Ministry of Finance and Economy

On September 17, Deputy Prime Minister and Minister of Finance and Economy Koo Yun Cheol convened the Expanded Meeting on Macroeconomic and Financial Stability[1] at the Government Complex Seoul to review developments in global financial markets following the U.S. Federal Open Market Committee’s (FOMC) decision earlier today (Korea time) to raise interest rates, as well as the impact of the conflict in the Middle East on the financial and foreign exchange (FX) markets, and to discuss policy responses.   Participants noted that the U.S. Federal Reserve (Fed) raised its policy rate in light of resilient economic and labor market conditions, persistently elevated inflation, the recent rise in global oil prices, and heightened geopolitical uncertainty. They assessed the market impact of the rate hike to be limited, as the move had already been priced in and overall financial market conditions remained stable. Meanwhile, global oil prices and capital flows will be closely monitored, with particular attention to the Fed’s strengthened commitment to price stability, the possibility of further rate hikes later this year, and upcoming monetary policy decisions by the Bank of Japan (BOJ), the Bank of England (BOE), and other central banks this week. The impact of these developments on Korea’s financial and FX markets will also be reviewed in coordination with relevant authorities.   Participants noted that volatility in the government bond market has increased amid changes in domestic and external conditions, including the U.S. Fed’s recent policy rate hike. Given that such uncertainties at home and abroad are expected to persist, they agreed to closely monitor developments in the government bond market and stand ready to take necessary market stabilization measures in the event of excessive one-sided market movements. The recent rise in lending rates was also reviewed, along with the potential impact of higher interest rates on the repayment burden of vulnerable borrowers. The previously announced support measures for vulnerable borrowers will be implemented as planned, with supplementary measures to be prepared if necessary.   Participants also reviewed the impact of changes in domestic and external economic conditions, including the recent current account surplus, on liquidity in the market. Related fund flows and liquidity conditions will be closely monitored, while their impact on financial and asset markets will continue to be assessed.   Deputy Prime Minister Koo expressed his appreciation to the heads and staff of relevant institutions, including the Bank of Korea, the Financial Services Commission, and the Financial Supervisory Service, for their joint efforts to maintain stability in the financial and FX markets. He also called on the economic and financial authorities to continue to respond swiftly and in a coordinated manner, building on the cooperation framework established thus far.   [1] Governor of the Bank of Korea, Chairman of the Financial Services Commission, and Governor of the Financial Supervisory Service Please refer to the attached files. 

The Ministry of Finance and Economy (MOFE) will take steps to implement concrete projects aimed at taking economic cooperation with Central Asia to the next level, building on the momentum of the inaugural Korea-Central Asia Summit held this week. Amid the recent restructuring of global supply chains, Central Asia is drawing growing attention as a strategically important region rich in energy resources and critical minerals, as well as an emerging market with significant growth potential. Against this backdrop, MOFE plans to conclude a total of four memoranda of understanding (MOUs) in three key areas – ➊ critical mineral supply chains, ❷ high-tech industries, and ➌ foundations for industrial cooperation – and significantly strengthen the foundation for Korean companies to expand into Central Asian markets.   [➊ Critical mineral supply chain cooperation: Securing strategic resources and building a processing ecosystem]   Korea and Uzbekistan will establish a cooperation framework for critical mineral processing, manufacturing, and supply chains to ensure a stable supply of critical minerals essential for high-tech industries. This represents a new cooperation model among the private sector, the public sector, and international organizations, bringing together Uzbekistan’s abundant mineral resources, Korea’s advanced processing and refining technologies, and financial support from the Export-Import Bank of Korea (Korea Eximbank) and the Asian Development Bank (ADB).   Through this initiative, the two countries plan to jointly identify high-value-added processing and manufacturing projects, moving beyond the simple import of raw materials, while systematically supporting Korean companies’ participation in resource development and securing a stable supply of critical minerals.   [❷ High-tech industry cooperation: Expanding cooperation in digital and green transformation and biotechnology]   In the high-tech industry sector, an Economic Development Cooperation Fund (EDCF) feasibility study (F/S) will be launched for the “Biome Center Establishment Project,” a national research facility for genomic analysis and cell storage to be established within the Tashkent Pharmaceutical Cluster in Uzbekistan. The project will integrate innovative AI-based genetic interpretation and analysis algorithms developed by Korean companies into high-tech genomic data analysis and is expected to help Korean medical AI and ICT systems secure an early foothold in Central Asian markets and expand their global exports.   In addition, new projects will be launched under the Knowledge Sharing Program (KSP) and the Economic Innovation Partnership Program (EIPP). Starting later this year, Korea will provide policy advisory support for the establishment of a national R&D center for the semiconductor and electronics industries in Uzbekistan, as well as assistance in developing plans for Kazakhstan’s transition to low-carbon energy sources and the establishment of a smart grid. Through these initiatives, the government plans to expand opportunities for innovative Korean companies in sectors such as IT and energy to secure contracts.   [➌ Foundations for industrial cooperation in infrastructure and finance: Building a foundation for additional K-high-speed rail contracts and export financing]   In the transport infrastructure sector, an EDCF F/S will be launched for Uzbekistan’s planned acquisition of eight additional high-speed trainsets (56 railcars). With support from the EDCF, Uzbekistan became the first country in the world to introduce Korean high-speed trains, which have been successfully operating on the Tashkent-Samarkand route since May this year. Recognizing the strong safety and performance of the Korean high-speed trains, Uzbekistan has requested additional trainsets. Based on the F/S, Korea is also expected to lay the groundwork for follow-up contracts for K-high-speed rail exports in Uzbekistan’s railway market, where there is an urgent need to address aging rolling stock and passenger capacity constraints.   In the financial sector, the Korea Eximbank will provide a USD 70 million credit line for on-lending to ForteBank, one of Kazakhstan’s five largest commercial banks. Under the on-lending program, local companies importing Korean products can receive loans to cover import payments, working capital, and other financing needs. By providing liquidity to local buyers, the program is expected to help boost exports of Korean machinery and equipment, which are in high demand in Central Asia, as well as promising Korean consumer goods and K-beauty products.   Furthermore, Korea and Uzbekistan will build a strategic project identification framework to effectively advance promising cooperation projects. Focusing on Uzbekistan’s six national strategic industries, including critical minerals, AI, and smart cities, the two countries plans to identify mutually beneficial cooperation projects and actively explore ways to provide policy financing support for these projects.   The government will make every effort to ensure that the projects agreed upon at the summit translate into tangible outcomes, including more contracts secured by Korean companies and increased investment and trade. In particular, building on these projects, it will work to extend the successful partnership model to other Central Asian countries.   The government will also continue to develop mutually beneficial, tailored models of economic cooperation that combine each country’s needs in areas such as resources and infrastructure with Korea’s strengths, including its advanced technologies, thereby supporting Korean companies’ expansion into Central Asian markets.   Please refer to the attached files.   

On September 16, the Ministry of Finance and Economy (MOFE) announced that it issued amendments to the Guidelines on Foreign Exchange Affairs of Registered Foreign Institutions (MOFE Public Notice; “RFI Guidelines”) and the Foreign Exchange Transactions Regulations (MOFE Public Notice).   The amendments reflect feedback collected from relevant institutions, industry stakeholders, and experts during the public consultation period (August 24 – September 3), and have undergone all necessary procedures, including regulatory review by the Office for Government Policy Coordination.   The amendments are intended to establish an offshore Korean won settlement system, as announced on July 19 in the “Roadmap for KRW Internationalization,” which sets out a vision for enabling the Korean won to be freely traded overseas. The key amendments are as follows.   First, the amendments establish a regulatory framework for “offshore KRW business,” defined as foreign exchange (FX) business involving the Korean won conducted overseas for non-residents, and for “Registered Foreign Institutions for KRW Business (RFI-K*),” while setting out detailed procedures for registration, modification, and termination.   * Registered Foreign Institution for KRW Business: A KRW-specific license for existing RFIs.   Under the amended notices, foreign financial institutions registered with MOFE will be able to open omnibus accounts with domestic FX banks and settle KRW transactions through the BOK-WireInt, thereby enabling offshore KRW settlement. Eligible customers, however, will be limited to non-resident foreign nationals, excluding foreign financial institutions with deposit-taking functions, such as banks.   In addition, unlimited KRW borrowing from domestic banks in the form of overdrafts will be permitted for settlement purposes, thereby minimizing settlement risk. Reporting requirements for KRW-denominated capital transactions between non-residents will also be waived, except for transactions involving domestic real estate, facilitating freer KRW transactions by non-residents.   Meanwhile, as institutions engaging in offshore KRW transactions, RFI-Ks will be required to verify that their customers, as counterparties to such transactions, are non-residents and to comply with statutory obligations to report information on major transactions to the FX authorities. As with existing RFIs, RFI-Ks will also be permitted to delegate the performance of these obligations to designated agents. The government plans to apply appropriate prudential oversight to RFI-Ks and, together with the Bank of Korea and other relevant institutions, closely monitor their transaction records and compliance with applicable obligations. Please refer to the attached files.