▲ Choi Ji-young, Executive Director at the International Monetary Fund (IMF), speaks with a South Korean press corps at a restaurant in Bangkok, Thailand, on October 15 (local time).
Choi Ji-young, Executive Director at the International Monetary Fund (IMF), stated, "While other countries are seeing their fiscal space shrink, South Korea is the only one whose fiscal space has expanded (thanks to the semiconductor boom)."
Visiting Bangkok, Thailand, to attend the IMF-World Bank Annual Meetings, Executive Director Choi met with the South Korean press corps on October 15 (local time) and remarked, "The situation is so different from other advanced economies that South Korea stands alone, detached from IMF discussions," describing it as a "positive isolation."
According to the World Economic Outlook released just ahead of the annual meetings, the IMF projected South Korea's real gross domestic product (GDP) growth rate for this year at 3.3%.
This is an upward revision of 0.7 percentage points in just three months compared to the growth forecast of 2.6% announced in July.
It is also higher than this year's global economic growth forecast of 3.1%.
Choi explained, "This is the first time since 2016 (excluding 2020 when COVID-19 broke out) that our country's growth rate has surpassed the global growth rate," adding, "Amid mounting negative pressures on the global economy due to the Middle East situation, the Russia-Ukraine war, and trade tensions between nations, only our country has shown a (clear) increase in growth rate."
Furthermore, regarding the IMF's growth forecast for South Korea this year, she noted, "It does not seem to reflect (the government's) investment in growth potential," adding, "In that respect, it can be considered somewhat conservative (in its prediction)."
Choi diagnosed that with South Korea being a rare exception in performing well economically, the policy advice typically given by the IMF no longer fits South Korea's situation.
She added, "The IMF's basic policy advice is that because there is generalized inflation due to tariff issues and rising oil prices, and things could worsen going forward, fiscal and monetary policies should generally be tightened," noting that "this general advice itself no longer fits South Korea."
Instead, Choi explained, "What the IMF discusses (regarding South Korea) is growth potential," and "The shared consensus (within the IMF) is that while other countries lack the capacity to foster growth potential, South Korea (has that capacity and) must continue making investments to expand its growth potential."
Regarding South Korea's budget bill for next year, she said, "Krishna Srinivasan, Director of the IMF's Asia and Pacific Department, views it neutrally," pointing out that "while fiscal revenues (total revenue) are increasing significantly, the growth rate of fiscal expenditures (total expenditure) is (lower at) 12.8%."
She further noted, "Some of it is used to repay government bonds, and a significant portion is accumulated into the Future Response Fund," adding, "In a way, (next year's budget bill) also has some tightening aspects."
Addressing the criticism that South Korea's fiscal policy is expansionary while its monetary policy is restrictive, creating a policy mismatch, Choi drew a line, stating, "Regarding the claim that fiscal policy is expansionary, Srinivasan, the Director of the Asia and Pacific Department, stated that he does not view (South Korea's fiscal policy) as expansionary."
Her stance is that it is not desirable to use all additional tax revenues solely to repay government bonds, contrary to some arguments.
Choi remarked, "Wouldn't it be unreasonable financial management for a company to pay off all its debts just because its revenue suddenly increased?" and added, "There is a consensus that we must continue to make investments that enable companies to grow further and expand their market share."
In this context, she explained that the IMF views the newly established Future Response Fund positively.
Choi noted, "From the IMF's perspective, we must examine the (specific) details," while evaluating that "the structure of accumulating a portion of next year's expenditures, about 60%, is positive."
She added, "When the annual consultations begin in November, that topic will likely be raised from the IMF's side."
She also conveyed that the IMF's perspective is that the artificial intelligence (AI) investment boom will continue for a considerable period.
Choi stated, "Most of the heavy AI investments happening right now are in data centers, and building a data center can take about 10 years," adding, "We do not believe that investments happening right now will suddenly collapse the year after next and become meaningless."
She added, "There will be volatility, just like U.S. AI company stocks dropping (today), but we need to look at the big picture over the long term."
However, regarding the IMF's view on AI, she said, "Fundamentally, it is not favorable," and "We believe that rather than bringing short-term productivity improvements, AI is likely to have a significant negative impact on the labor market."
She also explained that the national debt ratio should be lowered by expanding growth, which serves as the denominator.
Previously, the IMF projected South Korea's general government debt (D2) to GDP ratio at 54.4% for this year and 56.6% for next year.
However, in this month's revised outlook, those ratios were lowered to 47.3% for this year and 46.2% for next year.
Choi explained, "When the national debt ratio is around 50% of GDP like in South Korea, the ratio varies drastically depending on how much growth is achieved."
She emphasized, "For a growing country like South Korea, rather than obsessing over the national debt ratio itself, it is important to focus on how much we invest in innovative areas and grow moving forward."
When asked whether the improvement in the debt ratio could be seen as the result of active fiscal policy, she drew a line, stating, "The AI supercycle itself did not come about as a result of fiscal policy."
However, she explained, "The IMF's position is that there was an unexpected Middle East conflict, and if the government had not played its proper role in that situation, the lives of the citizens would have been much worse."
She added, "In that respect, South Korea responded well from a fiscal standpoint (including the oil pricing system)."
(Photo: Joint Press Corps, Yonhap News)
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