By Lee Chi-dong
Staff Reporter

The government will launch a state asset management division, named the Korea Investment Corporation (KIC) in 2005, in its first step toward becoming a major financial center.

Modeled on the Government of Singapore Investment Corp., the new body will act as a key player in the country’s bid to turn the country into the financial hub of Northeast Asia.

``The KIC will start with $20 billion in capital from the foreign exchange reserve with a view to gaining good long-term returns’’ Choi Choong-kyung, director general of the Ministry of Finance and Economy said on Thursday.

Initially the KIC will manage dollar-denominated state assets and will gradually expand to cover pension and other government funds, he added.

The government intends the KIC to spearhead the national project to become a regional financial center by 2012, as its Singaporean counterpart does.

Choi stressed that the government will minimize its role as supervisor of the organization, in a bid to protect the KIC’s independence.

Bank of Korea Governor Park Seung also expressed his approval of the plan yesterday, saying the KIC will operate some foreign exchange reserves, while the central bank will retain ownership of the assets.

The state investment institution scheme is one of the key strategies in achieving the country’s financial hub goal, he reported to President Roh Moo-hyun.

Under the plan, the government will promote asset management businesses with the aim of attracting the regional headquarters of the world’s top 50 investment banks and funds.

``We will transform Seoul into a regional center for asset management businesses, taking the cue from Edinburgh in the United Kingdom,’’ Choi said,

It would be too risky to specialize in futures and options trading, as was exemplified in the failure of Barcelona, Spain, considering Korea’s growing demand for pensions and other social network funds, he added.

The country also aims to develop a niche market for financial restructuring and merger and acquisition (M&A) activities in Northeast Asia.

The KIC aims to lift financial regulations and promote long-term bonds with maturity of 10 years or more to encourage foreign investment.

The government will support businesses in cleaning up non-performing loans (NPLs), as it gained the know-how and infrastructure in the course of successful banking-sector restructuring following the 1997-98 financial crisis.

The size of NPLs is estimated to reach $1.8 trillion won in Northeast Asia, according to official government data.

The government plans to double efforts to take the lead in the project financing field, taking into consideration the huge potential of China, Mongolia, North Korea and Far Eastern Russia.

``We will put in place the relevant legislation and other infrastructure by 2007, with the aim of attracting top global investors by 2012,’’ Choi said. ``We are also pushing for the creation of the Northeast Asia Development Bank in cooperation with China and Japan.’’

He predicted Seoul to emerge as one of the Big 3 financial centers in Asia by 2020, along with Tokyo and Hong Kong.

lcd@koreatimes.co.kr