Ministry of Finance and Economy

First Vice Minister of Finance and Economy Lee Hyoung Il chaired a joint emergency response meeting (held via conference call) on March 3 to discuss the situation in the Middle East, its impact on domestic and global financial markets and the real economy, and future response measures.   Global oil prices, which had opened sharply higher the previous day reflecting heightened geopolitical risks, later showed a partial pullback in gains amid continued volatility. Meanwhile, equity markets showed mixed performance in Asia, while the U.S. S&P 500 posted modest gains. Major European indices declined, and the U.S. dollar index rose amid strengthened safe-haven demand. Participants agreed that, given the high uncertainty surrounding future developments, the government will continue to monitor domestic and global energy and financial markets on a 24-hour basis. Also, in the event of unusual market movements, it will swiftly take necessary measures in close coordination among relevant agencies, including through the market stabilization program totaling at least KRW 100 trillion.   In addition, unfair market practices, including the spread of false information that exploits investor anxiety, will be dealt with strictly under a zero-tolerance principle, applying a one-strike-out policy.   Participants also reviewed the energy supply situation, maritime logistics in the Middle East region, and measures to support affected small and medium-sized enterprises (SMEs). Although tensions surrounding the Strait of Hormuz have been escalating, there have been no indications to date that Korean vessels in the Middle East are at risk at this time. Furthermore, it is assessed that sufficient strategic petroleum reserves are in place, even in the event of a prolonged situation. However, as a contingency measure in preparation for a potential closure of the Strait of Hormuz, efforts will be made to secure alternative supplies from regions outside the Middle East. The government plans to closely assess the damage and difficulties reported by business through the website of the Ministry of SMEs and Startups (www.smes.go.kr), and to provide necessary assistance in a timely manner. In particular, the Export-Import Bank of Korea (KEXIM) will launch a “Special Crisis Response Program,” offering preferential interest rates of up to 2.2%p to SMEs and middle market enterprises; a total of KRW 20.3 trillion in financial support programs will be provided through KEXIM (KRW 7 trillion), the Korea Development Bank (KDB)(KRW 8 trillion), the Industrial Bank of Korea (IBK)(KRW 2.3 trillion), and the Korea Credit Guarantee Fund (KODIT) (KRW 3 trillion).   First Vice Minister Lee Hyoung Il stated that, in light of elevated uncertainty in the Middle East, relevant agencies should keep all possibilities open and closely monitor the evolving situation. He further urged that until the situation stabilizes, joint emergency response meetings among relevant agencies will be held on a daily basis to ensure swift responses to any future changes. Please refer to the attached files.

On February 27, the Ministry of Finance and Economy (Director General for Development Finance Moon Ji-sung) held the first Korea-Green Climate Fund (GCF) Annual Consultation with the GCF (Executive Director Mafalda Duarte) at the GCF Seoul Office.   During the annual consultation, the GCF presented its key achievements in carbon mitigation and adaptation, as well as its strategic direction going forward, including institutional reforms and resource mobilization efforts in response to growing demand for climate projects from developing countries. The Korean side welcomed these developments.   In particular, during the consultation, both sides agreed to establish a high-level tripartite consultative body involving the Ministry of Finance and Economy, the GCF, and the Global Green Growth Institute (GGGI), and to hold regular meetings on an annual basis. Through this consultative body, the three institutions will explore avenues for cooperation in promising climate-related sectors, including AI, energy transition, and carbon finance. The establishment of the high-level tripartite consultative body is expected to serve as a significant milestone in strengthening cooperation between the Korean government and climate-related international organizations headquartered in Korea, while also contributing to Korea’s efforts in international climate action.   In addition, the two sides discussed the conversion of greenhouse gas emission reductions generated from GCF-financed projects into carbon credits, as well as the Fund’s potential participation in the Global Voluntary Carbon Market (GVCM), currently being promoted by Korea.   The two sides discussed detailed procedures for implementing the Memorandum of Understanding (MOU) on the establishment of a GCF Junior Professional Officer (JPO) program, which was signed during the meeting between Deputy Prime Minister and Minister of Finance and Economy Koo Yun Cheol and Executive Director Mafalda Duarte in October last year, and agreed to make efforts to select JPOs within this year.   The Ministry of Finance and Economy and the GCF agreed to hold the next annual consultation in early 2027.   Please refer to the attached files. 

▶   Diversifying FX Channels for Japanese Investors and Supporting Smoother Investment in KTBs   On Tuesday, February 24, a pilot third-party FX transaction—comprising one spot and one forward transaction—was executed with a Japan-based RFI* (MUFG Bank, Ltd.) acting as the FX bank, and was successfully completed, with fund settlement finalized on Thursday, February 26.   * Registered Foreign Institution (RFI): A foreign financial institution located overseas that is registered with the Korean foreign exchange authorities after meeting the requirements prescribed under the Foreign Exchange Transactions Act to directly participate in Korea’s FX market.   Third-party FX refers to a transaction structure in which an investor executes a foreign exchange transaction with an FX bank of its choice, such as a Registered Foreign Institution (RFI), while settlement is carried out through the investor's custodian bank (see reference). In particular, if third-party FX transactions through Japan-based RFIs become more active, Japanese investors will be able to compare the prices offered by their global custodian banks, with those offered by Japan-based banks with strong local accessibility, and choose the most advantageous option.   To enhance the convenience of FX transactions for foreign investors, the Korean government has pursued institutional improvements, including permitting third-party FX transactions (July 2023). As a result, numerous third-party FX transactions have taken place in major financial centers such as London, New York, Hong Kong, and Australia. In Japan, however, the implementation of third-party FX transactions had been somewhat delayed.   On February 24, an asset management company in Japan successfully conducted a pilot third-party FX transaction. While continuing to use the existing settlement transmission channel via a master trust bank* (Custody Bank of Japan, Ltd.) and a global custodian, the company separately executed the KRW conversion through a local Japan-based RFI (MUFG Bank Ltd.) and directly remitted the converted funds to its domestic custodian bank in Korea (see reference).   * A specialized Japanese trust bank that comprehensively performs FX, custody, settlement, accounting, and reporting functions on behalf of asset managers and pension funds.   In addition, the transaction comprised one spot trade (Spot: the client selling JPY and purchasing KRW) and one forward trade (Forward: the client selling KRW and purchasing JPY), thereby confirming that forward transactions can also be supported under the third-party FX framework. This pilot third-party FX transaction is particularly significant as it marks an important step toward broadening the range of FX channels available to Japanese investors. If the third-party FX becomes further activated, they are expected to facilitate Japanese investors' participation in Korean Treausury Bonds, ahead of Korea's upcoming inclusion in the World Government Bond Index (WGBI) this April, as Japanese investors constitute a significant share of global WGBI-tracking funds.   Going forward, the government will continue to actively support third-party FX transactions conducted by Japan-based RFI-registered banks* and will further improve transaction conditions in cooperation with master trust banks and global custodians, thereby promoting greater utilization of third-party FX transactions among Japanese investors.   * Third-party FX transactions by banks such as HSBC Tokyo and State Street Tokyo are also forthcoming. Please refer to the attached files.