[Editorial] Further Efforts Needed at Home

The joint statement issued at the Group of 20 financial summit in Washington Saturday heralded a major power shift and the creation of a new international order. In the past, the summit of the Group of Seven advanced economies was the main forum governing the world economy, but leading emerging countries have now been included. This means a larger number of countries need to closely cooperate in overcoming the global financial crisis. China, Brazil and India will see their roles and responsibilities grow down the road.

Korea has been included on the list of countries that proposed action plans for financial reform at the next G20 financial summit slated for April. Korea has seized an opportunity to act as a leading mediator between advanced and emerging economies in the global arena for economic cooperation. In addition, President Lee Myung-bak garnered great support from world leaders by suggesting a freeze on trade and investment barriers. As Korea is expected to have a greater sway over the International Monetary Fund and chair the G20 summit in 2010, Seoul must make the most of these opportunities for the sake of national interest.

The agreement made in the summit to enhance regulation of the financial market was largely expected. The consensus is that regulators’ lack of awareness of high-risk financial packages and lax supervision were to blame for the U.S.-led financial crisis. Another challenge is adequately overseeing large financial companies. G20 countries agreed to reinvigorate sagging economies through global cooperation and mobilize policy measures such as interest rate cuts, tax reductions and the expansion of public spending.

Korea needs to step up efforts to tackle the economic crisis. Financial deregulation is necessary, but the supervision over financial institutions to maintain their soundness and investor protection should come together. As drastic changes are expected with the implementation of the Capital Market Consolidation Act in February, including the introduction of hedge funds, the government should take more caution by reviewing policies to prepare for contingencies. Also necessary is discussion on the overhaul of the Financial Services Commission and the Financial Supervisory Service.

The restructuring of domestic companies should be pushed for in a transparent manner. Creditor banks will reportedly start weeding out nonviable builders from the 100 largest in the sector this week. The government will also screen out nonviable savings banks based on a review of project financing loans, which are considered another cause of financial jitters. Though pain is expected in this process, it is necessary to achieve a bigger gain: revival of the Korean economy and market.