Oct032008
Nuclear Power, Alternative Energy Key to Korea’s Economic Future
Posted under News by Webmaster at 01:52 on Oct 03 2008
One can think of hundreds of tasks that South Korea needs to undertake to enter the ranks of advanced economies and achieve sustainable growth. But more than anything else, the nation should place top priority on building more nuclear power plants and using more alternative energy sources, while improving its infrastructure to create a better business and residential environment, a French financial executive said.
In an interview with The Korea Times, Jean-Charles Delcroix, CEO of IBK SG Asset Management, also said now is a good time for equity investors to go on bargain hunting for Korean shares, saying Korea will not face a financial crisis like the 1997-98 market meltdown, despite the worsening U.S. financial market turmoil.
“The Korean government should reduce the nation’s dependency on foreign oil. It should invest more on alternative energy such as nuclear energy and solar energy,” Delcroix said. He hailed the government’s recent plan to build 10 more nuclear power plants by 2030 and to raise its reliance on alternative energy sources by five-fold in order to wean itself from fossil fuels.
It seeks to increase the portion of non-fossil fuel energy sources from 4.6 percent of projected overall energy needs at present to 11 percent by 2030, while making nuclear power plants responsible for providing 59 percent of energy needs, up from the current 36 percent
“The nation also needs to improve its public transportation infrastructure, particularly in Seoul and its adjacent areas, as a great deal of productivity and resources are lost in traffic jams. The government should invest more to build additional train and subway systems to help residents move around more easily and reduce crude consumption,” he stressed.
Rate Cut, Stimulus Steps Needed
Touching on the overall status of the Korean economy, it needs more growth-oriented expansionary steps as inflationary pressure has eased over the past few months, Delcroix said, adding the global economy is heading downhill in the wake of the ongoing financial market meltdown.
“The world’s 13th largest economy has been grappling with slower economic growth and high level of prices. But oil prices have fallen below $100 per barrel, so have those of other commodities. With eased inflationary concerns, the Bank of Korea (BOK) should slash its base interest rate to boost the economy,” he suggested.
In September, the central bank kept the rate at 5.25 percent, saying the rate freeze was intended to curb inflation expectations and support growth.
Delcroix continued to insist that the BOK should have cut the rate to help small and mid-sized companies and individuals who have to repay their mortgages. “The stabilized won-dollar rate is the most important precondition for the rate cut because of the concerns about soaring prices through the weak won. But now is the time for the BOK to reduce the rate to lessen the financial burden on individuals and small companies amid slowing income growth and sluggish business conditions,” he said.
Delcroix gave a low score to a series of government economy-boosting policies in recent months, including tax cuts and deregulation. “Tax cuts and property market deregulation steps will have a limited impact on the economy. The government should implement more drastic measures to prop up the struggling construction industry and create a better business environment for both Koreans and non-Koreans,” he said.
The CEO then said Korean companies should make an all-out effort to increase exports by taking advantage of the weak local currency and explore new export markets, adding businesses should also try to carry out a wide range of energy saving measures to cut costs.
Korean Stocks Undervalued
Regarding the outlook for the Korean stock market, Delcroix said recent sharp market corrections were exaggerated, considering the intrinsic value of the Korea equity market. He said now is the time for bargain hunting.
“Most investors are now overwhelmed by a feeling of fear and panic amid the U.S. financial market debacle. They tried to reduce investment risks by dumping stocks in emerging markets. But they should have a wisdom to see the light in the dark,” he noted.
The U.S. economy will rebound first and then Korea will follow suit, stressing either now is buying time or the time is getting closer to buying stocks here, the French executive said.
“I would like to tell retail investors here that it would be more prudent to redeem overseas equity funds and put more money into local stocks, particularly export-oriented ones that will benefit from the won’s weakness. If they want to invest overseas, Vietnamese and Indian shares might be attractive. But they better stay away from China for the moment as the market there doesn’t seem to have hit bottom yet,” Delcroix said.
He said many Korean investors do not diversify their investment portfolios, suggesting that they first should have a regular savings plan to build up a good investment and minimize losses when the market goes down. “For risk averse investors, it would be a good idea now to put a significant portion of money into time deposits and other fixed income products,” he stressed.
2009 Growth to Fall Below 4%
Delcroix projected the Korean economy will expand at a slower pace next year than this, putting the growth rate at between 3.5-4 percent. On top of sluggish private consumption and corporate investment, he said the global economic slowdown will weigh heavily on the nation’s outbound shipments.
“We think the world’s 13th largest economy can achieve such a growth target only if the U.S. undergoes a short and mild recession. Korea’s growth will be much lower next year if the world’s largest economy goes into a deep recession as a result of the ongoing financial crisis. Also, the nation’s real estate market will remain sluggish and corporate investment flat,” he said.
Touching on the U.S. government’s $700 billion bailout package aimed at buying bad assets of troubled financial institutions, Delcroix said the plan will likely help the U.S. economy achieve a soft landing and bound back around mid-2009.
Despite the upcoming massive supply of dollars into the global financial market through the U.S. financial market rescue scheme, the local currency will continue to remain weak against the greenback, he projected.
“There are several factors pushing down the won’s value. We expect the won-dollar rate could increase up to 1,250 won toward the year’s end,” the French executive noted.
Delcroix said Korea’s snowballing current account deficit is creating a dollar shortage here, and together with massive foreign selling of local stocks and bonds in the wake of the global credit crunch, is slashing the value of the local currency.
“More fundamentally, the Lone Star case and non-transparent government policies are making foreign investors nervous about putting money here. Some of them have moved to more stabilized and predictable economies in terms of regulations. A drop in foreign investment has also been contributing to weakening the won,” he said.
Delcroix suggested that the Korean government should play a role in stabilizing the local foreign exchange market, not by directly intervening in the market, but by implementing more consistent and future-oriented policies and restoring international investors confidence in the Korean economy.
Drastic Changes Needed for Financial Hub Plan
As for Korea’s plan to transform itself in a financial hub for Northeast Asia, Delcroix said the probability of the nation achieving the goal under the current circumstances is 40 percent, stressing it should further ease regulation, reduce taxes, improve residential and educational environments, among others.
“Korea cannot achieve the goal unless it dramatically strengthen the competitiveness of its financial industry. Deregulation, tax reform and more incentives for foreigners are needed to create the better financial infrastructure,” he noted.
Delcroix said the nation should not only deregulate the financial market, but also remove uncertainties surrounding the enforcement of the regulations. “The Lone Star saga is enormously hurting Korea’s international image. Regulators should make an every effort to resolve the case as soon as possible and draw up measures to prevent the similar case from happening again,” he emphasized.
The Korean government should also communicate and promote the national brand in a more effective and coordinated way to attract international firms to set up operations here. “The nation seriously needs to work on its international marketing for national brand upgrade by attracting more international conferences and events.”
Delcroix then said Hong Kong and Singapore have become a financial hub in Asia because everybody can speak English there, adding Korea should become a more English-friendly place.
Who is Jean Charles Delcroix?
Delcroix has been serving as CEO of IBK SG Asset Management since July 2007. Prior to coming to Korea, he was a chairman and CEO of Etoile Gestion for four years from 2003. Under his leadership, the company increased assets under management by more than 50 percent to 22.5 billion euros.
Delcroix began his career in 1994 as an analyst on the development of assets and liabilities management at the Credit du Nord, a retail-banking subsidiary of Societe Generale. Two years later, he became the head of economic studies of Credit du Nord.
In 1998, he joined Etoile Gestion, the subsidiary of SG Asset Management. In 2000, Delcroix became the head of fixed income, structured and balanced funds at the company. He graduated from l’Ecole des Mines, one of the top engineering schools in France, in 1993.
