(Bloomberg) -- A senior South Korean official underscored the nation’s determination to ensure that its extension of trading hours for the onshore won will be permanent as it pushes for its biggest market reforms in decades in a bid to join a global government bond index.

“There are concerns we may make a U-turn if market volatility grows huge, but that is not possible and we are very determined we will not do so,” Vice Finance Minister Kim Byoung-hwan said in an interview Thursday. “We’ll continue to take measures to assuage market concerns once the extension begins.”

The new rule taking effect July 1 allows trading until 2 a.m., extending hours from the current 3:30 p.m. local time. The change marks a cornerstone of broader reforms under the Yoon Suk Yeol government aimed at boosting the appeal of Korea’s markets abroad.

Tests so far indicate extended trading will be smooth, Kim said, adding that the move will boost the odds of Korea being included in the FTSE Russell’s World Government Bond Index later this year. Korea has pursued inclusion for years as competition intensifies among countries to join indexes that may help enhance fundraising capabilities.

HSBC Global Research has said Korea may attract as much as $70 billion from abroad if included in the WGBI.

Global investors have rushed into Indian government bonds ahead of the nation’s inclusion starting in late June into one of JPMorgan Chase & Co.’s flagship debt gauges. 

Korea will seek to bolster efforts to ease technical hurdles for foreign investors entering its markets and make it easier for foreign entities to take out won overdrafts, a type of short-term borrowing to soften risks of settlement failures, Kim said.

Korea’s reforms also include Yoon’s “value-up” initiative to boost stock values by encouraging listed firms to raise shareholder returns. Announced in February, it has faced questions about its effectiveness from investors as local indexes move sideways compared with foreign counterparts.

Kim characterized the initiative as a long journey that has only just begun and said Korea plans to announce a series of tax reforms to bolster the initiative in late July in an effort to encourage companies to increase dividends and improve corporate governance.

Corporate earnings associated with Korea’s export rally that began late last year may also start to support stocks, he said. Trade gains have been a primary driver of economic growth this year, helping gross domestic product expand by 1.3% in the first quarter from the previous three-month period. That soundly beat a 0.6% consensus forecast.

The economy’s momentum is intact and GDP is unlikely to contract this quarter from the previous three months as some economists forecast, he added. The latest Bloomberg survey shows GDP expanding 0.2% this quarter, slower than 0.1% in a previous poll.

The Bank of Korea revised its outlook for growth this year to 2.5% from 2.1% following the surprise GDP results. Kim said he also sees the economy likely growing in the mid-2% range this year, a prediction that will become clearer in the ministry’s official announcement later this year.

Headwinds include debt risks persisting in the real estate market after a large number of developers took on more projects during the pandemic era than they could handle under higher interest rates. Bloomberg Economics expects credit-market volatility to rise in the second half as Korea moves to restructure $170 billion in debt among developers.

Some of the developers are unlikely to survive the debt plague even though simulations show bigger ones will probably stay resilient, allowing the Korean economy to avoid a hard-landing, Kim said.

Kim expressed concerns about Korea’s shrinking population, a concern for long-term productivity. Korea has has held the world’s lowest fertility for years and spent some 200 trillion won ($145 billion) on a swathe of campaigns to boost the birthrate with little success.

The government is now seeking to streamline its funding to focus more on policies that have proven more effective, Kim said. They include stipends for childrearing, reinforcements to support those on parental leave and more affordable housing.

“We’ll need to scrutinize our spending so far,” he said. “And cut back on things that don’t work.”

--With assistance from Cynthia Li.

(Updates with other comments, Bloomberg survey and charts)

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