South Korea should consider cutting interest rates further and increasing government spending to help economic growth reach its potential, the IMF said.
"When growth is slower than the potential rate, the government should be running deficits," said Paul Gruenwald, the IMF's resident representative in Korea, in an interview. He added that "there's scope to lower [interest rates] a little bit."
South Korea's government probably posted a surplus last year, even as it spent US$5.1 billion more than budgeted on public-works projects and job programs, and expects another surplus this year. The central bank, which cut rates to a record low last year, has held borrowing costs steady the past four months, citing signs of an economic rebound.
Growth in Asia's third-largest economy will probably accelerate to more than 4 percent this year from an estimated 2.8 percent last year as exports reverse last year's 13 percent decline, according to the government.
Even so, Gruenwald said, South Korea has room to do more to spur growth.
"If you have the flexibility to provide stimulus to the economy when performance is weak and take that out when performance is very strong, that's a better macro policy than trying to balance the budget every year," Gruenwald said.
The government, which earlier forecast a 4.5 trillion won (US$3.4 billion) budget deficit for last year, probably posted its second straight surplus instead, according to the Budget and Planning Ministry, which didn't give an exact estimate. This year, it expects a surplus of about 6 trillion won.
Finance Minister Jin Nyum said in December the government probably won't have to rely on extra spending this year as the economy rebounds faster than expected.
The central bank, which trimmed its key interest rate 1.25 percentage points to 4 percent last year, may be finished easing credit. Seven of 16 economists polled last month said they expect the bank to raise rates later this year as it shifts its focus from spurring growth to curbing inflation.
Bank of Korea Governor Chon Chol-hwan said earlier this week a weaker Japanese yen may push consumer prices in the coming months, making it harder for the bank to meet its inflation target.
Even so, Gruenwald said, the central bank shouldn't rule out cutting rates again if growth doesn't meet targets.
"We think they've done a good job," he said. "Still, there's scope to lower [rates] a little bit if things turn out to be a bit weaker."
Risks to South Korea's economy from the weakening yen, which has slid about 13 percent against the dollar in the past five months, are "manageable," he said, citing the country's flexible exchange rate.
INVESTIGATION: The case is the latest instance of a DPP figure being implicated in an espionage network accused of allegedly leaking information to Chinese intelligence Democratic Progressive Party (DPP) member Ho Jen-chieh (何仁傑) was detained and held incommunicado yesterday on suspicion of spying for China during his tenure as assistant to then-minister of foreign affairs Joseph Wu (吳釗燮). The Taipei District Prosecutors’ Office said Ho was implicated during its investigation into alleged spying activities by former Presidential Office consultant Wu Shang-yu (吳尚雨). Prosecutors said there is reason to believe Ho breached the National Security Act (國家安全法) by leaking classified Ministry of Foreign Affairs information to Chinese intelligence. Following interrogation, prosecutors petitioned the Taipei District Court to detain Ho, citing concerns over potential collusion or tampering of evidence. The
Seventy percent of middle and elementary schools now conduct English classes entirely in English, the Ministry of Education said, as it encourages schools nationwide to adopt this practice Minister of Education (MOE) Cheng Ying-yao (鄭英耀) is scheduled to present a report on the government’s bilingual education policy to the Legislative Yuan’s Education and Culture Committee today. The report would outline strategies aimed at expanding access to education, reducing regional disparities and improving talent cultivation. Implementation of bilingual education policies has varied across local governments, occasionally drawing public criticism. For example, some schools have required teachers of non-English subjects to pass English proficiency
NEGOTIATIONS: The US response to the countermeasures and plans Taiwan presented has been positive, including boosting procurement and investment, the president said Taiwan is included in the first group for trade negotiations with the US, President William Lai (賴清德) said yesterday, as he seeks to shield Taiwanese exporters from a 32 percent tariff. In Washington, US Trade Representative Jamieson Greer said in an interview on Fox News on Thursday that he would speak to his Taiwanese and Israeli counterparts yesterday about tariffs after holding a long discussion with the Vietnamese earlier. US President Donald Trump on Wednesday postponed punishing levies on multiple trade partners, including Taiwan, for three months after trillions of US dollars were wiped off global markets. He has maintained a 10 percent
TRADE: The premier pledged safeguards on ‘Made in Taiwan’ labeling, anti-dumping measures and stricter export controls to strengthen its position in trade talks Products labeled “made in Taiwan” must be genuinely made in Taiwan, Premier Cho Jung-tai (卓榮泰) said yesterday, vowing to enforce strict safeguards against “origin laundering” and initiate anti-dumping investigations to prevent China dumping its products in Taiwan. Cho made the remarks in a discussion session with representatives from industries in Kaohsiung. In response to the US government’s recent announcement of “reciprocal” tariffs on its trading partners, President William Lai (賴清德) and Cho last week began a series of consultations with industry leaders nationwide to gather feedback and address concerns. Taiwanese and US officials held a videoconference on Friday evening to discuss the
RSS