20 Sep 2012

IMF / KOREA

In its latest assessment of the South Korean economy, the International Monetary Fund says that the Korean financial system has become less vulnerable since 2008 due to the concerted efforts of the authorities. External buffers have been strengthened, with higher foreign reserves and bilateral swap lines, while short-term debt has been reduced. IMF

Posted at: September 20, 2012 3:47 pm

Duration: 01:45

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STORY: IMF / KOREA
TRT: 1.45
SOURCE: IMF
RESTRICTIONS: NONE
LANGUAGE: ENGLISH / NATS

DATELINE: 12 SEPTEMBER, 2012, WASHINGTON, DC, UNITED STATES / FILE

SHOTLIST:

RECENT 2012, SEOUL, KOREA

1.Various shots, statue of King Sejong

12 SEPTEMBER, 2012, WASHINGTON, DC, UNITED STATES
2.SOUNDBITE: (English) Ho Ee Khor, Mission Chief to Korea, IMF (Washington, DC – 12 September, 2012): "The Korean financial system is a lot more resilient now than it was a few years ago. It should be able to weather the impact of a euro crisis quite well. The external liability has been reduced, reflecting higher foreign reserve, lower short-term debt, and reduced reliance on the banks on wholesale funding."

RECENT 2012, SEOUL, KOREA

3. Various shots, city scene with heavy traffic

12 SEPTEMBER, 2012, WASHINGTON, DC, UNITED STATES

4.SOUNDBITE: (English) Ho Ee Khor, Mission Chief to Korea, IMF:
"We are much more concerned about the level of household debt because it is very high by international standards. There are two problems with the household debt: first, many of the loans are on floating rate which means that they are subject to interest rates shocks; two, many of the loans are on short term with bullet payments which means that they need to be refinanced every few years. This makes the housing debt a major vulnerability. The authorities are taking steps to reduce the risk, they are curbing household borrowing. They are also encouraging the banks to convert the loans into fixed-rate loans with instalment payments over longer tenure."

RECENT 2012, BALTIMORE, MARYLAND, UNITED STATES

5.Wide shot, containers at port

12 SEPTEMBER, 2012, WASHINGTON, DC, UNITED STATES
6.SOUNDBITE: (English) Ho Ee Khor, Mission Chief to Korea, IMF Washington, DC – 12 September, 2012): "As you know, China is the major importer of commodities and capital goods and any slowdown in China will affect those countries that are producing those goods. Those countries in turn will reduce their imports from the rest of the world including from Korea. However, the risk of this happening is quite small because the Chinese government is very concerned and is taking steps to support the economy."

RECENT 2012, SEOUL, KOREA
7.Wide shot, shopping district

STORYLINE:

Regulators have also taken macroprudential measures to strengthen the resilience of the banks to liquidity shocks. The foreign investor base in the government bond market has also become more diverse, and now includes regional central banks, but Korea still remains vulnerable to shocks from volatile capital flows.

"The Korean financial system is a lot more resilient now than it was a few years ago. It should be able to weather the impact of a euro crisis quite well. The external liability has been reduced, reflecting higher foreign reserve, lower short-term debt, and reduced reliance on the banks on wholesale funding," said the IMF mission chief for Korea Ho Ee Khor.

High household debt remains a source of vulnerability despite relatively stable housing prices, but the authorities are addressing the problems in an appropriate manner.

"We are much more concerned about the level of household debt because it is very high by international standards. There are two problems with the household debt: first, many of the loans are on floating rate which means that they are subject to interest rates shocks; two, many of the loans are on short term with bullet payments which means that they need to be refinanced every few years. This makes the housing debt a major vulnerability. The authorities are taking steps to reduce the risk, they are curbing household borrowing, they are also encouraging the banks to convert the loans into fixed-rate loans with instalment payments over longer tenure," Khor said.

Potential risks include a stronger slowing of China's growth, which would have a considerable impact on Korea as China is its largest trading partner.
"As you know, China is the major importer of commodities and capital goods and any slow down in China will affect those countries that are producing those goods. Those countries in turn will reduce their imports from the rest of the world including from Korea. However, the risk of this happening is quite small because the Chinese government is very concerned and is taking steps to support the economy," Khor said.

Korea's fiscal prudence can help the country address the future challenge of increasing inclusiveness and dealing with an aging population. The economists welcomed plans to raise social spending—which is relatively low by OECD standards—to improve income inequality and the welfare of poorer groups in society, while preserving medium-term fiscal consolidation objectives.

Filed under IMF REPUBLIC OF KOREA.