Heo Jang (photo, 57), the executive director of the IMF, replied when asked about the story behind the report of the IMF’s recent annual consultation on Korea. Heo, who was appointed as a director of the IMF in November last year, was appointed to public office for 35 times.
Earlier, the IMF predicted the growth rate of Korea at 3.6% this year in its annual consultation report on the 26th of last month. This is a forecast that is 0.5 percentage points higher than the previous forecast announced in January. The IMF concluded that “the Korean economy has turned to recovery.”
Director Huh explained that the IMF made two short- and long-term policy recommendations for the Korean economy. Even if the growth rate rises, it is recommended that the victims, such as self-employed people who have suffered from coronavirus, should further loosen their finances and support them. In the long run, it is advised that fiscal rules should be prepared to manage debt debt.
Director Huh said, “By at least until this year, we need to support the vulnerable by strengthening the social safety net.” “If the 5th emergency disaster support fund is paid, the IMF will not object.” In its annual consultation report, the IMF pointed out that “we welcome the supplementary administration (which reflects the 4th disaster subsidy)” and that “in the short term, we should maintain an expanding fiscal policy.
In addition, Director Heo emphasized, “The fiscal rules do not mean that they will not use and bind the finances, but show the government’s willingness to manage them.”
The fiscal rule that the Ministry of Information and Infrastructure is pursuing with the aim of introducing it in 2025 is to keep the national debt ratio below 60% of gross domestic product (GDP) and keep the integrated fiscal balance (gross income-total expenditure) below -3% of GDP. Contains. The Ministry of Knowledge Economy proposed an amendment to the National Finance Law in December last year, which contained these fiscal rules, but is currently pending in the National Assembly. The following are the main contents of the international telephone interview with Director Huh on the 31st of last month.
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-Why did IMF increase Korea’s growth rate to 3.6% this year?
△ For two reasons. First, domestic demand is reviving with the spread of vaccines. It started to supply vaccines in a large scale, mainly in advanced countries such as the United States. As a result, the world economy is expected to recover significantly faster than expected. Second is the policy effect of expanding finance. As the government actively loosens its finances, the growth rate is expected to rise above the original estimate.
-Is there a possibility that the growth rate will rise more than the forecast?
△IMF announces the forecast of global economic growth this year at the global annual meeting on the 6th (Korean time). There is a possibility that the forecast for the global economic growth rate will rise from the beginning. In particular, the United States is recovering rapidly. Accordingly, the growth rate of the Korean economy could also rise higher than the 3.6% forecast. The IMF is also so optimistic. Domestic demand is key. In Korea, if domestic demand survives, the growth rate can improve along with exports.
-How does the IMF Board evaluate the Korean economy?
△ At the board of directors, it was an atmosphere to praise Korea for its response to Corona 19. The ratio of national debt to GDP is 40%, which is better than other countries. In such a difficult situation, it was also positively evaluated that it is carrying out a project to prepare for the future like the Korean version of the New Deal. The Egyptian director said he would learn and spread Korean models well. The Saudi director shared English materials related to K-Defense.
-There is a temperature difference between such overseas evaluation and domestic evaluation.
△ It is true that our country’s response was better against the corona compared to other countries. Korea’s growth rate recorded -1.0% last year. It is difficult to find such a good place among the member states of the Organization for Economic Cooperation and Development (OECD). Korea has been very robust in quarantine. There were no big problems in terms of finances as well. In particular, the IMF positively evaluated Korea’s fiscal rules.
-What positive evaluation did IMF give regarding Korea’s fiscal rules?
△ The fiscal rule does not mean that it will not use and bind finances, but it shows the government’s willingness to manage finances. The deficit is increasing now, but it is showing signs that it will manage it in the mid to long term. If Korea had not promoted the introduction of fiscal rules, it would have been pointed out by the IMF. Perhaps there was a talk from the IMF saying’Take care of the fiscal consolidation problem’.
-Will the national credit rating be affected?
△IMF is paying close attention to whether Korea finally introduces fiscal rules through the National Assembly. Credit rating agencies are also talking a lot about fiscal rules. If the introduction of the fiscal rules fails and Korea is known to have no interest or will in introducing fiscal rules, there will be a negative impact. Introducing fiscal rules to get credit ratings and pay attention to fiscal soundness.
-If so, should we introduce fiscal rules right away?
△ That’s not it. The fiscal rules established by the Ministry of Strategy and Finance are also to be introduced in 2025. The IMF is highly recommending Korea’s fiscal spending in the coronavirus situation. At least until this year, it is necessary to support the vulnerable by strengthening the social safety net. And in the mid to long term, fiscal standards should be introduced to ensure fiscal soundness.
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-How will the 5th emergency disaster support fund be paid in the future?
△ It is up to the Korean government to decide whether or not to pay the 5th disaster support fund depending on the economic situation. However, the IMF will not oppose additional financial expenditures such as the 5th subsidy. This is because the IMF gave a very positive evaluation of the supplementary administration in which the 4th disaster subsidy was reflected. The IMF is positive about support to strengthen the social safety net in the coronavirus situation. However, the IMF recommends selective support to the corona-affected class, not indiscriminately to the entire population.
-How about a cut in the base rate?
△ The IMF saw that Korea had room to lower the benchmark interest rate even further. This is because a more relaxed monetary policy can solidify the economic recovery in the future. On the other hand, the Bank of Korea is cautious about lowering interest rates further. This is a matter to be judged by looking at household debt and real estate risk. The IMF also pointed out that it is necessary to strengthen regulations if household debt continues to increase.
-What did IMF point out about real estate in Korea?
△ Since IMF focuses on the macroeconomy, there was no specific point on real estate in Korea this time. They are mainly looking at the negative effects of real estate on finance. For this reason, IMF directors ordered to strengthen household soundness measures if household debt continues to increase. He also recommended that the effect on the real estate market should be closely monitored.
-IMF also ordered to ease labor market rigidity.
△ The IMF recommended hiring more women to increase the potential growth rate in Korea. This is to ensure that young people, women, the elderly, and the vulnerable are not left out. Some point out that the duality of the labor market should be eased between regular and non-regular workers. However, this does not mean that the labor market reform should be initiated immediately in the coronavirus situation. This is because now is the time to strengthen the social safety net. This is the time when a big compromise is needed through the tripartite dialogue between the three parties.