “developed market” category.”

Fernandez said that if Korea wants developed market status, it should continue liberalizing its foreign currency market and improve regulations on foreign stock investment.

Morgan Stanley’s MSCI index helps investors compare stock indices of each economy. A decision on upgrading Korea’s stock market from “advanced emerging market” to “developed market” is schedule to come in December.

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