Securing the Future for Korea-An Address to Seoul National University, By Christine Lagarde, Managing Director, International Monetary Fund

IMF News, December 5, 2013

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Canonical URL: Securing the Future for Korea-An Address to Seoul National University, By Christine Lagarde, Managing Director, International Monetary Fund

Korea transformed from one of the poorest countries in 1960 to the world’s thirteenth most prosperous economy, with an income per capita higher than the EU average.
Strong macroeconomic fundamentals built after crises: low inflation, healthy public finances, ample foreign reserves, healthier bank capital buffers, and lower external debt.
Proactive macroprudential policies have been deployed to tame financial risks.
Korea’s manufacturing sector is highly dynamic; innovation and cultural influence (the “hallyu”) are global strengths.

Two clear global trends identified:
- Asia is rapidly becoming the economic center of gravity; the 21st century will be an increasingly Asian century.
- The world is becoming more linked and interconnected, requiring invigorated multilateralism and closer economic cooperation.
These trends play to Korea’s strengths and position Korea to play an increasing leadership role in the global economy.

Short-term: “Growth is strengthening and should pick up further—to about 3¾ percent—in 2014.”
Demographic risk: “Korea’s population is projected to become one of the oldest in the OECD by 2050.”
Long-term growth risk: “Without action, Korea’s long-term growth could fall to 2 percent by 2025, down from around 5 percent at the start of the century.”

Duality in the labor market: non-regular (temporary or part-time) workers face low wages, little employment security, inadequate training, and weak social insurance coverage; non-regular workers “make up about a third of the labor force.”
Youth employment: “The employment rate in Korea is only 24 percent, versus an OECD average of 40 percent.”
Women’s participation and earnings:
- “Women’s labor force participation in Korea is about 60 percent—23 percentage points below Korean men and among the lowest in the OECD.”
- “The gender earnings gap in Korea is the highest in the OECD.”
- “Only 9 percent of managers in Korea were women, against an OECD average of 29 percent.”
Elderly poverty: older people are “three times more likely to be poor than the population as a whole.”
Social spending is low: “Public spending on childcare and pre-primary school is five times higher in Sweden than in Korea, in percent of GDP.”

Labor market inclusivity:
- Reduce duality by boosting social insurance coverage and training for non-regular workers.
- Increase youth employment by investing more in active labor market policies and vocational education.
- Boost female labor force participation through policies that help women balance work and family, including investing more in childcare and offering more flexible working conditions; such policies “can reduce the gender gap by one third.”
Service-sector productivity:
- Raise productivity in services (currently “around half that in manufacturing”) by:
- Bringing more competition to areas like utilities.
- Boosting investment.
- Re-aligning small and medium-sized enterprises along commercial lines, liberated from dependence on government guarantees.
Reform sequencing:
- Implement a stronger social safety net before embarking on deeper and more difficult reforms.
Fiscal capacity:
- Korea can afford many reforms given prudent budgeting and low taxes.

By implementing the right package of reforms, Korea could see “long-term growth of 3½-4 percent over the next decade.”
Reforms come with fiscal costs, but are judged affordable given Korea’s fiscal position.

Korea’s openness and commitment to multilateralism position it to take on growing global responsibilities.
IMF adaptation to modern global economy:
- Greater focus on interconnections and spillovers across countries, sectors, and markets.
- Emphasis on the jobs and growth agenda and on protecting social safety nets.
- More flexible lending—examples include allowing longer periods of fiscal adjustment and zero-interest loans to the poorest members.
IMF crisis response: “Because of them, we were able to provide more than $300 billion to help ease the hardship of adjustment across the membership, and make 150 new commitments—including zero-interest loans to our poorest member countries.”
Korea’s contributions:
- Korea agreed to contribute “$15 million over the next five years to bolster IMF capacity development.”
- Korea has supported IMF governance reforms (the “2010 reforms”), which “give a greater voice to dynamic countries like Korea.”
- Appointment noted: Changyong Rhee named as director of the IMF’s Asia-Pacific Department.
Call for continued enhanced cooperation to address the “new frontier of risk”—advancing climate change, major demographic shifts, and widening inequality.

Dual responsibility for students and future leaders: keep one eye on domestic reforms needed for Korea to stay competitive, and the other on global cooperation.
The IMF framed as an instrument of service to support collective international economic stability.
Closing exhortation: “Together, we can win the future.”

Speech by Christine Lagarde, Managing Director, International Monetary Fund, Seoul, December 5, 2013. As Prepared for Delivery.