The 9th CJK Cooperation Dialogue

CJK Cooperation in the Post Pandemic Era
Session 1：Geopolitics
the current international economy and politics in view of Ukraine crisis
to evaluate the impact of unprecedented outcome
and search for our regional cooperation.

November 15, 2022

Insill Yi (李 仁實)
Chairwoman, Board of Institute for Sustainable Economy and Society
President, the Korean Peninsula Population Institute for FutureStrong economic rebound early
this year is losing momentum.
Waning momentum reflects three formidable
headwinds, which may prove to be persistent1) A sharp tightening of financial conditions,raising government borrowing costs, as
central banks in major advanced
economies continue to raise interest rates
to tame the fastest inflation in decades.
Rapidly depreciating currencies could
further complicate policy challenges.
2) Russia’s invasion of Ukraine, triggering a
sharp slowdown of economic activity inEurope, further reducing external demandfor Asian exports
3) China’s strict zero-COVID policy and therelated lockdowns, coupled with adeepening turmoil in the real estate
sector, has led to an uncharacteristic andsharp slowdown in growth, in turnweakening momentum in connectedeconomies.

In most economies, core inflation is above target and output isnearing its potential.
Fiscal and Monetary Policy in Asia

Core Inflation and Output Gaps for 2022 in Asia

- Sign of fragmentation pressures comes from measures of tradepolicy uncertainty.
- This measure spiked in 2018 amid tensions btwn U.S. and China.
- have increased again amid Russia’s invasion of Ukraine, assanctions on Russia created uncertainty around future traderelations.
<graph 1>Trade Fragmentation in relation to Specific Events

Source : “Asia and the World Face Growing Risks From Economic Fragmentation” by the IMF Asiaand Pacific Department’s Diego Cerdeiro, Siddharth Kothari and Chris Redl October 27, 2022,

- A typical shock to trade policy uncertainty, like the 2018 buildup of US-Chinatensions, reduces investment by about 3.5% after two years, decreases GDP by0.4%, raises unemployment rate by 1%p.
- Adverse scenarios such as where the world divides into two blocs (along thelines of the March 2022 United Nations General Assembly vote demanding Russia
end its invasion of Ukraine), with trade restricted between countries in favor andthose against or abstaining.
- Permanent global annual losses are estimated at 1.5% of GDP, with larger losses
in Asia and Pacific countries at over 3% of GDP.
- Losses are larger in countries where trade with the other bloc is significant, due
to a loss of export markets and splintering of complex production networks.
<graph 2><graph 3>

• Difficulties in implementing Korean economic Policies are aggravating due
to internal and external imbalances and deterioration of corporate
profitability high debt ratios in both public and private sector.

But, it is still an external creditor country, and the proportion of shortterm debt is low, stable, and has sufficient foreign exchange reserves.
Japan, China and South Korea should play an active role in concert, asstrong international cooperation is needed to prevent further geoeconomic divisions and ensure that trade helps growth.
Asia’s Public Debt (%of GDP),

short-term and long-term external debt(blue), foreignexchange reserves (red),Foreign exchange reserves of major countries (2022.9)(bln US$)rank

country

Foreign ex rev

rank

country

Foreign ex rev

1

China

3,029.0(-25.9)

6

India

532.7(-27.7)

2

Japan

1,238.1(-54.0)

7

Saudi Arabia

467.3(+10.7)

3

Swiss

892.1(-57.0)

8

Hong Kong

419.2(-12.6)

4

Taiwan541.1(-4.4)

9Korea

416.8(-19.7)

5

Russia540.7(-25.0)

10Brazil327.6(-12.1)

Note: ( ) is the amount of increase or decrease compared to the end of the previous month
Sources: 1) IMF, Central bank websites

Composition of Foreign Exchange Reserves(bln us $, %)2022.9(a)2022.10
(b)

2018

2019

2020

2021

(b-a)

Total f.e.r.

403.69408.82443.10463.12416.77414.01(100.0)-2.76

Securities1)

379.60385.02409.84421.69379.41362.35(87.5)

17.06

Deposit

13.73

12.85

20.28

16.63

14.19

28.29

(6.8)

14.1

SDR

3.43

3.35

3.37

15.37

14.15

14.31

(3.5)

0.16

IMF posotiom2)

2.14

2.79

4.82

4.63

4.23

4.26

(1.0)

0.03

Gold

4.79

4.79

4.79

4.79

4.79

4.79

(1.2)

0.0

Note: 1) Government bonds, government bonds, corporate bonds, asset-backed securities (MBS, covered bonds), etc.
2) IMF-related claims held by IMF member countries through share capital, loans, etc.
Source: BOK

Thank You!