Lee Hee-beom , Minister of MOICE

If economic performance could be evaluated on a scorecard, how well did South Korea do in 2004 The results would be as varied as the scorekeepers themselves. For those who still remember when the economy expanded 7 to 8 percent annually, Korea's growth rate, which was slightly under 5 percent last year, was probably anything but stellar. On the other hand, for those who weathered through the 1997 Asian financial crisis, the figure, though modest, may have indicated that the economy had turned around and is heading back on track. However, the nation's exports played a vital role in Korea's performance last year. Despite unfavorable conditions, such as high prices for oil and raw materials and the weak dollar, Korea's overseas sales in 2004 reached a record high of $254.2 billion. Factoring in $224.4 billion in imports, the trade surplus was $29.8 billion, second only to $39 billion in 1998. If we take into account that the 1998 trade surplus was affected in large part by the sharp drop in imports caused by the financial crisis, the figures for 2004 are outstanding. On the investment side, Korea's inward investment doubled to $12.8 billion in 2004 compared to the same period last year. The figure added to more than $100 billion in accumulated foreign direct investment (FDI) since the figures were first tracked in 1962. We are highly encouraged by large-scale investments such as LG.Philips LCD, which is building state-of-the-art facilities in Paju, north of Seoul, near the demilitarized zone (DMZ). In addition, Sony has its sights on establishing seventh generation LCD production lines in Korea. I was genuinely moved when the three chambers of commerce representing the United States, the European Union and Japan jointly hosted a dinner last November in appreciation of the Korean government's commitment to improving business conditions for investors. Lately, we have seen many international business people seeking high value-added investments in diverse areas, such as building parts and material manufacturing facilities, establishing research & development (R&D) centers, and setting up regional headquarters here in Korea. This is further evidence of the strong confidence held by the international community in the future performance of the Korean economy. Last year, the Korean government embarked on some major policy initiatives. We recognize the importance of developing new technologies and having a highly skilled workforce in tune to the needs of the ever-changing industries. Our focus is to foster Korea's knowledge-based service sector, namely business consulting, culture and tourism, distribution and logistics. This will accelerate Korea's progress toward a knowledge-based economy. Another important policy initiative is to ensure balanced national development. By giving more autonomy to local governments, non-metropolitan areas, which traditionally did not have the advantages accorded to the larger cities, will be able to take part in the national drive for innovation. We have incentives to encourage businesses to relocate to non-metropolitan areas. This will bring greater development to the provinces and help industries achieve greater growth. As with many countries that are dependent on energy sources from abroad, Korea hopes to achieve greater energy security through greater diplomacy with oil producing nations. In addition, we hope to increase our energy self-sufficiency by actively developing energy sources here and abroad. As such, the Tonghae (East Sea)-I gas field project is viewed as a modest yet meaningful step in Korea's plan to become a resource-developing nation. As President Roh Moo-Hyun pointed out recently, one of the areas holding back Korea's economy is the growing polarization: an increasing gap between exports and domestic consumption, between large conglomerates and small- and medium-sized enterprises (SMEs), and the level of development in different regions. Economic disparity is not a problem confined to Korea alone. Much of it may be unavoidable since individuals, industries, and even nations differ in their abilities to face the challenges of globalization and technological advancements. If these disparities are left unaddressed, however, the problem can drag down overall economic performance. The Korean economy this year, much like the rest of the world, faces some daunting tasks -- to regain economic vigor in the face of high raw material and oil prices, to deal with the pressure from the weak dollar on our exporters, and regional trade friction. The government will address these challenges as follows: first, Korea's policy priority is to raise the level of corporate investment and to create more jobs. To this end, corporate regulations will be streamlined. In order to improve industrial relations, the government will develop models for cooperation between labor and management. Furthermore, the government will raise public awareness about the vital role of business in the economy and in creating jobs. At the same time, the Korean government expects management of corporate ethics to come to the forefront. The combination of these initiatives will help businesses run smoother and help the economy to grow. Second, we recognize the importance of strong exports, which, thus far, have fueled Korea's economic growth. To help boost exports, strategies will be devised to meet the demands of the global economy. The Ministry of Commerce, Industry, and Energy (MOCIE) will continue to hold the "Korean Products Award" to reinforce corporate efforts to tap into existing and new overseas markets. Third, Korea is dedicated to providing the best business environment for international investors as FDI is key to achieving Korea's full potential. We offer a wide array of incentives, including tax breaks and production sites, for little to no rent. In order to see the results from Korea's FDI policies, close investment consultations are provided through Invest Korea, where project managers personally assist investors in all aspects of the investment process. First and foremost, Korea is striving to become one of the four leading countries in what has been dubbed "the traditional industries." In the coming years, Korea's automotive industry will emerge as one of the top four manufacturers in the world. Korea is also vying to be the second largest digital electronics maker in the world. We have solidified our reputation as the world's largest shipbuilder, and we will work even harder in the face of increased competition. As the fifth largest steel producer and the third largest chip manufacturer, we will do our best to further advance our industries. Korea is in the planning stages of fostering our own parts and materials industries. In the coming years, we aim to foster at least 300 core industries that would post more than 20 billion won in sales and $100 million in export revenue. To achieve a win-win scenario, small and large companies need to work together. MOCIE will design ways to encourage greater cooperation between small and large companies along the value chain in areas such as R&D, production and marketing. One way to do this is to help large businesses and their small parts suppliers to work together through e-manufacturing by computerizing business processes. The Kosdaq, an over-the-counter market modeled after NASDAQ, will be deregulated to fulfill its function as a main channel of market capitalization for startups. The growth of Korean businesses and industries will depend how R&D activities are conducted. Currently, there is growing importance on the demand end of R&D efforts, where industries lead technology innovation in cooperation with academia and research institutes. Likewise, colleges and universities must be more receptive to industries' needs when it comes to human resources development. Last but not least, MOCIE will develop new and renewable energy sources to contribute to sustainable development. MOCIE seeks to develop homegrown technologies in the exciting areas of fuel cells, solar and wind power while at the same time secure a stable supply of conventional energy sources such as oil and gas. Particular attention will be focused on resource development for energy security, a top national priority. Through these policies, Korea is expected to achieve similar trade and FDI results this year from the promising figures from 2004. With these goals in mind, the government has set several targets for the economy, including 5 percent economic growth; creating 400,000 jobs; maintaining consumer prices below 3.5 percent; and keeping unemployment near 3.5 percent. As the policy maker for the nation's investment, trade, and energy strategies, I am hopeful that if all goes well, the economy will gradually start to improve. Along with my fellow Koreans, I believe that we will benefit with increased business activity, which would translate into more jobs and greater economic growth for all. Then the Korean economy would most assuredly be awarded an "A."