Republic Of Korea: Staff Report For The 2011 Article IV Consultation—Informational Annex

Korea’s rapid recovery from the global downturn has transitioned into a full-fledged expansion. Policies to strengthen the resilience of the economy and pave the way for sustained and equitable growth is required. Greater two-way flexibility of the exchange rate is needed to support the monetary policy response to inflation and help alleviate capital inflow pressures. Enhancing the overall macroeconomic and financial policy framework will bolster the resilience of the economy to shocks. Housing policies in the macrofinancial framework will contain leverage and prevent asset price bubbles.

Abstract

Korea’s rapid recovery from the global downturn has transitioned into a full-fledged expansion. Policies to strengthen the resilience of the economy and pave the way for sustained and equitable growth is required. Greater two-way flexibility of the exchange rate is needed to support the monetary policy response to inflation and help alleviate capital inflow pressures. Enhancing the overall macroeconomic and financial policy framework will bolster the resilience of the economy to shocks. Housing policies in the macrofinancial framework will contain leverage and prevent asset price bubbles.

ANNEX I. FUND RELATIONS

(As of July 12, 2011)

Membership Status: Joined August 26, 1955;

Article VIII

General Resources Account

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SDR Department

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Outstanding Purchases and Loans

None

Financial Arrangements (In SDR Million)

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Projected Obligations to Fund 1

(SDR Million; based on existing use of resources and present holdings of SDRs)

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Exchange Rate Arrangement:

Korea’s exchange rate system has been classified as “floating” since 2009. Over 1997-2008 the exchange rate was classified as “free floating” (“independently floating” under the older classification system). Prior to that, the exchange rate against the U.S. dollar was allowed to float only within specified margins around the previous day’s weighted average exchange rate in the interbank market. The margins were widened five times between March 1990 and November 1997 (most recently to +/-10 percent), and on December 16, 1997 were eliminated altogether. On July 12, 2011, the exchange rate was W 1,066=US$1. Korea maintains exchange restrictions for security reasons, in accordance with UN Security Council Resolutions, which have been notified to the Fund under the procedures set forth in Executive Board Decision 144 (52/51).

Last Article IV Consultation:

Korea is on a 12-month consultation cycle. The 2010 Article IV consultation was concluded by the Executive Board on August 25, 2010. Staff discussions for the 2011 Article IV consultation were conducted on a mission to Seoul during June 2-17, 2011. In addition, a staff visit took place during January 12-19, 2011.

FSAP and ROSC Participation:

MCM: An FSAP update has been requested by the authorities and is tentatively scheduled for 2013. The final FSAP mission was conducted during October 2002. The mission completed the FSAP by assessing the short-term vulnerability of the financial sector to macroeconomic and sectoral shocks and analyzing overall financial sector soundness and developmental challenges, including issues arising from the draft standards assessments. A follow-up technical assistance mission on the supervision of derivatives markets was held in Seoul during January 9-20, 2003. The Financial System Stability Assessment report has been published (Country Report No. 03/81) and is available on the web through the following link: http://www.imf.org/external/np/fsap/fsap.asp.

FAD: Discussions on fiscal transparency were held in Seoul during June 2000, and a report was drafted and finalized in November 2000, with input from APD staff. The report has been published and is available on the web through the following link: http://www.imf.org/external/np/rosc/kor/fiscal.htm.

STA: Discussions on Korea’s data dissemination practices against the IMF’s Special Data Dissemination Standard (SDDS) were held in Seoul during December 2009, and a report was drafted and finalized in July 2010. The report has been published and is available on the web through the link: http://www.imf.org/external/pubs/ft/scr/2010/cr10229.pdf

Technical Assistance:

FAD: A technical assistance mission on government finance statistics took place in Seoul during the period November 8-19, 2010. A mission visited Seoul during August 31-September 16, 2005 to provide technical assistance on the reform of tax policy and administration. A technical assistance mission visited Seoul during January 8-19, 2001 to evaluate current practices in budgeting and public expenditure management and to provide advice on setting up a medium-term fiscal framework.

MCM: Technical assistance missions visited Seoul to provide advice on financial holding company supervision and derivatives regulation during December 8-17, 2008, on measures to deepen the money market during December 4-14, 2007, on strengthening the debt management function and further development of the government securities market during September 20-October 2, 2006, on the reform and development of the foreign exchange market during March 30 April 13, 2006, and on macroprudential and derivatives supervision during October 27-November 7, 2005.

STA: Technical assistance missions visited Seoul during March 29-April 12, 2000 to provide advice on balance of payments and external debt statistics, with a view toward improving the recording of financial derivatives and developing an international investment position statement, and during November 28-December 11, 2007 on the GFSM 2001 framework.

Resident Representative:

The resident representative office in Seoul was opened in March 1998 and was closed in September 2008.

ANNEX II. STATISTICAL ISSUES

ANNEX II: KOREA—STATISTICAL ISSUES

As of June 9, 2011

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Korea—Table of Common Indicators Required for Surveillance

(As of June 9, 2011)

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Any reserve assets that are pledged or otherwise encumbered should be specified separately. Also, data should comprise short-term liabilities linked to a foreign currency but settled by other means as well as the notional values of financial derivatives to pay and to receive foreign currency, including those linked to a foreign currency but settled by other means.

Both market-based and officially determined, including discount rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial assets and liabilitiy positions vis-à-vis nonresidents.

Daily (D); weekly (W); monthly (M); quarterly (Q); annually (A); irregular (I); and not available (NA).

Reflects the assessment provided in the data ROSC or the Substantive Update (published in July 2010, and based on the findings of the mission that took place during December 09-22, 2009) for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O); largely observed (LO); largely not observed (LNO); not observed (NO); and not available (NA).

Same as footnote 8, except referring to international standards concerning source data, statistical techniques, assessment and validation of source data, and revision studies.

1

When a number has overdue financial obligations outstanding for more than three months, the amount of arrears will be shown in this section.

Republic of Korea: 2011 Article IV Consultation: Staff Report and Public Information Notice on the Executive Board Discussion
Author: International Monetary Fund