S. Korea’s monetary, budget tightening policies ‘right’: IMF

The International Monetary Fund (IMF) has said South Korea’s latest restrictive monetary and budget policies are headed in the right direction and anticipated the economy will speed up recovery in the second half, Seoul’s finance ministry said Tuesday.

Harald Finger, Korea missions chief at the Washington-based organization, made the remark during a virtual meeting with Finance Minister Choo Kyung-ho, according to the Ministry of Economy and Finance.

During the meeting between the IMF and the South Korean government, Finger said Seoul’s recent measures aimed at monetary and budgetary restraint were the “right set of policies,” and advised Asia’s No. 4 economy to maintain the tightening stance.

Last month, South Korea’s finance ministry proposed a budget of 656.9 trillion won (US$492 billion) for 2024, up 2.8 percent from this year’s budget of 638.7 trillion won.

It slowed sharply from the previous year’s 5.1 percent rise and marked the slowest on-year growth since 2005.

South Korea’s central bank also held its key interest rate steady at 3.5 percent for the fifth straight time as it weighs a slowdown in growth amid moderating inflation.

The finance ministry said Finger gave a “positive assessment” of the 2024 budget plan and suggested South Korea make efforts to promptly adopt the fiscal rule as well.

Finger added the South Korean economy is expected to speed up its recovery for the remaining 2023 on the back of the improving chip cycle.

South Korea was successful in stabilizing property costs by easing regulations while offering tax cuts, Finger was quoted as saying by the ministry.

South Korea has been seeking to enforce tighter fiscal rules that center on capping the deficit at 3 percent of the country’s gross domestic product.

During the meeting, Choo added the government will continue to make efforts to stabilize consumer prices while supporting the private sector to seek an economic rebound in the second half of 2023.

In July, the IMF slashed its 2023 economic growth outlook for South Korea to 1.4 percent amid “persistent challenges” in the global economy. It marked a 0.1 percentage point drop from the estimate of 1.5 percent released in April.