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Cablegate: Rokg Views On Economic Aspects of China-Japan-Rok

VZCZCXRO9562
OO RUEHCHI RUEHDT RUEHHM RUEHNH
DE RUEHUL #2433/01 3531117
ZNR UUUUU ZZH
O 181117Z DEC 08
FM AMEMBASSY SEOUL
TO RUEHC/SECSTATE WASHDC IMMEDIATE 2687
INFO RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHBJ/AMEMBASSY BEIJING 5089
RUEHKO/AMEMBASSY TOKYO 5196
RUEHHK/AMCONSUL HONG KONG 3753
RUCPDOC/DEPT OF COMMERCE WASHDC 1860
RUEATRS/DEPT OF TREASURY WASHINGTON DC

UNCLAS SECTION 01 OF 02 SEOUL 002433

SENSITIVE
SIPDIS

STATE PLEASE PASS TO USTR FOR CUTLER

E.O. 12958: N/A
TAGS: EFIN ECON ECIN PREL KS CH JA
SUBJECT: ROKG VIEWS ON ECONOMIC ASPECTS OF CHINA-JAPAN-ROK
SUMMIT IN FUKUOKA

REF: SEOUL 2345

1. (U) This cable is Sensitive but Unclassified and not/not
intended for internet distribution.

2. (SBU) Summary: The ROKG was pleased with the substantive
economic results and press coverage of the China-Japan-ROK
summit meeting in Fukuoka, Japan on December 13. The
Japan-ROK USD 3 billion "peacetime" currency swap line was
expanded into a USD 20 billion arrangement (but in national
currencies). China and Korea agreed on a new swap mechanism
denominated in local currency only -- up to RMB 180
billion/KRW 38 trillion (approximately USD 26 billion at
current exchange rates). The ROKG is optimistic that the
Chiang Mai Initiative (CMI) leaders meeting cancelled earlier
this month can be rescheduled in January or February, which
will afford an opportunity to announce progress on the CMI
Multilateralization (CMIM). The leaders agreed on a Chinese
proposal to upgrade central bank ties through an annual
Tripartite (Central Bank) Governors' Meeting. Our ROKG
interlocutors told us that the Joint Statement on the
International Financial and Economic Situation language on
economic cooperation referred to mutual agreement that all
three governments would develop additional stimulus packages
for their economies. In his public statments, ROK President
Lee Myung-bak stressed the agreement to work together to
support the Declaration and Action Plan of the November 15
Summit on Financial Markets and the World Economy. End
Summary.

3. (SBU) Deputy Econ Couns talked on December 15 about ROKG
reaction on economic aspects of the summit with Yoo Byung-hee
(protect), of the Ministry of Strategy and Finance's
Financial Cooperation Division and Chung Hwan-Sik (protect)
of the Bank of Korea. (Reftel provided Korean expectations
of key issues to be addressed at or on the margins of the
December 13 China-Japan-ROK summit in Fukuoka, Japan,
including the CMIM and bilateral currency swaps).

4. (SBU) Yoo described the ROKG as pleased with the
substantive outcome and press coverage of the summit. He
stressed President Lee's emphasis on the agreement to work
together to support the Declaration and Action Plan of the
November 15 Summit on Financial Markets and the World
Economy. Chung focused on the increasing weight given to
dialogue between central bank governors.


New Bilateral Swaps, CMIM and Annual Central Bank Meetings
--------------------------------------------- -------------

5. (SBU) Yoo and BOK's Chung both said that the ROKG was
pleased with the announcement just ahead of the summit on the
new bilateral swap arrangemets. The ROKG achieved its goal
of expanding the swap arrangements. Moreover,this was done
without any linkage to progress on CMIM. In the case of
Korea-Japan, the USD 10 billion crisis swap line negotiated
within the context of CMI remains intact. The additional USD
3 billion "peacetime" swap line (no link to the IMF) was
expanded into a USD 20 billion arrangement. Although this
swap is denominated in dollar terms, it is actually a won-yen
swap mechanism. In the case of Korea-China, the USD 4
billion crisis swap line remains in effect and a new swap
mechanism was added. The new arrangement is denominated in
local currency only -- up to RMB 180 billion/KRW 38 trillion
(approximately USD 28 billion at current exchange rates).
Yoo stated that it was highly likely that the new swap
arrangements would remain intact when the CMIM arrangements
are implemented, but that no specific decision had yet been
taken with respect to either the new national currency swaps
or the bilateral crisis swaps.

6. (SBU) Yoo added that, given the absence of ASEAN members
at the Fukuoka meeting, no new agreements on CMI or CMIM
could be announced at this summit. Hinting that progress
toward the launch of CMIM has been achieved, he said the ROKG
will work with others to attempt to reschedule the ASEAN Plus
3 Summit that was postponed earlier this month because of the
situation in Thailand. Yoo was hopeful that this could be
arranged for January or February and would allow for an
announcement on the CMIM.

7. (SBU) Chung mentioned the announcement that the central

SEOUL 00002433 002 OF 002


bank governors of the three countries would hold annual
meetings. Previously, he explained, central bankers of the
three countries have met informally as a group, but always on
the margins of larger gatherings of central bankers. In
contrast, the new Tripartite Governors' Meetings will be
formalized and held on an annual basis. Chung explained that
the Chinese had originated this idea and pushed for agreement
to hold these formal annual central bank meetings. He
rejected press reports suggesting that the date and place of
the first of these meetings had already been determined.


Other Economic Issues
---------------------

8. (SBU) The summit resulted in a Joint Statement on the
International Financial and Economic Situation. Yoo
described the leaders' endorsement of the Declaration (and
Action Plan) of the Summit on Financial Markets and the World
Economy as hortatory. He added that the language in the
joint statement regarding the commitment to investment and
free trade (and to the Doha Round) was intended to send a
signal but was not a main topic of discussion.

8. (SBU) Yoo noted that the reference in the joint statement
to Asian countries playing a role as the "center of world
economic growth" did reflect discussion of financial
cooperation. While no specific measures were announced, the
leaders expressed satisfaction that each country was pulling
in the same direction in efforts to shore up financial
markets and enact large fiscal stimulus packages. He said
the leaders agreed that further fiscal stimulation would be
undertaken by each government.
STEPHENS

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