IMF chief expresses support for Moon’s growth policies
Lagarde on Monday met with President Moon and the two discussed Korean economic policies.
The IMF chief, while confident in the South Korean economy’s resilience against adversities, including current geopolitical tensions, did raise concerns over the recent tension created by North Korea.
“It’s clearly a demand policy which needs to be much abided by the supply side as well,” Lagarde said during a press conference held in Seoul on Monday in regards to Moon’s income-led growth.
“So while some measures are really likely to deliver an upside, for instance if you increase the minimum wage, people are going to spend more, it is going to kick start additional consumption and it is going to rebalance the growth model,” she added.
“[But] my experience as the former French finance minister, you need to be balanced and cautious. [You need to] move reasonably in accordance with the pace of the economy”.
She said changes are always welcomed but the implementation of such changes needs to be measured for it to be efficient and not lead to exclusion.
“Because if you move too fast on the salary scale, you are at risk of excluding people at the other end,” Lagarde said.
Lagarde said she has been impressed with the strides that the Korean economy has been able to achieve in the last two decades since the South Korean government requested the assistance of the global organization. She especially highlighted how the South Korean economy has been able to show strong resilience against geopolitical threats from North Korea and that the numbers reflect that. She attributed the success to the South Korean government’s efforts on structural reforms.
This year marks the 20th anniversary since the South Korean government requested the assistance of the global organization as it faced one of its worst financial crisis.
“It has also proved that it is highly resilient to shocks including shocks resulting from geopolitical tensions,” Lagarde said.
“The message I’ve conveyed to the authorities is that to embark on a continuous journey of prosperity, clearly new economic policies have to be considered.”
One of the biggest challenges Lagarde saw threatening Korea’s economy was the demographic changes where starting this year the working population will decrease by 100,000. Also she warned of declining productivity, which she said wasn’t a problem specific to Korea but will affect its economy as it will with most advanced economies.
“Korea has the space, particularly the fiscal space, to actually address those issues,” Lagarde said. “To target the medium challenges of the financial safety net of the elderly people, of the women contribution to the economy.
“We believe that combining integration of women, innovation, having fair competition playing field are very good, despite the external threat that addresses with resilience that is parallel to none,” she said.
One of the things that she was concerned about was geopolitical tension.
“I visited the DMZ and it certainly gave me almost the physical impression of the separation,” Lagarde said. “In any circumstances; prewar, discussion about conflicts, let alone war, are hurting economic development, and are hurting people.”
Lagarde also stressed the importance of trade.
“What we have seen over the course of time, trade being a significant contributor to many objectives that society have. Reducing and eliminating poverty, boosting productivity and innovation,” Lagarde said. “So trade is actually productive to all those objectives.”
Her comments came as Fitch on Monday projected that the heightening tensions on the Peninsula will likely weigh in on South Korea’s economy.
In a report Fitch stated that “tensions are higher than they have been for many years, and the strategic balance is changing.
“Because economies are so closely interconnected, including those that want to cast themselves aside, we try to study spillover effects of decisions. So one country decides that trade is off, it is not only going to affect itself but it is also going to affect many other countries and not necessarily direct partners,” Lagarde said.
BY LEE HO-JEONG [firstname.lastname@example.org]
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