U.S. Department of the Treasury

(Archived Content)

Good morning. It is a great honor for me to have the opportunity to address this impressive assembly of Korean business executives.

I am also privileged to be making my first trip to Korea in my capacity as Deputy Secretary of the United States Treasury. I've been to Korea many times before. The importance of this particular visit could not be greater.

I am here to launch a new effort aimed at transforming financial sectors into economic engines of growth. This is a new Bush Administration international economic policy initiative. We are calling it Engines of Growth.

Why is this important to the United States and Korea?

For one, the fate of all our economies is intertwined. Economic growth is not a zero-sum game. When the United States grows, Korea grows. And vice-versa. It's just that fundamental.

For Korea, the consequences of this economic integration are profound. Access to export markets abroad means new growth for the Korean economy and greater profits for Korean firms. But economic integration also has its downsides, and the changing winds of the global economy, no doubt, can be punishing. Hedging against these risks is essential. In this economic landscape, countries like Korea must have strong, efficient financial sectors: in short, domestic engines of growth.

Just look at the United States. Our financial sector is the backbone of our economy. During last year's U.S. economic slowdown, for example, it was innovations in our financial sector - in addition to tax relief measures and monetary easing - that helped fuel the economic recovery we are currently experiencing. It was access to new mortgage products that kept U.S. consumers spending and sophisticated debt instruments that kept businesses investing.

The economic importance of a deep, flexible and resilient financial sector cannot be overstated. Gone are the days when a national airline or government-directed investments in manufacturing are the badges of economic development. In this decade, the great challenge for Asian countries in transition, like Korea, will be financial sector restructuring and development.

Transforming Korea's financial sector into an engine of growth will not be without challenge. But I believe Korea is up to the task. In four short years, Korea has done much of what others in the region have been slower to achieve. Failed banks have been recapitalized. Many non-performing assets have been sold. Financial regulation and supervision has been strengthened. And Korea's capital account has largely been liberalized.

The results are clear. Private banks are once again profitable. Capitalization ratios have improved, and the number of non-performing loans is down. Though many reforms remain, the process of change is well underway.

The next step for Korea - greater openness to foreign presence - will require enlightened policymaking, a deep commitment to openness, and the very best regulatory oversight and enforcement. It will require that economic policymakers forge ahead, despite vested interests. And it may require a new and deeper faith in the markets. I have confidence Korea can succeed. New benefits will abound.

Greater openness to the free flow of trade and investment in financial services would have a tremendous impact on Korea's economy. Openness would continue to attract new sources of foreign direct investment and international expertise. It would reduce the cost of capital. It would greatly expand the range of corporate finance products available. And it would deepen Korea's burgeoning capital market.

Don't just take my word for it. A 2001 World Bank study found that countries with fully open financial services sectors grow, on average, one percentage point faster than other countries. These results corroborate an earlier World Bank study estimating that more open and competitive financial services markets increase national growth rates by 1.3 to 1.5 percentage points. Likewise, a recent WTO study of 27 emerging market countries found that allowing foreign financial firms to establish locally and to engage in a broad spectrum of financial activities contributed to greater financial sector stability.

Let me say a word about regulation and supervision, an area in which Korea is making gains. Every effort should be taken to apply new, transparent methods for drafting and applying regulations. Regulators should seek out the insights of the private sector before creating the rules of the game. We use these methods in the United States.

The U.S. Federal Reserve, for example, regularly publishes proposed regulations and asks for comments from the private sector in a reasonable period of time. During the implementation of our Gramm-Leach-Bliley bill -- which fundamentally reformed the U.S. banking, securities and insurance sectors -- the U.S. Federal Reserve sought out and received hundreds of comments from foreign banks. As a result, it made several significant changes to accommodate the many international banks doing business in the United States. Rules that specify how regulations will be implemented and how applications for licenses will be granted or denied are equally as important.

My mission here in Asia this week has been to engage key policymakers in a dialogue aimed at building momentum for financial sector liberalization. Economic policymakers must collaborate on financial sector development if we are to enjoy sustained economic growth.

Therefore, I leave you with a challenge. Look around the world. Just about every advanced economy has an open financial sector. For these countries, the financial sector is a fast, efficient engine of growth. Yesterday, I asked key economic policymakers to partner with the United States in a senior-level dialogue on greater financial sector openness. Today, it is up to you - the business sector - to ensure that Korea's economic policymakers speed the path of financial sector reform. Closed markets to financial services benefit no one.
Thank you.