EMTA Special Seminar: Outlook on South Korea (NYC) - June 12

EMTA SPECIAL SEMINAR: OUTLOOK ON SOUTH KOREA
Monday, June 12, 2017 

EMTA
360 Madison Avenue, 17th Floor
(on 45th St. between Madison & 5th Aves.)
New York City 

We are delighted to announce that Governor Bill Richardson, former US Ambassador to the UN, will deliver a keynote address.  Governor Richardson has led private, humanitarian delegations to North Korea and has previously been involved in ad-hoc negotiations with North Korea’s leaders.

Governor Richardson will address “North & South Korea: The Keys to Engagement on the Korean Peninsula”.

This EMTA Special Seminar will also explore the economic, geopolitical and policy-making ramifications of South Korea’s May 9 special Presidential election.  Topics will include a discussion of South Korea’s long-term challenges, its relationship with North Korea, its position as a bellwether for foreign investor confidence, and its competiveness vis-à-vis other Asian economies.

11:00 a.m. Registration

11:30 a.m. – 12:00 noon Keynote Address
Bill Richardson - Former UN Ambassador and Former Governor of New Mexico

12:00 noon – 2:00 p.m. Panel Discussion
Ambassador James Glassman (American Enterprise Institute) - Moderator
Hosuk Lee-Makiyama (European Center for International Political Economy)
Hans Humes (Greylock Capital Management)
Thomas Byrne (The Korea Society)
Atsi Sheth (Moody's Investors Service)
Meral Karasulu (OppenheimerFunds)
 

Lunch will be provided

Support provided by Moody's Investors Service.

Registration fee for EMTA Members: US$95 / US$695 for Non-members / Credentialed Media Complimentary 

Keynote Speaker Bill Richardson and Panelists Discuss Keys to Engagement in the Korean Peninsula 

Former New Mexico Governor, and UN Ambassador, Bill Richardson, delivered a keynote address at EMTA’s Special Seminar on South Korea’s Outlook, held in New York on June 12, 2017 at EMTA’s NYC offices. Governor Richardson’s presentation addressed “North & South Korea: The Keys to Engagement on the Korean Peninsula”. 

James Glassman (Former Under Secretary of State for Public Diplomacy) moderated the panel, with the following panelists: Hosuk Lee-Makiyama (European Center for International Political Economy), Hans Humes (Greylock Capital Management), Thomas Byrne (The Korea Society), Atsi Sheth (Moody’s Investors Service) and Meral Karasulu (OppenheimerFunds). Karasulu’s PowerPoint presentation can be accessed by Clicking Here.

Governor Richardson discussed urgent global securities and market trends, where a major step is to recognize that binding relationships with South Korea and Japan are a necessity, and modulating the “tinderbox” that is North Korea with its unpredictable leader is also a necessity. His envoy work for both recent Presidents for humanitarian and other purposes provided Governor Richardson with a unique perspective on the importance of strategic alliances with South Korea, as well as warranted concern about North Korea’s stances on nuclear testing, missiles and other issues, which may have “catastrophic consequences” as we don’t know what Kim’s end game is. 

While the devil is in the details, with South Korea at an important crossroads, we have the potential for positive change with a new leader who is willing to depart from the past and reform in line with the dynamics of the whole region changing. Ambassador Richardson’s advice to South Korean President Moon to become a first-rate economy and nation included the following: be careful, be calm, keep your powder dry, let the economic situation stabilize, proper balance of domestic and foreign issues is important, stay close to the U.S., your ally, acknowledge that there will be bumps along the way, avoid temptation to alarm and overreact, this is the time to think of national security, the prisoning of businessmen will rile investors, tech innovation is crucial, the path to negotiation is humanitarian conversation, so find ways to engage in a dialogue with North Korea (while recognizing it won’t be easy), and practice steady, commonsense leadership.

On North Korea’s leader, he remarked that he didn’t see any Western values being exhibited by the bellicose 33 year old Swiss-educated man, who wants to marginalize any opposition and who does not negotiate the way the U.S. does with quid pro quos and concessions, but rather waits till the U.S. will come around to the North Korean position on various issues. The only thing that might work with Kim is the diplomatic process.

Governor Richardson also advised that the U.S. work with China to start talking to North Korea and stop them testing missiles (although China does not always vote for tougher sanctions against North Korea) and suggested that the U.S. stay close to South Korea on the Free Trade Agreement, as well as other “soft” power ways (such as joint projects at the border and humanitarian missions) for countries to come together with shared goals.
Glassman posited that South Korea is being challenged economically, politically and security-wise. There is a clear link between security challenges in South and North Korea. Other issues to note include the geopolitics of finance, the rule of law, the financial markets and their reactions to the region and investor value concerns.

Byrne opened his remarks by noting the indicative state of play where Kim would rather meet Dennis Rodman than Governor Richardson. While North Korea continues its missile and nuclear operations, the U.S.’ response alternates between policies of engagement and sanctions. The approaches by the UN and the U.S. have not been consistent and diplomacy thus far has not worked. Comprehensive sanctions (like those imposed upon Iran) have not been used against North Korea. Even limited sanctions imposed on Russia for dealing with North Korea has not stopped North Korea’s behavior. He believes this may be a “crisis with no end”; he has rarely seen such pessimism and despair. Only the stock exchange, foreign investment and bonds are booming (although this may be a deteriorating asset even for China, who is likely, at the same time, to be trying to drive a wedge between the U.S. and South Korea). 

Karasulu stated that South Korea’s new fiscal budget, with the ratio of its contribution of fiscal spending to GDP has been consistently negative, taking away from possible growth potential (which decline is also mainly due to demographics). There’s not much stimulus to be produced and the fiscal policy has to do the “heavy-lifting”. Structural issues that plague the country include aging, labor force declining, population declining (with its attendant implications for domestic demand) and lowest fertility rate (even lower than Japan’s). After the ‘50-’53 war, South Koreans relied on education for social mobility and the society became an egalitarian meritocracy as post-school tutors became the norm. This was a grueling culture for working women who eschewed having more kids as their wage gap to men’s was twice as high as that of any OECD country. Two working classes emerged with a huge gap between them as more workers were kicked out of the workforce earlier than at other OECD countries and it was difficult to get ahead. Other problems affecting their society include the high 49% old age poverty level for a society that reveres its elderly. While the unemployment rate is low, the participation rate among the youth is also very low (which is why they extend their education). She posited that consumption will not come back “on a boom”, but rather “sideways”. They need a “new way of thinking, something that’s out of the box”.
Lee-Makiyama noted that South Korea’s GDP expectations were met, and the country was doing relatively well in a short time, building its regulatory and tax structure. However, foreign direct investment in the economy is missing (as neighboring Asian nations’ ROI are much more attractive) and dependency on exports is very high (two times that of China’s). In addition, the anti-trust regime should be more vigorous, as well as corporate governance generally. He likens South Korea to “Rome [which] can’t bear its ills or cures”.

Sheth recapped the state of play: the North Korean threat is real and more intense because of Kim’s unpredictability, South Korea’s demographics and household debt (at 80% of GDP, although much of it is in variable interest rates and there is no amortization, but rather a bullet payment) have its challenges, and trading and investment is picking up, “but the best we can expect is mediocrity”. And yet, despite all of the foregoing, “markets are sanguine”, “going off a cliff, but consistent”. Rich countries should be exporting capital, not importing it (as Korean corporates seem to be doing). South Korea’s fiscal policy has been “tight” and conservative, the numbers are being revised upwards with respect to the effect of global growth and trading, and if one were to have a geopolitical crisis, it’s better to have it when things are going up. In the late ‘80’s, South Kora was a functioning democracy, with impeachment of the first woman elected (which was a sign of institutional strength). It was a conglomerate-driven economy (different than the Anglo Saxon model, but a business model nevertheless). The pursuit of income growth was paramount. But, of course, there are risks in changing the nature of productivity from a manufacturing to service-based model. Robotics taking over are also a consideration. 

Humes looked at South Korea as an EM tourist in terms of opportunities to be gained. It is not an Emerging Market, it is fully developed and operates with more efficiency and liquidity than many of its neighbors. It is a “powerhouse economy, which happens to be in a bad neighborhood”. In the ’97 post-Asian crisis it did not fall as Mexico did after its crisis. With South Korea coming out of impeachment and another election, it is the best equity market in Asia with 20% dollarized returns. In the fixed income arena, spreads are tight with short-term bank paper, but “if you want disaster insurance with yield, go South Korea”.