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  • 글로벌 기후금융의 현황과 발전방향: 녹색채권을 중심으로
    Current Development and the Future of Global Climate Finance: Focusing on Green Bonds

    The mitigation and adaptation of climate change require large-scale investment in green projects. Green bonds, which are liquid financial instruments used to finance climate mitigation, adaptation, and green projects, have shown r..

    Jiyoun An et al. Date 2022.06.30

    Capital market, Environmental policy
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    The mitigation and adaptation of climate change require large-scale investment in green projects. Green bonds, which are liquid financial instruments used to finance climate mitigation, adaptation, and green projects, have shown rapid growth in issuance in recent years. Besides financing for climate change, green bonds help ESG management by enhancing the issuer’s reputation for eco-friendly activities. Further, they may create, namely, greenium to reduce the cost of financing.

    In 2007, green bonds were first issued by multilateral development banks such as the European Investment Bank and the World Bank. The global issuance volume of green bonds soared from about $800 million in 2007 to $320 billion in 2020, and the total cumulative volume reached $1.5 trillion by October 2021. In 70 countries, sovereign institutions and private companies issued green bonds. The issuance by private companies accounted for 77.9% of the total number of issuance and 63.9% of the total amount. Financial companies accounted for 46.0% of private issuances, higher than non-financial companies, 31.9%. In 40 countries, the public sector, such as the central and local governments, public corporations, and public institutions, issued green bonds, accounting for 25.6% of the total issuance volume. Although developed regions such as Europe and the United States and international organizations have been leading their issuance, it is notable that emerging countries such as China are fast increasing the issuance recently. Since a Korean institution first issued green bonds overseas in 2013, by October 2021, the total stock of green bonds issued at home and abroad by Korea’s public institutions or private companies reached 43.5 billion dollars. In particular, the issuance of green bonds in 2021 increased explosively, approximately ten times more than in the previous year.

    Green bonds need a regulatory system defined as the institutional framework regarding the requirements for being a green bond and the means of verifying the requirements and of penalizing for their violation. The International Capital Markets Association (ICMA) and the Climate Bonds Initiative (CBI) presented the Green Bond Principles as the basis for the green bond regulatory framework. These principles aim to strengthen the credibility of green bonds, expand financial support for carbon reduction and responses to climate change, reduce the risk of greenwashing, and set up standards for certification of climate bonds. The Green Bond Principles outline the four core components of green bonds: use of proceeds, the process for evaluation and selection for projects, management of proceeds, and ex-post reporting. Countries specify their green bond guidelines based on these principles, and issuers of green bonds introduce a green bond management regime consistent with these principles.

    As a result of statistical analysis on the determinants of the issuance size of green bonds in a country, it is found that the higher the readiness for climate change and the higher the vulnerability to climate change, the greater the issuance of green bonds. However, there appears to be no statistically significant relationship between the size of greenhouse gas emissions and the issuance of green bonds. Among macroeconomic variables, the income level, the sovereign credit rating, and the level of financial market development are positively associated with the size of green bonds issuance at a significant level.

    Based on the considerations of the recent green bond issuance trend, the development of the regulatory system, and the determinants of the growth of the green bond market, this study suggests policies to nurture the green bond market in Korea: 

    First, upgrading the domestic regulatory system for green bonds is necessary. The regulatory system in first-mover countries is changing its emphasis from self-regulation and ex-ante procedure-centered regulation to binding legal regulation and ex-post performance and impact regulation. While updating the green bond regulatory system, Korea needs to closely analyze the EU regulatory system and make its system closer to the EU one. Second, it is necessary to induce the growth of credible and competent external review institutions, which are crucial to the credibility of green bonds and the market’s growth. To this end, the government can consider introducing a certification system of external review institutions until the market’s self-regulation works effectively. Third, the government needs to issue sovereign green bonds, which may help build best practices for issuing and managing green bonds in Korea. Finally, it is necessary to expand the base of green bond issuers by inducing more companies, such as mid-sized companies, to issue green bonds. To this end, the government needs to consider temporarily subsidizing the incidental costs associated with the issuance of green bonds, such as external review costs.
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  • 인도의 對아프리카 협력 현황 및 정책적 시사점
    Implications of India’s Africa Policy for Korea

       As Africa rises in both economic and demographic terms, India, as the largest country of import after China, is becoming one of Africa’s core partner countries. The size and share of Africa’s import from India has g..

    Hyoungmin Han and Yejin Kim Date 2022.05.27

    Economic development, Economic cooperation India and South Asia
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       As Africa rises in both economic and demographic terms, India, as the largest country of import after China, is becoming one of Africa’s core partner countries. The size and share of Africa’s import from India has grown from $18.7 billion (3.7%) in 2010 to $30.2 billion (5.4%) in 2019. While Korea is also regarded as Africa’s emerging partner, import from Korea has dwindled during the same period, from 8th largest to 17th. In terms of export value, it has decreased from $16.8 billion to $10 billion. This book examines India’s strategy and policy towards Africa with regards to the deepening cooperation between India and Africa. It seeks to derive policy implications for future cooperation between Korea and Africa by analyzing India’s current trade with Africa and her strategies through quantitative tools and case studies. 
       While the Asia-Pacific, Europe, North America and the Middle East are the largest regions of import for Africa, India is the largest country, accounting for 9.2% of Africa’s total import in 2019. India's exports to Africa have traditionally headed towards Southeast African countries, where many countries belong to the Commonwealth, and to the islands located in the Indian Ocean. However, export trends have recently skewed towards northwestern Africa, especially Nigeria and Egypt, whereas exports to South Africa, with whom India has had strong economic relations, have decreased, resulting in the diversification of Indian exports to Africa. The composition of export items is mixed and includes high value-added products such as chemicals, machinery, and electronics as well as low value-added products such as shoes, stone materials and glass. 
       In terms of investment, India is a major investor in Africa, following that of Europe and South Asia. India’s investment value in 2020 totaled $3.57 billion. At the country level, most of India’s investment is in Mauritius while investment in Mozambique has gradually increased. Investments in Nigeria, Kenya and South Africa have also expanded. Areas of investments have seen change from manufacturing to service in Mauritius, and from manufacturing to construction in Nigeria. On the other hand, India’s investment in South Africa is relatively small compared to its export value, and is rather focused on the manufacturing sector compared to the service sector. India’s investment in Kenya has increased significantly under the Modi administration. Manufacturing and services account for the largest portion in Kenya. 
       In the area of development cooperation, India’s annual aid to Africa averaged $800 million over the past 10 years. Although development aid to Asia has greatly increased since the Modi administration, India’s aid has largely been directed towards Africa throughout the years, covering 34 African countries. India’s development loans have been utilized for infrastructure development and also for projects specifically intended to strengthen security ties. Also, through its partnership with the private sector, the Indian government has strengthened cooperation in the areas of agriculture, energy, health and IT. India also deploys trilateral partnerships with advanced economies such as the US and UK in its cooperation with Africa. 
       One characteristic of India’s cooperation with Africa is that India emphasizes commonalities with Africa, such as its colonial history, alliance to the “Third World” or their emphasis on market diversification, to build ideological and economic consensus on which they have strengthened their partnership. The numerous presence of overseas Indians in Africa also factor into India’s interest in Africa. The overseas Indian population in Africa grew with the expansion of the British empire during imperialism, reaching the current total of 2.85 million. Countries with the largest Indian population are South Africa, Mauritius, Kenya and Tanzania, which are also India’s main trade and investment destinations. 
       India’s cooperation strategy for Africa materialized in the Singh administration. Noticeable state level cooperation began with the India-Africa Summit in 2008, whereas cooperation within the private sector channels was launched in 2005 through the CII-EXIM Bank Conclave on India-Africa Project Partnership. 
       India’s Africa strategy can be divided into financial support and capacity building. On the financial side, India introduced the Indian Development and Economic Assistance Scheme (IDEAS) in 2005 to provide development loans to developing countries, with India’s development loans estimated to reach $12.5 billion in 2019. Although the conditions of India’s loans are unfavorable compared to that of Korea’s in terms of interest rates and repayment periods, they are actively sought by African countries because of the wide range of products and services covered by the loan. India’s support includes infrastructure development, capacity building, as well as military supplies and training, particularly because India stresses a demand-based partnership.
       On capacity building, India’s support has channeled mainly through the Indian Technology and Economic Cooperation (ITEC) and Pan-Africa e-Network (PAEN) platforms. ITEC focuses on the capacity building of civil servants in partnering countries and has operated in 160 countries since 1964. African participants compose 40% of ITEC graduates. Participants of ITEC are funded by the Indian government. ITEC provides more than 300 programs a year covering a diverse range of studies including finance, IT, and environmental studies. Since 2018, it also provides cultural training programs for yoga and meditation. India seeks to strengthen security partnerships with its neighboring countries through ITEC by providing special military training programs as it holds concerns for the security of the Indian Ocean against the growing Chinese influence in the region, and with the launch of the Quadrilateral Security Dialogue. 
       Meanwhile, the Pan-African e-Network (PAEN), which was launched in cooperation with the African Union (AU), sought to strengthen the connectivity of the African continent and provide universal online education. Through PAEN, the Indian government established wireless networks in selected African countries, through which online medical and academic teaching was provided by higher education institutions and medical institutions based in India. 
       In summary, India’s Africa cooperation policy shows four characteristics: 1) it is demand-driven; 2) presents a “South-South” cooperation model, different from that of developed countries or China; 3) utilizes India’s developmental experience in institutional and capacity building; and 4) is supported by the Indian overseas residents in Africa. 
       Based on the analysis above, this study proposes the following policy directions to strengthen Korea’s cooperation with Africa. First, Korea’s cooperation strategy with Africa should be segmentalized to reflect the different demands of Africa’s sub-regions and fields (topics) of cooperation. India has recently increased its level of cooperation with Western and North Africa, along with the southeastern African region where the Indian diaspora are most populated. India also tailors its strategy to respond to the demands of Africa. For example, PAEN supports the AU’s mission to strengthen connectivity within Africa. The Indian government also uses the CII-EXIM Bank Conclave as a platform to gather information on Africa’s market demands and engage the Indian private sector in meeting Africa’s needs. In terms of identifying competitive fields of cooperation, India actively emphasizes its strength as an IT powerhouse in forming cooperation platforms with Africa. Although the Korean Ministry of Strategy and Finance, Ministry of Foreign Affairs, and the Ministry of Trade, Industry and Energy each hold high-level forums with Africa, a coordinated and specific strategy and actionable programs have not fully materialized. With different market characteristics and cultural norms, different strategies should be articulated for the different sub-regions and economic communities such as COMESA, SADC, and ECOWAS. Moreover, many of Korea’s cooperation programs share and build on lessons from Korea’s past development experience. However, Korea should also be able to create programs in areas that it has strengths in such as mobile and online finance, entertainment, and ICT. 
       In addition, Korea should also create and strengthen a chain for cooperation with Africa. Currently, much of Korea’s cooperation with Africa is development-oriented. However, in consideration of Africa’s resources and its market potential, Korea should engage in strengthening trade and investment, and also enhance partnerships with the private sector. India’s cooperation model exemplifies how the government can efficiently support market demands identified by the private sector. Areas of cooperation identified at the CII-EXIM Bank Conclave are linked and supported by the government through public initiatives such as the IDEAS and ITEC. Creating a chain of partnership between the private sector and the government as such, could increase policy effectiveness. Strengthening and coordinating the activities of KOICA, KOTRA and KITA would be a step in building this chain of cooperation. 
       Finally, the study proposes triangular cooperation between Korea, India and Africa. India is emerging as a global production hub and is increasing its influence in the global supply chain. India’s market value and the government’s policies supporting the nurturing of the manufacturing sector have enhanced the linkage between Korean-Indian production networks, while an increasing number of Korean firms are entering India for both production and export purposes. India is a key partner of the African Continental Free Trade Agreement (AfCFTA), and vigorously supports systems such as the Production-Linked Incentive (PLI) scheme that encourage domestic production and export expansion, enabling the formation of a Korea-India-Africa value chain. In order to do so, increasing the production link between Korea and India is required through negotiations on improving the Korea-India CEPA and the Korea-India Joint Initiative, as well as increasing trade links by supporting cooperation on the automation of customs.
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  • 코로나19의 인도 사회·경제에 대한 영향과 시사점
    The Social and Economic Impact of Covid-19 in India

    The Covid-19 pandemic led to significant reductions in economic activity across the world. In India, the Covid-19 pandemic has also created unprecedented disruptions in the labor market including employment loss and a decline in i..

    Yoon Jae Ro and Seung Jin Cho Date 2022.05.27

    Economic cooperation, Labor market India and South Asia
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    The Covid-19 pandemic led to significant reductions in economic activity across the world. In India, the Covid-19 pandemic has also created unprecedented disruptions in the labor market including employment loss and a decline in incomes. Furthermore, the Covid-19 pandemic is having unequal impacts on the consumption of Indian households. 
    In this paper, we investigate the impact of the Covid-19 pandemic on Indian households. We examine the impact of lockdown measures that India imposed during the first and second years of the pandemic. The first lockdown in India was from March 25th, 2020, to May 31st, 2020, which was considered the longest lockdown during the Covid-19 pandemic. The second lockdown was from April to June 2021. We focus on the differential impact of these shocks on employment, income, and consumption, using data from a large household panel survey. 
    Firstly, we observe large and heterogeneous reductions in employment and income in formal and informal segments of the labor market in India. Informal wage workers were significantly more vulnerable to the loss of employment than formal workers during the lockdown. Furthermore, income declined significantly more for the households of the informal wage worker. There was a differential impact of the shocks on labor market outcomes for male and female workers. We find that women were more likely to lose employment during the lockdown, and more likely to not return to work subsequently post the lockdown relative to men.
    Second, we document the impacts of the lockdown on household consumption. We find that consumption decreased the most for the households with initially higher pre-pandemic income. Also, this group has the slowest recovery rate to the pre-pandemic consumption level. For all households, the consumption of food and fuel dropped less than the consumption of durables. 
    When the labor market fluctuates rapidly due to the economic downturn, the harm is relatively concentrated on the low-income and vulnerable groups. This study shows the Covid-19 pandemic caused great economic damage to women and informal workers, who are the most vulnerable groups in India. 
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  • 일본 디지털전환 정책의 평가와 시사점
    Japan’s Digital Transformation Policy and Implications for Korea

       This study takes Japan's digital transformation policy as a research topic after the COVID-19 pandemic. The scope of digital transformation is relatively broad, such as digital government, digital transformation of in..

    Gyupan Kim Date 2022.05.20

    ICT economy, Industrial policy
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       This study takes Japan's digital transformation policy as a research topic after the COVID-19 pandemic. The scope of digital transformation is relatively broad, such as digital government, digital transformation of industries, and building of digital industrial infrastructure.
       First, the Japanese government's digitalization in the administrative field, that is, the digital government policy, focuses on regulatory reform in the public domain, standardization of information systems between the government and local governments, and regulatory reform in the private sector.
       There is a general recognition that Japan is lagging behind Korea in terms of digital government, but in the field of private use of public data, Japan has already enacted the ‘Public-Private Data Basic Act’ in 2016 and many local governments have established public-private data utilization promotion plans. In Korea, among the so-called '3 Acts on Digital Transformation' submitted to the National Assembly in June 2021, the ‘Data Basic Act’ can be highly evaluated in that it lays the legal foundation to promote the use of public data by the private sector. However, it seems that the work of building a public information data base like Japan's 'Base Registry' should be accelerated.
       In relation to regulatory reform, the Korean government needs to closely review the Japanese government's permit for telemedicine in the course of responding to the COVID-19 pandemic. The Japanese government's regulatory reform in the medical field is ahead of Korea's as shown in the permission of online sales of over-the-counter drugs in 2014.
       Second, this study analyzed the Japanese government's digital transformation policies and corporate trends in manufacturing, agriculture, and infrastructure and logistics sectors. The Korean government’s ‘Digital New Deal’ policy also emphasizes digital transformation in industrial fields such as smart industrial complexes, smart cities, and smart logistics systems, but in terms of policy directions and technological capabilities to pursue in each area, it is necessary to closely examine the Japanese cases to promote domestic distribution and dissemination.
       In the manufacturing sector, it is necessary to refer to the ‘Common Data Connecting Project’ supported by the Japanese government through pilot projects. At the corporate level, it is worth noting that Japanese manufacturing companies are focusing on industrial digital platforms by attracting related companies that go beyond factory automation to the entire supply chain. Japanese construction companies are also using digital platforms for remote management of construction sites as well as building management.
       Regarding the smart agriculture policy of the Korean government, it is necessary to pay attention to the Japanese government’s ‘Smart Agriculture Demonstration Project’. The Japanese government is implementing various pilot projects in a way that applies the so-called 4th industrial revolution-based technologies such as robot tractors, drones, sensors, cloud services, and AI to local agricultural field by establishing an public-private cooperation system.
       On the other hand, in the field of infrastructure and logistics, the Korean government also needs to actively introduce digital transformation work for urban planning like the Japanese government’s Plateau project. As of November 2021, 56 cities in Japan have developed large-scale 3D city models through the Plateau project, and in the future, use cases involving private companies will be developed in terms of the use of 3D city models to promote smart city development.
       Third, the digital infrastructure field needs to be approached from the perspective of economic cooperation between Korea and Japan. The Japanese government is focusing on supporting technology development in the post 5G mobile networks, but the weak competitiveness of Japanese companies in the field of 5G communication equipment provides room for Korea-Japan cooperation in the future. And, although the Japanese government is making plans to relocate its domestic data centers, there seems to be no way to hedge Japan's geopolitical risks such as earthquakes. From this point of view, the Korean government needs to consider ways to attract Japanese companies' data centers, just as it did immediately after the Great East Japan Earthquake in March 2011. Lastly, the Japanese government is also very active in fostering the domestic cloud service industry. Especially, the Korean government and companies need to be interested in the hybrid cloud system and super-decentralized cloud architecture that the Japanese government has designated as key support areas, and prepare a plan for cooperation with Japanese companies.
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  • 미중 경쟁에 대한 호주의 전략적 대응과 시사점: 호주의 대중정책 변화를 중심으로
    Australia’s Strategic Responses to the US-China Rivalry and Implications for Korea

       As former Prime Minister Tony Abbott once admitted, Australia’s China policy has been driven by “fear and greed,” implying that China is a source of both economic prosperity and security discomfort. As in other Asi..

    Ina Choi et al. Date 2022.05.20

    Economic cooperation, International politics
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       As former Prime Minister Tony Abbott once admitted, Australia’s China policy has been driven by “fear and greed,” implying that China is a source of both economic prosperity and security discomfort. As in other Asia-Pacific countries, facilitating trade with China has provided a growth engine for Australia's economy. Up until the mid-2010s, despite concerns over security threats posed by China’s military expansion, hard balancing against China did not seem to be an option for Australia. Australia’s recent moves against China, however, signal that Canberra has reset its China policy, with an overhaul of its national security and defense strategy. The shift of Australia’s China policy is an interesting case to study how the regional order is likely to evolve in the growing US-China competition. Assessing Australia’s recent foreign policy is also relevant to South Korea, both in terms of navigating Korea’s relations with the US and China and enhancing strategic ties between Australia and Korea. Against this backdrop, this study aims to unravel Australia’s strategic responses to the changing regional order and draw implications for Korea’s foreign policy.
       Chapter 2 examines Australia’s strategic interests in the evolving regional architecture and how these interests have influenced Australia’s China policy recently. China’s retaliatory measures in response to Australia’s calls for inquiry into the origins of Covid-19 fueled the conflict between the two sides, but Australia-China tensions have loomed large over the past five years. Beijing’s responses to the PCA ruling on the South China Sea and persistent gray zone activities have alarmed Canberra to advocate for rules-based order and closely align with the United States in countering China’s hegemonic power. Most notably, high-profile scandals over China’s interference in Australia’s politics in 2017 led to a series of measures to counter Chinese influence in the country. In August 2018, Australia took the initiative in banning Chinese vendors including Huawei from its 5G network over national security concerns. China’s economic sanctions against Australia in 2020 reinforced anti-Chinese public sentiment, fostering an environment where the concerns of policymakers in the security sector are well-received. In particular, the Defense Strategic Update 2020 suggests that China’s military expansion poses a direct threat to Australia’s national security, calling for an increase of military capabilities. Along with an unprecedented large-scale investment in military forces, Canberra took a step further to initiate the launch of the AUKUS pact in September 2021, thus allowing Australia to build nuclear-powered submarines. In the past Australia used to be cautious about ruffling the feathers of its largest trading partner, but a series of recent moves against Beijing make it clear that security concerns have overridden economic considerations in Canberra.
       Chapter 3 analyzes the economic effects of China’s import restrictions on Australian exports. Our findings suggest that the import restrictions did not have a significant impact on the overall volume of Australian exports to China. The total export volumes of iron ore (not included in the restriction list) have actually increased, which counteracted the decrease in total exports of restricted products, such as beef, wine, and lumber. Hence, China’s import restrictions were not an effective tool for altering Canberra’s stance towards Beijing. Chinese policymakers could not expect the offsetting effects of Australian iron ore, which accounts for over 60% of China’s total iron ore imports. Nonetheless, this recent economic dispute caused Australia to revisit the potential consequences of overreliance on China as the major trading partner. Given the volatility of commodity prices, Canberra is also aware of the limits of relying on natural resources as the main safeguard against Beijing’s retaliatory actions. Consequently, the Australian government and businesses are exploring ways to reduce economic reliance on China, mostly via trade and investment diversification. 
       Chapter 4 assesses how Australia is responding to China’s growing influence on global economic and political environments. First, in response to the growing economic threat from the overreliance on China, Australia is experimenting with government policies related to trade and investment diversification. Recommendations from the Joint Standing Committee on Trade and Investment Growth of Australia include 1) a “China Plus” or “China And” type approach to open new export markets; 2) market liberalization via bilateral or multilateral FTAs; 3) upgrading manufacturing processes; 4) prioritizing national security in trade policies; and 5) strengthen support for export industries and their associated businesses. As evidence of these trade diversification efforts, Australian barley exporters found a new destination in Saudi Arabia, away from massive Chinese tariffs. Moreover, Australian policymakers are being cautious with the large influx of Chinese investment into their mining and real estate industries. Recommendations from the parliament include 1) establishing national security guidelines, 2) increasing the number of foreign investments subject to a review for national interests (i.e., Foreign Acquisitions and Takeovers Amendment Regulations 2020), 3) providing incentives for domestic investment, and 4) supporting domestic manufacturing industries. Similarly, Australia’s Modern Manufacturing Strategy intends to create competitive and resilient domestic industries. Bilateral and multilateral FTAs are at the forefront of achieving the aforementioned initiatives to diversify trade and investment, away from China’s influence. Australia aims to conduct over 80% of global trade via FTAs, while actively participating in Indo-Pacific centric multilateral FTAs. Furthermore, Australia is heavily involved with setting a global technology standard in an era of the U.S.-China Technology Competition, reflecting its interests in national security and the Indo-Pacific region.
       Second, in response to the growing regional security threat from China, Australia has embarked on its largest military build-up for decades. Based on a new defense strategy outlined in the “2020 Defense Strategy Update,” the Australian government resolved to accelerate military transformation to enhance its self-defense capability. Australia has also strengthened defense ties with US allies and strategic partners, playing a part in consolidating the US-led security cooperation network. Apart from the Quadrilateral Security Dialogue (Quad), Canberra managed to conclude the AUKUS agreement, which allows it to acquire a variety of advanced weapon technologies including nuclear-powered submarines. The AUKUS partnership has also enhanced security commitments by the US and the UK to the Indo-Pacific region, which suits the interest of Australia. Third, sharing concerns about China’s hegemonic role in the region, Australia is actively participating in regional efforts to counterbalance China’s Belt and Road Initiative (BRI). Australia is particularly wary of China‘s growing influence in the South Pacific and Southeast Asia, where Australia’s most direct strategic interests lie. Accordingly, in close cooperation with the US and Japan, Australia has sought to support infrastructure development in the Pacific Islands and enhanced its bilateral engagement with Pacific states through the “Pacific Step Up” initiative. In regard to ASEAN, Australia newly launched the ASEAN Future Initiative in 2021 with an emphasis on maritime security, connectivity, SDGs and economic cooperation with Southeast Asia. In consideration of the strategic value of the Mekong region, Canberra has also launched a new partnership with the Mekong region called the ASEAN-Mekong Program (MAP).
       Based on the analyses above, Chapter 5 discusses the implications for Korea. First, Korea needs a preemptive strategy to ease the negative effects of China’s potential economic sanctions. Australia could fight through the negative effects via its irreplaceable commodities and trade diversification efforts for replaceable products. Analogous to Australia, Korea needs to secure leverage over critical products and technologies and explore alternative export markets, all along with the support of the government. Faced with China’s heavy tariffs, Australian barley farmers found new export destinations, then the Australian government followed through with additional support. This example showcases how the Korean government can also support businesses to expand export networks. Second, as Australia searches for new economic partners, Korea should renew economic relationships with Australia. Namely, the most workable area for the Korea-Australia cooperation is the supply of rare earth minerals. For instance, Korean companies can increase investment in Australia’s natural resources sector, while Australian companies can build an integrated rare earths refinery in Korea. As Australia develops future battery and critical minerals industries strategies, the Korea-Australia cooperation can extend to operations in the downstream sector, which would contribute to diversification of value chains for critical technologies.     
       Third, given Australia’s commitments to regional development in the Indo-Pacific, Korea needs to enhance its partnership with Australia for the prosperity of the Indo-Pacific region, particularly in Southeast Asia, where the two countries’ strategic needs converge. At the country level, Indonesia can be prioritized in pursuing bilateral partnership since both countries have enjoyed deep bilateral cooperation with Indonesia. At the ASEAN level, Seoul and Canberra need to jointly support the implementation of the Master Plan on ASEAN Connectivity (MPAC 2025) and strengthen cooperation on cyber, digital and technology standards in which both countries have a competitive edge. In addition, as both countries closely work together with the US in promoting peace and prosperity of the region, more active trilateral dialogue between Korea, Australia and the US should be carried out on a regular basis to enable effective collaboration.
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  • 인도네시아 탄소 중립 대응 정책과  한국의 그린뉴딜과의 협력 방안
    Analysis on Net-Zero Policy of Indonesia and It’s Implication for Korean Green New Deal Policy

       While the international community has been engaged in dialogue on countermeasures to climate change by global warming, Indonesia, which ranked 8th in the world in Co2 emissions and top in ASEAN, has submitted its nati..

    Jaeho Lee Date 2022.03.30

    Energy industry, Environmental policy Southeast Asia Ocean
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       While the international community has been engaged in dialogue on countermeasures to climate change by global warming, Indonesia, which ranked 8th in the world in Co2 emissions and top in ASEAN, has submitted its nationally determined contribution (NDC) targets of unconditional reduction of 29% and conditional reduction of 41% by 2030, and announced the net zero target by 2060. Indonesia is a core partner of Korea’s New Southern Policy and has been identified as a promising market for micro-grid projects in the K-New Deal Globalization Strategy, but as of yet no comprehensive strategy has been established that takes into account Indonesia’s net zero policy. To address this gap, this paper examines and suggests policy directions for cooperation with Korea’s Green New Deal, based on an analysis of Indonesian policies related to carbon neutrality and the current status of international cooperation in Indonesia.
       Indonesia had submitted a NDC target of unconditional reduction of 29%, conditional reduction of 41% by 2030, and has been implementing a series of policies in various areas, for example finance, technical assistance, capacity building, etc. Indonesia is coordinating its NDC targets and the local adaption and mitigation policies through the Long-Term Strategy for Low Carbon and Climate Resilience (LTS-CCR) 2050. In addition, a series of policies in the areas of environment protection, renewable energy, reforestation, and waste management had been introduced in the National Medium Term Development Plan (RPJMN) for 2020-2024. The National Energy Policy(KEN), which is the major initiative for Co2 emission mitigation, pursues to change the energy consumption structure by increasing the share of renewable energy instead of fossil fuels. The National Energy Plan(RUEN) is a set of multi-sectoral policies to implement the targets of KEN. The National Electricity Plan(RUKN) is the core plan of RUEN, in line with which the country has been implementing the structural change of national electricity generation by increasing the share of renewable energy(12%→28%) and decreasing the share of fossil fuels(60%→47%).
       Indonesia has been implementing various forms of multilateral and bilateral international cooperation to respond to climate change. Multilateral cooperation through the UNFCCC(UN Framework Convention on Climate Change) has been supported by major climate funds, such as the Global Environment Fund(GEF) and Green Climate Fund(GCF), while sectoral funds like the FCPF(Forest Carbon Partnership Facility), CIF(Climate Investment Fund) are supported by multilateral development banks. In this study, bilateral cooperation is analyzed using the Creditor Reporting System (CRS) ODA data of the OECD DAC. Japan took the top rank of major donors with a share of 53.6%, followed by France(14.9%), Germany(14.5%), the US(5.1%), and Australia(3.7%). The energy sector took the biggest share of 36.7%, followed by environment protection (21.3%), transport & storage(20.6%), agriculture & fishery(8.1%), etc. Physical infrastructure projects accounted for a major share of support from Japan and Germany, and administration and environment protection took the biggest share of support from France and the US. Support from Australia is relatively small in size, but covers various fields. In the case of Korea, Indonesia took the largest share of 77% of all its overseas afforestation activities, but did not produce recognizable mitigation achievements. Korea and Indonesia have been holding regular bilateral forums in the area of energy, and during the 12th forum held in 2021 the two countries focused on cooperation in the areas of renewable energy.
       In order to establish a policy toward achieving net-zero targets with Indonesia, Korea needs to prepare a cooperative approach based on analysis of Co2 emission status, net-zero policies, and international cooperation, etc. When considering the Land Use Change and Forestry(LUCF) accounted for the largest share (43.59%) of the total Co2 Emission in Indonesia, Korea needs to establish cooperation plans for the LUCF sector, such as the Reducing Emissions from Deforestation and Forest Degradation Plus (REDD+). In addition to bilateral cooperation in the REDD+, private-public cooperative platforms such as Lowering Emissions by Accelerating Forest Finance (LEAF) could provide further positive approaches for multilateral cooperation. Other multilateral cooperative mechanisms such as the ASEAN+3 or EAS would also be good channels for REDD+ cooperation. In the energy sector, emissions from electricity generation took the largest share (35%) in Indonesia, and the demand to develop renewable energy has been increasing for the energy mix conversion in the electricity generation sector. Considering the high demand for cooperation in renewable energy, the first step for energy cooperation between Korea and Indonesia would be solar and hydro generation. In addition to the electricity generation sector, the upstream and downstream linkage in the supply chain would create a synergy effect. To promote this synergy, developers should utilize financial linkages based on the basic characteristics of each project. Entering into PPP or purchasing contracts with local partners like power companies or institutions would be a positive approach to secure stable profitability. In transport sector, Korea and Indonesia have agreed to implement an EDCF project titled “EV infrastructure development project in Jakarta” from 2023. Korea also needs to expand the field of cooperation from physical infrastructure to the software and institutions to lead the EV ecosystem in Jakarta.
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  • Internationalization of the Korean Won in the Light of the RMB Internationalizat..
    Internationalization of the Korean Won in the Light of the RMB Internationalization

    Despite the fact that China and the United States represent the G2 in terms of economic size, the RMB’s international significance in the existing international financial system is limited. China has made significant progress in ..

    Hyo Sang Kim et al. Date 2022.02.25

    Financial liberalization, Exchange Rate China
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    Preface

    Forward

    Contents

    Executive Summary

    Contributors

    Chapter 1. Introduction
    1. Background and Motivation
    2. The Current Status of the Korean Won Internationalization
    3. Contributions

    Chapter 2. RMB Internationalization: Development Status, Evolution Logic and Prospect
    1. Development Status of RMB Internationalization
    2. Evolution Logic of RMB Internationalization
    3. Prospect of RMB Internationalization
    Chapter 3. Performance of the Shanghai and Seoul Direct RMB-Korean Won Exchange Market
    1. Introduction
    2. Direct KRW-RMB Exchange Markets in Seoul and Shanghai
    3. Empirical Model and Results
    4. Conclusion and Policy Implications

    Chapter 4. Synchronization of East Asian Currencies: RMB or USD?
    1. Introduction
    2. Exchange Rate Regime in China
    3. Empirical Estimation
    4. Conclusion

    Chapter 5. Analysis of Factor Determining the Synchronization of RMB and Korean Won
    1. Introduction
    2. The Currency Co-movements with the RMB
    3. Factor Determinants on the RMB Weights
    4. Empirical Results
    5. Conclusion
    Appendix

    Chapter 6. Effects of RMB Internationalization on Korean Won 
    Internationalization
    1. Introduction
    2. Constructing the Korean Won Internationalization Index
    3. Empirical Analysis
    4. Conclusion
    Appendix

    Chapter 7. 
    Policy Proposals and Conclusion
    1. A Policy Framework for Currency Internationalization
    2. Review of the Experiences of the Currency Internationalization
    3. A Proposal for the KRW Internationalization
    4. Agenda for RMB and KRW Cooperation
    5. Conclusion

    References
    Summary
    Despite the fact that China and the United States represent the G2 in terms of economic size, the RMB’s international significance in the existing international financial system is limited. China has made significant progress in encouraging RMB internationalization. It has the ability to disrupt the global financial system, dominated by the US dollar. In order to seize chances under such circumstance, Korea must find a new direction for the internationalization of Korean Won.

    This collective volume has seven independent papers that investigate the current and future status of the RMB internationalization and its impacts and implications on Korean economy. The summarizations of each paper are as follows: Chapter One explains the background and motivation of this collective volume. Also, it describes the current status of the Korean Won Internationalization. Chapter Two provides detailed descriptions of the current status of RMB internationalization and its future prospects. Chapter Three examines the performance of Shanghai and Seoul RMB-KRW direct foreign exchange markets and figures that such direct FX markets have not been fully developed yet. However, such markets are expected to become more efficient gradually. Chapter Four finds that in the gradual evolution of the RMB internationalization, the KRW is becoming more synchronized with the Chinese yuan. Chapter Five explores the factors for coupling between the RMB and the KRW. Not only trade and finance channels but also policy implementations are important. Chapter Six develops the index for the KRW internationalization in light of the RMB internationalization. This chapter finds that the RMB internationalization may hinder the KRW internationalization. If the Korean government continues to delay the KRW internationalization, the benefit from the currency internationalization will become smaller. In that regard, Chapter Seven emphasizes that at this moment, it is very meaningful to re-examine the long-term strategy for Korea’s won internationalization. 

    The internationalization of the Korean won provides a new opportunity for the country’s financial development, rather than a disruption to the current global financial system. In the process of the internationalization of RMB and KRW, China and Korea should further strengthen bilateral financial and economic cooperation to push forward the process of RMB and KRW internationalization. Because the RMB or the KRW each have such a small proportion of the global monetary system, it is premature to be concerned about competition. Cooperation should take priority. The key policy suggestions for cooperation between these two currency internationalizations could at the very least include: (1) increasing the bilateral currency swap lines (BSLs) and making them more effective; (2) encouraging more usage of RMB and KRW in bilateral trade and direct investment; (3) encouraging more Chinese investors to hold KRW denominated assets and so does the other party; (4) accelerating the development of offshore RMB market in Seoul while having increasingly important offshore KRW market in China; (5) strengthening the coordination and cooperation in exchange rate policies.
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  • 지역별 중장기 통상전략 및 대외경제 협력 방안
    Korea’s Medium- and Long-Term Trade Strategies by Region and International Economic Cooperation Plans

       This study seeks to identify Korea’s cooperation directions with major regions and present action plans to implement them in five medium-to long-term trade issues: global supply chains, digital trade, climate change,..

    June Dong Kim et al. Date 2021.12.31

    Economic cooperation, Trade policy
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    Summary
       This study seeks to identify Korea’s cooperation directions with major regions and present action plans to implement them in five medium-to long-term trade issues: global supply chains, digital trade, climate change, health, and development cooperation.
       In the area of global supply chains, Korea and the U.S. could promote predictability and sustainability through periodic exchanges of information between the respective control towers of supply chains in the two countries, and the utilization of various consultative bodies composed of diverse agents related to supply chains. In the long-term perspective, we need to implement exchange programs of personnel and joint R&D programs in the areas of advanced technologies of the two countries in order to cultivate talented persons in the key industries.
       The EU and Korea could reinforce the connectivity of their supply chains through cooperation in the areas of technology and production in such strategic industries as telecommunication infrastructure. In addition, when considering the global expansion of low-carbon economy initiatives, Korea needs to closely cooperate with the EU, which is preemptively adjusting its supply chains under a green economy concept.
       With regard to China, it is anticipated that Korea will have no choice but to cooperate in areas where China and the U.S. share values, or in areas where the U.S. does not show interest in, for a considerable period of time. More specifically, cooperation can be possible in the areas of green industries, the health sector, and those with matured technology. Regionally, Korea needs to pursue cooperation with China in supply chains in third countries, rather than within China.
       In the New Southern Region, above all, Korea should pursue diversification of supply chains within the ASEAN region by utilizing changes in the trade and investment environment due to the RCEP, the CPTPP, and the ASEAN Economic Community. Korea also needs to upgrade its CEPA with India to secure smooth movement of intermediate goods between Korea and India. Additionally, Korea needs to expand cooperation with India utilizing the EDCF, particularly in light of the demand within India to establish various infrastructure such as renewable energy and roads.
       In the area of digital trade, two directions of cooperation with key countries and regions can be outlined as follows. First, Korea should strengthen medium-to long-term cooperation with leading economies such as the U.S. and the EU in digital infrastructure, digital technology, digital technological standards, and data regulation. Second, in places where need for digital infrastructure is increasing, such as China, the New Southern Region, and Africa, unique and specialized digital trade policies should be established.
       To be more specific, in order to strengthen cooperation with the U.S. in digital technology, Korea needs to encourage its domestic firms to join in the O-RAN Alliance. Furthermore, in order to foster technological cooperation in the field of AI, Korea should facilitate discussions about the development of international AI standards through the already existing Joint Committee on Science and Technology Cooperation between Korea and the U.S. Korea also needs to begin discussions to maintain technical standards cooperation by forming a Korea-EU Committee on digital technology like Trade and Technology Council between the U.S. and the EU. In terms of data regulation, Korea must take a proactive role together with the U.S. in WTO e-commerce talks. This study also suggests that the e-commerce chapter that was not addressed during the negotiation of the KORUS FTA amendment should be upgraded in the near future. Efforts will also be vital to keep complying with the EU’s GDPR requirements.
       Regarding digital infrastructure cooperation with major countries and regions such as China, the New Southern Region, and Africa, Korea should undertake action plans in conjunction with domestic policies such as K-semiconductor strategies and materials, components, and equipment strategies. Meanwhile, it is critical to develop a venue to discuss digital technology and data regulatory cooperation with China and the New Southern Region. Korea could benchmark the cooperation in the area of standards between Japan and China in 2019. This platform can help to improve the compatibility of digital technology and goods in key areas specified by the Northeast Asia Standards Cooperation Forum.
       Aside from digital infrastructure, digital technology, digital technological standards, and data regulation, Korea must seek specific cooperation plans for major countries and regions. For example, Korea can develop policies to increase intellectual property protection in relation to China. Furthermore, it can assist domestic digital trade firms in entering the Comprehensive Testing Region for Cross-Border E-commerce designated by the Chinese government. Korea also needs to conduct discussions with China to facilitate customs issues in e-commerce. In the New Northern Region, Korea should maintain cooperation with Russia in the field of digital services and software, with both countries developing research initiatives and expanding training programs for young researchers. In the New Southern Region, Korea can concentrate its capabilities for cooperation on SMEs and workers to strengthen the digital infrastructure. Establishing preemptive collaboration channels for digital trade between Korea and India would benefit both countries. In Africa, Korea should pursue digital trade policies targeted to the growing need for digital infrastructure, digital technology, public services, and labor force development.
       In regard to climate change, Korea should promote cooperation in such industries as energy transformation and transportation, areas where the EU is also focusing on within its carbon neutrality policy, as well as facilitate the dialogue channel of cooperation with the EU to back up this promotion. Korea also needs to maintain its position in the follow-up discussions to implement the Paris Climate Agreement while communicating closely with the EU.
       In the area of low carbon technology cooperation with the U.S., technological cooperation related to clean energy initiatives, energy efficiency, and carbon removal – which both countries share common interests and are competitive in – could be promoted first. In addition, Korea can also suggest cooperation in areas where the U.S. has global competitiveness, such as adaptation to climate change.
       In order to identify cooperation areas and facilitate multilateral cooperation with the New Southern Region, Korea needs to identify the policy interests and current status of dialogue channels in this area. With ASEAN, Korea needs to continue utilizing dialogue channels such as the Korea-ASEAN Dialogue on Environment and Climate Change. With respect to India, Korea needs to establish a regular high-level dialogue channel and identify specific cooperation demands.
       In the area of health cooperation, Korea needs to overcome the limits of existing international cooperation systems by establishing new international organizations such as an international pandemic treaty. This new organization will have the function of assisting production of vaccines, therapeutics, and equipment for diagnosis and personal protection as well as establishing more effective distribution systems for medicine and medical supplies.
       In order to respond more effectively to the crisis of infectious diseases in the future, it will be necessary to amend the related provisions within WTO agreements, since the production and distribution of medical supplies lies also in the area of international trade. More specifically, particular situations or conditions will have to be defined when the relevant TRIPS clauses can be exempted.
       The fundamental solution to the pandemic is technological innovations in the area of medicine manufacturing and increase of production amounts. In this context, Korea should place more of an emphasis on its current project to establish a global vaccine hub. A cooperation system must be established to co-utilize personnel and facilities through a consortium with companies in the U.S. and Europe.  
       With regard to development cooperation in Asia, the need to differentiate cooperation types, methods and areas has already been pointed out. As a specific action plan, for example, Korea can cooperate with assisting ICT-based hybrid infrastructure projects such as smart city and smart water control to medium-income countries such as Vietnam, Indonesia, and Philippines. Meanwhile, to low-income countries such as Laos and Myanmar, assistance should be provided to establish basic social infrastructure mainly in the form of ODA.
       For development cooperation with the African region, systematic cooperation among the ODA-implementing entities is crucial. A good example is the Muhimbili University Hospital project in Tanzania. Korea could also consider promoting utilization of development finance, for the purpose of supporting private sector development in the region.
       In the Latin American region, Korea should explore plans to participate in large-sized energy projects by co-financing with the MDBs, since such countries as Columbia, Peru, and Bolivia are currently pursuing energy transformation initiatives.
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  • 포스트 코로나 시대 주요국의 통화·재정정책 방향과 시사점
    Changes, Challenges and Implications of Fiscal and Monetary Policy Directions in the Post Pandemic Era

    COVID-19 has changed the way of our lives since it started emerging as a pandemic early 2020. The global public experience of masks and social distancing will leave a trauma, and eventually work as a main driver for us to reconsid..

    Sungbae An et al. Date 2021.12.30

    경제성장, Economic cooperation
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    Summary
    COVID-19 has changed the way of our lives since it started emerging as a pandemic early 2020. The global public experience of masks and social distancing will leave a trauma, and eventually work as a main driver for us to reconsider and improve our system. The need for change becomes even bigger as the pandemic continues beyond initial expectations. With that, we are now entering the era of the great transformation. 

    Against this backdrop, this study focuses on examining the policy environment changed by the COVID-19 pandemic and analyzing the point to be considered when implementing future fiscal and monetary policies.

    By examining the similarities and differences in fiscal and monetary policies compared to the 2008 global financial crisis, the path of recovery after COVID-19 can be understood. The characteristics of major countries’ policy responses to this crisis are that short-term responses were quickly introduced, and mid-tolong-term responses for economic structural change are being made in various ways.

    The initial economic downturn caused by the COVID-19 pandemic did not stem from the frictions in demand, but rather the impact on the supply side, such as labor supply restrictions due to regional blockades. Responding to supply shocks with only accommodative monetary policy can lead to stagflation. Meanwhile, as the demand for services such as tourism sharply decreased due to the local lockdown, the economic damage was aggravated. Fiscal expenditures to relieve the economic damage followed in this situation. Disaster subsidies and selective support for small and medium-sized businesses were quickly implemented.

    The mid- to long-term response in major countries is focused on investment in physical and human infrastructure for digital transformation and green transformation. A large-scale longterm investment plan of a decade is being drawn up among concerns over financial soundness. Thus, the political controversy can be expected to continue until public investment schemes are confirmed. 

    The effects of fiscal spending by major countries are analyzed using the time-varying structural vector autoregressive (TVSVAR) model. Using quarterly data from 14 countries since 2000, we examined how the multiplier effect of net tax and government consumption on gross national product changed over time, comparing before and after the COVID-19 crisis. 

    The effectiveness of fiscal policy was found to vary by country and by means of fiscal policy. This means that careful consideration of national characteristics and policy measures is necessary for efficient fiscal execution. When examining the additional effects of fiscal policies during the COVID-19 crisis, an additional stimulus effect of net taxes, that is, a relatively low crowding out effect, was found in most countries. On the other hand, there was no additional stimulus effect evident in government consumption. It seems that the transfer payments as part of net taxes such as disaster relief funds have been effective. On the other hand, it was also found that the multiplier effect of fiscal expenditure decreases when a quarantinetype policy that restricts face-to-face economic activities is implemented. Therefore, when introducing a policy that strengthens the quarantine level, it is necessary to consider a more active fiscal policy. 

    Unconventional monetary policy has been introduced following the global financial crisis. The policy goal of economic stimulation could not be attained despite continual policy rate cuts, which were eventually limited by the zero lower bound. In such a situation, an alternative measure to tuning the short-term interest rate was introduced. Managing quantity variables rather than a price variable became more popular. Such measures include asset purchase, simultaneous engagement of long- and short-term markets, the preemptive announcement of future rate targets without spot market intervention, and direct interventions on targeted markets. More specifically, these non-traditional monetary policy measures were implemented as negative interest rates, forward guidance, yield curve management, quantitative easing and credit policies. These policies implemented after the global financial crisis turned out to be effective and significant. 

    As the pandemic shock involves both supplyside and demand-side elements and an unprecedented scale of fiscal expenditure has been implemented, assertions are raised that the central bank should consider more aggressive policies such as helicopter money schemes or monetary financing. The United States is expected to achieve a fast recovery through vaccination and large-scale fiscal spending, and then take a path to normalize its differentiated monetary policy in order to respond to inflation. On the other hand, there still remains a possibility that additional policy measures will be required with limited policy space due to the prolonged pandemic. 

    Changes in the monetary policy framework, such as the introduction of the average inflation target (AIT), have a long-term effect on the expectation formation of market participants and are reflected in economic activities, so it is necessary to understand and forecast these trends. 

    When uncertainties increase in major advanced countries such as the United States, capital flows and macroeconomic variables of neighboring countries are affected. In a situation where omni-directional policies are implemented in response to the spread of COVID-19 and economic slowdown, expectation shocks such as elevation of policy and financial uncertainty are highly likely to intensify and generate a riffle effect on capital flows.

    Based on the finding of this study, the following policy suggestions can be delivered.

    First, it is necessary to consider strengthening inclusiveness in short-term policy measures. Major countries have introduced liquidity assistance programs that encourage selective lending to small and medium enterprises (SMEs). In Korea, a wide range of financial support for self-employed and SMEs has also been introduced, but the predetermined amount of funds is distributed through financial institutions whose incentives are vague. In the case of Japan and China, a price-based approach is employed so that individual financial institutions are given incentives, such as interest rate subsidies to secure funds through the market. In order to strengthen inclusiveness, it is necessary to consider introducing incentive-based policies reflecting market functions. 

    Second, the timeliness and effectiveness of investment for structural improvement should be considered. Globally, the mid- to long-term restructuring is focused on digital and green transformations. The Digital New Deal and Green New Deal, which are the focus areas of the Korean New Deal, are in line with global trends, and it is necessary to refer to the lessons learned from past policy experiences. As expectations on digital transformation emerge, an asset price bubble forms, especially among major tech companies. Therefore, policy makers should be careful when sending out signals to the market on their evaluation of current market conditions and future policy directions. In addition, risk management for moral hazard related to government support on venture enterprises is also required. 

    Green transformation lies in the growing public interest in environmental issues and the growing awareness of the need to respond to climate change. The starting point is slightly different from digital transformation, which uses new technology to enhance convenience and productivity in life. Green transformation is motivated by the fear of a major disaster in the future. As such policies are unlikely to receive long-term attention, as is the case with awareness and response to crises in general, the policy authorities need to pay special attention to achieve apparent goals. 

    There is great uncertainty about government investment in a period of new technology transition, and at the same time, it is highly likely to cause moral hazard in the market. Rather than providing direct support to businesses and universities, the government R&D might be used to fund research infrastructure on a scale that the private sector cannot. In the case of direct investment and support in the private sector, it is necessary to evaluate the timeliness of projects and closely monitor effectiveness. 

    Third, a plan for medium-term fiscal consolidation should be prepared for sustainability. Although the pandemic is prolonged and uncertainty remains about the arrival of the postcoronavirus, the fiscal burden aggravated as a result of the short-term response may be normalized through fiscal consolidation in the future. However, it is worth noting that concerns about an increase in national debt have been raised in Korea even before the COVID-19 crisis. There is a structural effect where the proportion of the welfare budget increases due to increasing inequality and aging population. Of course, it would not be difficult for Korea to secure fiscal soundness as it has a low tax burden compared to major countries, and thus has sufficient fiscal space. However, in order to secure fiscal soundness, it is necessary to expand the tax base, which could invoke strong tax resistance and requires a political solution. 

    Fourth, it is necessary to pay attention to the path to normalization taken by U.S. monetary policy. The Federal Reserve is expected to actively use forward guidance in the process of normalization in the future. Moreover, policy uncertainty has increased due to the lack of details on operation plans for the newly introduced AIT. When implementing monetary policy in Korea, it is necessary to reflect the impact of the policy uncertainty of the United States on neighboring countries. Monetary policy normalization requires close monitoring, as the financial imbalance may increase through the asset market channel. 

    Meanwhile, asset prices have risen sharply due to abundant liquidity supplied globally during the pandemic. As the real estate market overheated in Korea, mortgage loans increased rapidly, which led to a sharp rise in household debt and regulations on total loan volume to limit the growth of household loans. Above all, it is necessary to prepare policy measures to maintain the soundness of the loan itself and, in particular, keep the volatility of collateral assets low. 

    Fifth, efforts for international cooperation are anticipated in relation to infectious diseases and the great transformation. At this point, the need for international cooperation on infectious diseases cannot be overemphasized. In particular, all parties must work together to prevent short circuits at nodes on the global supply chain by increasing vaccine penetration in emerging countries. Securing financial resources is not the problem of a single country, but a global one. While many agreements have been reached as the Biden administration returns to international cooperation, concerns remain about the continued leadership of the United States. In particular, as the pattern of the U.S.-China conflict has become more sophisticated and the embers of national priority remain, this can act as a negative risk. The Korean government should clearly recognize the uncertainty in international cooperation and prepare an external strategy.
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