IMF chief says Korean economy remains 'resilient'

Kristalina Georgieva, the managing director of the International Monetary Fund, speaks during a meeting with reporters in Seoul on Dec. 15, 2023. [YONHAP]

International Monetary Fund (IMF) Managing Director Kristalina Georgieva said Friday that the Korean economy remains "resilient" amid signs of a global recovery, with its inflation also anticipated to "moderate" down the road.

"The Korean economy has also been resilient, supported by an effective policy response," Georgieva said during a meeting with Korean reporters in Seoul.

"We have seen the Bank of Korea taking decisive actions since last year, when there was a need to be firm and deliberate and we are also seeing the financial authorities pursuing fiscal normalization," she said.

Korea's central bank held its key interest rate steady in November at 3.5 percent. This marked the seventh straight month that the Bank of Korea has stood steady, after delivering seven consecutive rate hikes from April 2022 to January 2023.

Amid the assessment, Georgieva said inflation is anticipated to moderate down the road to the authorities' 2 percent target. She also noted that it is important that the monetary and financial authorities work "hand in hand" in order to tame inflation.

"We expect that the monetary policy rate stays above neutral for the time being, and of course, the Bank of Korea will closely monitor developments to decide on the course of action," she said.

The IMF head said her institution supports the policy direction of Korea, and that they are "on the same page."

"What we are seeing in Korea is that the government is acting responsibly to normalize its fiscal stance," she said. "When the government expanded fiscal support for a reason to help the economy go through the shocks of last years, it has put some pressure on government finances."

Georgieva said the government's effort to normalize its stance is a "wise" action when the economy is in "good" condition.

But she also pointed out that Korea should "not move any faster than domestic conditions dictate."

"We have seen in history that at this very last mile of fighting inflation, that sometimes countries prematurely declare victory," she said.

"We project the growth in Korea to strengthen from 1.4 percent this year to 2.2 percent in 2024. In other words, growth is picking up in this environment.”

"The fiscal position has to help the central bank bring inflation down, so interest rates can go down, and that could help growth in Korea."

The IMF chief advised Korea to consider policies that can tame inflation while expanding opportunities and increasing productivity.

"[There are] areas like skill development, so you invest in the future, rather than spending today," she said. "And I think Korea has a very good track record of digitization, spurring innovation by investing in skills and people."

Georgieva added that the Chinese economy has been performing better than expected by the IMF, which would be beneficial for export-oriented economies like Korea. China is the biggest trading partner of Asia's No. 4 economy.

"But China does need to look into issues like the property sector developments," she said.

Yonhap