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IMF says S. Korean Economy in Full Recovery
By Kim Myong-hwan
February 3, 1999
SEOUL, South Korea (Reuters) - The International Monetary Fund has agreed that South Korea's economy is in full-fledged recovery 14 months after plunging into crisis and its structural reforms are being undertaken successfully, the finance ministry said Wednesday.
But analysts said the IMF's assessment of the economy was a bit too rosy as South Korea's export machinery remained shaky and corporate restructuring was far from complete.
"Whether South Korea's economy is picking up solidly is still an open question,'' said Henry Morris, director at Seoul-based Industrial Research & Consulting Ltd.
"It is too premature to judge whether the country's business conglomerates have really improved performance through layoffs of redundant workers.''
After a quarterly review of the South Korean economy, the IMF endorsed the government's forecast that 1999 gross domestic product would rise 2 percent.
The IMF revised its forecast rise in the consumer price index, South Korea's leading inflation indicator, downward to 3 percent from an earlier 5 percent.
In the previous review last October, the IMF said GDP would grow "positively'' in 1999 after contracting in 1998. GDP in 1998 shrank 5.5 percent from the previous year, the ministry said.
The ministry said the IMF also agreed to review South Korea's economy on a half-year basis, instead of quarterly from this year as the economy showed clear signs of recovery. The next regular review is scheduled in July.
Although the signs are patchy, economists believe the Korean economy bottomed out in fourth quarter last year and has been growing since.
The current account surplus, estimated at $40 billion in 1998, was expected to remain at a "considerable level'' this year, the IMF said, but it gave no specific figure.
The finance ministry has said the surplus would reach about $20 billion this year.
The IMF could allow South Korea to lower interest rates further as earlier cuts in the rates had contributed to the economic recovery, the ministry said.
"The hidden message in the IMF's review seems to be that the agency wants Korea to push harder with its restructuring drive on the back of improving economic strength,'' said Lee Hahn-koo, president of Daewoo Economic Research Institute.
Analysts said exports could lose steam in the aftermath of financial instability in Brazil and Russia and that domestic demand was unlikely to revive quickly as consumers would save more than they spent due to fears of a prolonged recession.
"South Korean exports look heavily dependent upon the booming semiconductor sector,'' said Jwa Seung-hee, president of Korean Economic Research Institute. "There are still plenty of pitfalls lurking in the country's economic future.''
The ministry said South Korea would be able to receive its next tranche of $250 million from the IMF by early April, when the results of the latest review were approved by IMF directors.
The ministry said that with the next tranche, the IMF would have disbursed $19.25 billion of the $21 billion in soft loans the agency had committed under the $58.35 billion bailout package it arranged for Seoul in December 1997.
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