Ministry of Economy and Finance

Following are key messages of Deputy Prime Minister Koo Yun Cheol’s Remarks.   Recently, the Korean economy has experienced a rapid decline in its potential growth rate due to a shrinking working-age population, subdued investment, and stagnant productivity, while actual economic performance has fallen short of this potential.   In addition, the competitiveness of Korea’s traditional key industries is being eroded by China’s rapid catch-up, while progress in fostering new growth engines has been slow.   External conditions are also increasingly challenging. The global trade order is undergoing a fundamental shift toward protectionism and national interest first, placing not only small and medium-sized enterprises (SME) but also large enterprises in an emergency situation.   It has become increasingly difficult to identify industries that can serve as the pillars of our economy, leaving us in an urgent situation.   However, Korea possesses a unique strength as the only nation in the world that has successfully transitioned from a developing country to a developed economy.   Together with the great people of Korea, who have achieved the most remarkable national prosperity in our history, we will overcome the barriers of low growth and embark on a new leap forward.   However, this will by no means be an easy task. Our past success stories were written in the context of a catch-up economy. Now, our competitors are ten or so advanced nations that are already at the forefront of the global stage.   To prevail in this competition, we must undertake a comprehensive transformation of our entire nation system - originally designed for a catch-up economy - into one geared toward a leading, innovation-driven economy.   In the global marketplace, a nation’s competitiveness depends on how many world-class products and services it can create.   The government will set specific breakthrough core technologies as strategic targets and mobilize all available national capacities – including fiscal, tax, financial, human resources, industrial sites, and regulatory easing – to provide focused support for the development of world-class products and services.   To this end, the government will select 30 flagship projects pertaining to AI transformation and the ultra-innovative economy and implement them immediately in the second half of this year.   With enterprises taking center stage, the government, together with universities, research institutes, and the entire nation, will mobilize all-out efforts to ensure the creation of tangible results within a short period of time.   First and foremost, AI transformation represents the only breakthrough to reverse the decline in growth caused by demographic shocks.   Fortunately, Korea is well-positioned, with a solid IT foundation such as optical cables and high bandwidth memory (HBM), accumulated manufacturing know-how, and an abundant stock of data – the very “rice of the AI era”. This is a golden opportunity that must not be missed.   [AI transformation]   AI transformation will be implemented not only in enterprises and the public sector, but also throughout the daily lives of all citizens. To this end, 15 flagship items have been selected.   -          With an aim to become the world’s leading nation in “Physical AI”, which combines manufacturing with AI, seven flagship projects will be promoted, including AI robots and AI automobiles. -          In the public sector, beginning with three flagship projects – AI-based welfare and employment services, AI-driven tax administration, and AI-enabled new drug review – we will gradually              introduce AI into all areas of its operations. -          We will also devote efforts to nurturing AI talent. Beyond training AI specialists, the “AI Koreanization” initiative will be pushed forward, allowing all citizens to learn and use AI as easily as they           use Hangul, the Korean alphabet. At the same time, much effort will be made to strengthen the foundations for AI transformation by boosting data utilization and enhancing national             cooperation on AI.   [Ultra-innovative economy]   The government will also vigorously advance the 15 flagship projects to realize the ultra-innovative economy.   -          We aim to achieve technological self-reliance in five high-tech materials and components, including silicon carbide (SiC) semiconductors and superconductors. -          We will also promote six flagship projects to address climate, energy, and future challenges, including green hydrogen and small modular reactors (SMRs), smart agriculture and fisheries, and             ultra-high-resolution satellites. -          We will pioneer new export markets through four major “K-Boom” projects, including K-Bio and pharmaceuticals, K-Contents, K-Beauty, and K-Food.   Strengthened efforts will be made to ensure that all citizens can enjoy the opportunities and benefits of growth arising from AI transformation and the ultra-innovative economy.   Existing key industries such as petrochemicals, steel, and defense will be modernized through the innovation of manufacturing process using AI and the transition to low-carbon, high-value-added production; focusing on 30 flagship projects, we will also cultivate regional growth engines across super metropolitan areas to achieve balanced regional development.   Promising venture companies will be identified via AI contests, and will be granted bold support through programs such as the National Growth Fund and the Korea Fund of Funds. We will also expand the deployment of AI-based smart factories to enhance the productivity of SMEs.   [Improving people’s livelihood economy]   The government will also strive to revitalize the real economy and people’s livelihoods.   -          We will strengthen fundamental competitiveness of small businesses by developing sector-specific products and services as well as specialized commercial districts, while alleviating immediate              challenges such as financial burdens. -          For low- and middle-income households, we will bolster social safety nets such as the Basic Livelihood Security Program, retirement pensions, and financial support for the underprivileged,             while easing the burden of living expenses, including transportation, telecommunications, and food costs; concerted efforts will be made to support the youth through AI-focused education,             housing assistance, and asset-building programs.   Through these efforts, our goal is to build a great Korea – emerging as one of the top three AI powers, a nation with 3% potential growth and a top five national power, and realize a virtuous cycle of national development and people’s well-being. Please refer to the attached files. 

On August 20, Deputy Prime Minister and Minister of Economy and Finance Koo Yun Cheol chaired the Ministerial Meeting on Strengthening Industrial Competitiveness at the Government Complex-Seoul.   In his opening remarks, DPM Koo noted the signing of a business restructuring agreement involving ten major petrochemical companies. He stated that each company will be required to submit a detailed restructuring plan by the end of the year, with the goal of reducing production capacity by up to 3.7 million tons in Naphtha Cracking Center (NCC) facilities.   DPM Koo stressed that the key to overcoming the current challenges lies in reducing excess capacity and fundamentally strengthening competitiveness. He also highlighted that petrochemical companies and their major shareholders must present binding business restructuring and competitiveness enhancement plans with a sense of urgency.   The government, for its part, will not stand by but will fully carry out its responsibilities. Led by the Ministry of Trade, Industry and Energy, it will work in close consultation with industry so that the self-rescue efforts of companies and major shareholders can be duly incorporated into restructuring plans. The Financial Services Commission, together with creditor financial institutions, plans to step up monitoring of companies’ financial conditions and self-rescue efforts. If the plans submitted by industry are deemed genuine, the government will in turn provide timely support through comprehensive measures, including regulatory easing, financing, and tax assistance. At the same time, firms that postpone restructuring or attempt to free-ride will face stern measures, such as exclusion from future government support.   DPM Koo noted that, fortunately, Korea has the successful precedent of the shipbuilding industry, which made a remarkable comeback through painful restructuring efforts. He emphasized that the shipbuilding industry’s intensive self-rescue measures bore fruit, allowing it to reclaim the world’s No.1 position and make a decisive contribution to the recent Korea-U.S. tariff negotiations; while acknowledging that the process may be painful, if the petrochemical industry follows in the footsteps of shipbuilding, it too can achieve a dramatic resurgence.   Last but not least, he called for joint efforts between the public and private sectors to achieve a strong rebound in the petrochemical industry, affirming that if industry takes on restructuring with a resolute determination, the government will do its utmost to provide support. Going forward, the government will convene the Ministerial Meeting on Strengthening Industrial Competitiveness on a regular basis to closely monitor the progress of restructuring and to promptly design and implement necessary measures. Please refer to the attached files. 

Korea’s external debt stood at $735.6 billion at the end of the second quarter (Q2) of 2025, up $52.1 billion from $683.4 billion at the end of the previous quarter.   The ratio of short-term external debt to total external debt (21.9% in Q1 2025 → 22.7% in Q2 2025) and the ratio of short-term external debt to total reserves (36.5% in Q1 2025 → 40.7% in Q2 2025) both showed a slight increase compared with the end of the first quarter. Nevertheless, these indicators remain within historical ranges as a stable level. The foreign currency liquidity coverage ratio (LCR), which reflects domestic banks’ ability to service external debt, stood at 153.4% at the end of the second quarter, well above the regulatory requirement of 80%.   External Debt, Q2 2025        (US $billion)   2024 2025 Change (q-o-q) Q1 Q2 Q3 Q4 Q1 Q2 Total debt 671.2 665.7 705.0 672.9 683.4 735.6 +52.1 -Short-term 141.1 142.1 158.4 146.5 149.3 167.1 +17.7 -Long-term 530.0 523.6 546.5 526.4 534.1 568.5 +34.4 Ratio of Short-term Debt to Total External Debt (%) 21.0 24.6 22.5 21.8 21.9 22.7 +0.9%p Ratio of Short-term Debt to Foreign Exchange Reserves (%) 33.7 39.4 37.7 35.3 36.5 40.7 +4.3%p External Assets in Debt Instruments 1042.5 1035.1 1072.5 1060.0 1051.3 1092.8 +41.4 Net External Assets in Debt Instruments 371.4 360.8 367.6 387.1 367.9 357.2 -10.7 *Source: International Investment Position (IIP) Q2 2025 (preliminary, Bank of Korea, August 20, 2025) Please refer to the attached files.