The IMF’s warningAfter finishing its annual assessment of the Korean economy, the International Monetary Fund (IMF) praised its fundamental strength, but warned of risks from negative developments around the world. The fund cited concerns about the weakened growth potential of the economy and deepening income disparities, advising the government to create a supplementary budget of 0.5 percent of last year’s gross domestic product of 1.782 trillion won ($1.6 trillion) in order for South Korea to achieve growth in the government-targeted 2.6 to 2.7 percent range this year.
Alarm bells went off for the Korean economy a long time ago. Traditional mainstay industries — such as steel and automobiles — have lost their competitiveness due to waning productivity and higher trade barriers. Exports have slumped after semiconductors entered a downturn. Sluggish corporate investment and the thinning working population pose structural concerns for a lengthy recession. The Bank of Korea, the Organization for Economic Cooperation and Development and other institutions both at home and abroad have all cut the growth estimates for the country. The milestone of achieving a per-capita income of $30,000 gave little comfort to the majority Koreans stricken with joblessness and income inequalities.
The IMF advises more fiscal expansion to bolster the economy, but how long this stimulus will work is questionable. The government must find a way to reinvigorate the economy without jeopardizing fiscal integrity. It also should pay heed to the IMF’s concerns about the speed of our minimum wage increases.
The IMF also advised faster deregulation and eased protection for traditional industries. It also prescribed flexicurity — which combines labor flexibility and security — to reform the rigid local labor market. Other international organizations have all given the same advice about the need for structural reform in Korea. It has become urgent for the government to show its will and capability to put this prescription into practice.
JoongAng Ilbo, March 13, Page 30