An International Monetary Fund (IMF) team led by Tarhan Feyzioglu visited
Seoul during February 27–March 12 to conduct discussions for the 2019
Article IV Consultation. Mr. Feyzioglu issued the following statement at
the conclusion of its visit:
“Korea’s economy has strong fundamentals. The country has a skilled labor
force, strong manufacturing base, a stable financial system, low public
debt, and ample foreign exchange reserves. Per-capita income recently
exceeded thirty-thousand dollars. These achievements are a testament to
Korea’s strong public institutions and generally prudent macroeconomic
management.
“Korea is, however, facing headwinds in the short- and medium-term, with
risks tilted toward the downside. Growth is moderating on the back of
sluggish investment and global trade. Inflation pressures are weak, and
employment creation has been tepid. Household leverage is high and
continues to increase. Potential growth has declined, with its prospects
hindered by unfavorable demographics and declining productivity growth.
Polarization and inequality are concerns. There is also a substantial
productivity gap between the manufacturing and service sectors, as well as
between small and large firms.
“In the face of slowing growth and rising inequality, the authorities have
moved to a more expansionary fiscal stance, and have focused on supporting
job creation, strengthening social safety nets, and increasing the minimum
wage. They have also taken steps to promote growth through innovation by
supporting small- and medium-sized enterprises. To contain financial risks
the authorities have broadened and tightened macroprudential measures.
“Staff recommend an integrated package of further macroeconomic, financial
and structural policies to support growth, raise potential output, and
reduce excess internal and external imbalances, while preserving financial
stability.
“To support short-term growth and contain risks, the authorities should provide more fiscal stimulus through a supplementary budget, with measures that promote potential
output. The Bank of Korea should have a clearly accommodative monetary
policy stance, and the authorities should maintain appropriately tight
macroprudential policies to preserve financial sector resilience.
“To promote long-term, inclusive growth and job creation, fiscal policy
should remain expansionary in the medium-term. Flexicurity should be
adopted as a basis for labor market policies by making employment
protection legislation more flexible, while further enhancing social safety
nets and Active Labor Market Policies. Female labor market participation
should be promoted, including through improved childcare and child
benefits. Rigidities in product market regulations should be addressed by
further reducing barriers to entry and the protection of incumbents.”
The staff team would like to express its appreciation to the authorities
and other counterparts for productive discussions and their warm
hospitality during its visit.
