{
  "title": "Transcript of a Press Briefing on 2010 Article IV Consultation with Korea",
  "publication": "IMF News, September 2, 2010",
  "sourceUrl": "https://www.imf.org/en/news/articles/2015/09/28/04/54/tr090210",
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  "summary": "Revised GDP growth projections: 6.1 percent this year and 4.5 percent next year.",
  "publishDate": "2010-09-02",
  "sections": [
    {
      "heading": "Growth outlook",
      "content": "- Revised GDP growth projections: 6.1 percent this year and 4.5 percent next year.\n- Growth drivers this year: investment and rebuilding of inventories; shift from public-sector demand to private-sector demand.\n- Output gap: expected to close sometime over the next few months; baseline assumes easing of growth in the second half of this year.\n- Upward revision for this year partly reflects stronger-than-anticipated first-half performance and front-loading of the recovery (first-half growth stronger than earlier forecast of 5.7 percent).\n- 4.5 percent projected for next year is described as slightly above the economy’s potential and still robust."
    },
    {
      "heading": "Risks to the outlook",
      "content": "- External risks dominate:\n  - Larger-than-anticipated slowdown in advanced economies could reduce Korean exports.\n  - Tail events (e.g., repeat of late-2008 liquidity and financial troubles) are possible but not in the baseline.\n- Domestic sources of growth are considered strong.\n- Capital inflows and exchange rate appreciation present potential pressures but are viewed in context of exchange-rate flexibility and export fundamentals."
    },
    {
      "heading": "Monetary policy assessment and recommendations",
      "content": "- Recent policy moves:\n  - Bank of Korea raised policy interest rate from 2.0 percent to 2.25 percent (25 basis points) in July, then stayed on hold in August.\n- Current stance:\n  - Policy described as \"highly accommodative.\"\n  - Short-term real interest rates are negative.\n- Neutral rate estimate and room for tightening:\n  - Neutral interest rate suggested to be \"significantly higher\" than current policy rate; estimate cited: around 4 percent.\n  - Current policy rate of 2.25 percent is well below neutral; there is room to cautiously raise rates while remaining supportive of growth.\n  - Any reversal of accommodation should be cautious due to global uncertainties.\n- Rationale for rebuilding policy space:\n  - Rebuilding monetary \"ammunition\" advisable to respond to future shocks.\n  - Low public debt gives Korea ample fiscal ammunition as well."
    },
    {
      "heading": "Fiscal policy stance",
      "content": "- Fiscal policy is described as moving into a consolidation phase this year.\n- Consolidation is judged appropriate given strong underlying growth and shift from public to private demand.\n- Low public debt cited as providing capacity to head off future risks."
    },
    {
      "heading": "Structural concerns and medium-term policy",
      "content": "- Recommendation to develop a \"second additional engine of growth\" to reduce vulnerabilities from heavy export dependence.\n- Encourage making the non-tradable sector more vibrant via structural reforms across multiple fronts."
    },
    {
      "heading": "Housing market and household debt",
      "content": "- Authorities announced comprehensive measures (announced last week) addressing housing market concerns:\n  - Measures cover debt-to-income ratios, support to lower-income households, and actions related to the housing corporation.\n- Observed problems:\n  - Very low transaction volumes in recent months raising concerns about a protracted slump.\n  - High household indebtedness may limit the effectiveness of measures, as households may be unwilling or unable to take on more mortgage debt."
    },
    {
      "heading": "Exchange rate, capital flows, and export resilience",
      "content": "- Recent large capital inflows to Korea (as in other Asian countries) reflect low yields in advanced economies and Korea’s strong relative growth.\n- Exchange rate policy:\n  - Korean authorities maintain a flexible exchange rate; flexibility serves as an automatic stabilizer.\n  - IMF assessment: exchange rate model favored shows the won \"slightly undervalued\" at the moment, but \"not substantially below\" model-implied levels.\n- Impact of appreciation risk:\n  - Appreciation from inflows could exert upward pressure on the exchange rate; however, export strength is attributed primarily to fundamentals not exchange-rate weakness:\n    - Strong balance sheets of large corporates allowed market-share gains during the crisis.\n    - Sectoral performance: shipbuilding recovering as new orders pick up; electronics and automobiles benefit from global market diversification, including large shares to emerging markets.\n    - Example cited: Hyundai succeeded in the downturn by offering the right price point and market fit.\n- IMF view: exchange-rate flexibility should be preserved; measures introduced in June were seen as prudential (insulating banking system from rapid outflows) rather than capital controls."
    },
    {
      "heading": "IMF instruments (PCL and FCL)",
      "content": "- Question on whether Korea will apply for the PCL/FCL: IMF representative declined to speculate and referred the question to Korean authorities.\n\nTranscript of a Press Briefing on 2010 Article IV Consultation with Korea — September 2, 2010\n\n---\n\n\n References\n\n- Republic of Korea and the IMF\n- IMF Policy Advice -- A Factsheet\n- Transcripts\n- PRESS CENTER\n- https://www.imf.org/en/home\n\nSource: https://www.imf.org/en/news/articles/2015/09/28/04/54/tr090210"
    }
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    "Published: September 2, 2010",
    "Revised GDP growth projections: 6.1 percent this year and 4.5 percent next year.",
    "Growth drivers this year: investment and rebuilding of inventories; shift from public-sector demand to private-sector demand.",
    "Output gap: expected to close sometime over the next few months; baseline assumes easing of growth in the second half of this year.",
    "Upward revision for this year partly reflects stronger-than-anticipated first-half performance and front-loading of the recovery (first-half growth stronger than earlier forecast of 5.7 percent).",
    "4.5 percent projected for next year is described as slightly above the economy’s potential and still robust.",
    "External risks dominate:",
    "Domestic sources of growth are considered strong.",
    "Capital inflows and exchange rate appreciation present potential pressures but are viewed in context of exchange-rate flexibility and export fundamentals.",
    "Recent policy moves:",
    "Current stance:",
    "Neutral rate estimate and room for tightening:",
    "Rationale for rebuilding policy space:",
    "Fiscal policy is described as moving into a consolidation phase this year.",
    "Consolidation is judged appropriate given strong underlying growth and shift from public to private demand.",
    "Low public debt cited as providing capacity to head off future risks.",
    "Recommendation to develop a \"second additional engine of growth\" to reduce vulnerabilities from heavy export dependence.",
    "Encourage making the non-tradable sector more vibrant via structural reforms across multiple fronts.",
    "Authorities announced comprehensive measures (announced last week) addressing housing market concerns:",
    "Observed problems:",
    "Recent large capital inflows to Korea (as in other Asian countries) reflect low yields in advanced economies and Korea’s strong relative growth.",
    "Exchange rate policy:",
    "Impact of appreciation risk:",
    "IMF view: exchange-rate flexibility should be preserved; measures introduced in June were seen as prudential (insulating banking system from rapid outflows) rather than capital controls.",
    "Question on whether Korea will apply for the PCL/FCL: IMF representative declined to speculate and referred the question to Korean authorities.",
    "[Republic of Korea and the IMF](http://www.imf.org/external/country/KOR/index.htm)",
    "[IMF Policy Advice -- A Factsheet](https://www.imf.org/en/about/factsheets/imf-surveillance)",
    "[Transcripts](https://www.imf.org/en/news/searchnews)",
    "[PRESS CENTER](http://presscenter.imf.org/)",
    "[https://www.imf.org/en/home](https://www.imf.org/en/home)"
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