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Economic recovery in South Korea on its way, IMF says

The IMF said yesterday that an economic recovery is on its way in South Korea, where growth is expected to reach 4.75 percent next year.

"We believe that an economic recovery is on its way in Korea, with growth likely to accelerate to around 4.75 percent in 2004 and 5.5 percent in 2005," the fund's Asia-Pacific chief, Joshua Felman, said in a statement.

The statement followed policy consultations between an IMF team and South Korean economic officials.

Felman said South Korea should step up corporate reforms to curb the practice of conglomerate owners exerting more control over a company than their share holdings warranted.

"Since the Asian crisis, Korean corporate governance has improved considerably but problems still remain, especially in firms where those who control the company's operations actually own only a small fraction of the shares," he said.

Critics say top conglomerates in South Korea are still engaged in cross-unit transactions to subsidize weaker operations.

Felman urged South Korea to maintain supportive macro-economic policies saying its current fiscal deficit should be eliminated.

"The only question is how quickly this should be done. In our view, it would be unwise to tighten the budget in 2004, as this could undermine the recovery, which is still in a very early stage," he said.

He called for the early sale of government holdings in three investment trust firms -- Hyundai Investment Securities, Korea Investment Securities and Daehan Investment Securities.
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