SINGAPORE, Dec. 4 (UPI) -- The International Monetary Fund Tuesday called on South Korea to adopt expansionary monetary and fiscal policies to tide over a protracted global economic downturn.
"Despite the downward adjustments to global growth forecasts, there are still downside risks from both economic factors and broader considerations that could result in a rapid deterioration in the global economy," said Paul F. Gruenwald, IMF's new president representative for South Korea.
The cyclical economic downturn is most likely to be prolonged due to the fallout from the Sept. 11 terrorist attacks on the United States, which could lead to further strains for weak companies and financial institutions, he said at a news conference to mark the fourth anniversary of the IMF bailout of South Korea.
South Korea's macroeconomic policies "should reflect the nature of the risks to the growth outlook and Korea's role in the global economy," Gruenwald said, urging the country to pursue expansionary monetary and fiscal policies that could "cushion the impact of the cyclical downturn. "This is important not just for Korea, but also from a regional and global perspective," he added.
The IMF arranged a $58.35 billion rescue package for South Korea in December 1997 when the country teetered on the brink of national bankruptcy. Thanks largely to the IMF bailout fund and reform programs, South Korea's economy, which shrank 5.8 percent in 1998 in the aftermath of the Asian financial turmoil, rebounded to grow 10.7 percent in 1999 and 8.8 percent in 2000.
But the growth lost steam this year as the export-driven economy was hit by severe shocks from global downturn in the information technology sector and slower growth in major trading partners, such as the United States and Japan.
The consensus estimate of this year's growth in gross domestic product remains less than 3 percent.
Gruenwald praised the progress in the area of structural reforms, but pointed out a lingering perception that South Korea's restructuring drive has recently stalled.
"This perception, whether warranted or not, needs to be reversed through tangible results, including asset sales and the liquidation of persistently weak companies," he said.
Calling for South Korea's continued reform crusade aimed at overhauling debt-ridden corporate and financial sectors, Gruenwald said the country's main vulnerability was "rooted in continued weaknesses of the corporate and financial sectors."
South Korea's chief economic policymaker said he would accept the IMF advice by taking "appropriate and aggressive" monetary and fiscal polices to get through economic troubles.
The South Korean economy is expected to grow 3 percent to 4 percent next year through flexible macroeconomic policies, Finance and Economy Minister Jin Nyum told a group of U.S. investors.
