Abstract
This 2013 Article IV Consultation highlights that the Republic of Korea has experienced impressive growth since the 1970s, enabling it to escape the middle-income trap. Policies should aim to tackle the weakness of domestic demand and counter forthcoming headwinds to potential growth. Korea is reaping the benefits of prudent macroeconomic management and financial moderation. The economy faces significant medium-term growth and inclusiveness challenges. Slow household income growth hinders stabilization in household debt and weighs on domestic demand, while services sector productivity is very low.
Fund Relations
(As of November 20, 2013)
Membership Status: Joined August 26, 1955; Article VIII
General Resources Account
| SDR Million | Percent Quota | ||
| Quota | 3,366.40 | 100.00 | |
| Fund holdings of currency (exchange rate) | 2,556.47 | 75.94 | |
| Reserve tranche position | 809.94 | 24.06 | |
| Lending to the Fund | |||
| New arrangements to borrow | 818.76 | ||
| SDR Million | Percent Quota | ||
| Quota | 3,366.40 | 100.00 | |
| Fund holdings of currency (exchange rate) | 2,556.47 | 75.94 | |
| Reserve tranche position | 809.94 | 24.06 | |
| Lending to the Fund | |||
| New arrangements to borrow | 818.76 | ||
SDR Department
| SDR Million | Percent Allocation | |
| Net cumulative allocation | 2,404.45 | 100.00 |
| Holdings | 2,261.35 | 94.05 |
| SDR Million | Percent Allocation | |
| Net cumulative allocation | 2,404.45 | 100.00 |
| Holdings | 2,261.35 | 94.05 |
Outstanding Purchases and Loans
None
Financial Arrangements (In SDR Million)
| Type | Date of Arrangement | Expiration Date | Amount Approved | Amount Drawn |
| Stand-by | Dec. 04, 1997 | Dec. 03, 2000 | 15,500.00 | 14,412.50 |
| Of which SRF | Dec. 18, 1997 | Dec. 17, 1998 | 9,950.00 | 9,950.00 |
| Stand-by | Jul. 12, 1985 | Mar. 10, 1987 | 280.00 | 160.00 |
| Stand-by | Jul. 08, 1983 | Mar. 31, 1985 | 575.78 | 575.78 |
| Type | Date of Arrangement | Expiration Date | Amount Approved | Amount Drawn |
| Stand-by | Dec. 04, 1997 | Dec. 03, 2000 | 15,500.00 | 14,412.50 |
| Of which SRF | Dec. 18, 1997 | Dec. 17, 1998 | 9,950.00 | 9,950.00 |
| Stand-by | Jul. 12, 1985 | Mar. 10, 1987 | 280.00 | 160.00 |
| Stand-by | Jul. 08, 1983 | Mar. 31, 1985 | 575.78 | 575.78 |
Projected Obligations to Fund 1
(SDR Million; based on existing use of resources and present holdings of SDRs)
| Forthcoming | |||||
| 2012 | 2013 | 2014 | 2015 | 2016 | |
| Principal | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Charges/interest | 0.03 | 0.14 | 0.14 | 0.14 | 0.14 |
| Total | 0.03 | 0.14 | 0.14 | 0.14 | 0.14 |
| Forthcoming | |||||
| 2012 | 2013 | 2014 | 2015 | 2016 | |
| Principal | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
| Charges/interest | 0.03 | 0.14 | 0.14 | 0.14 | 0.14 |
| Total | 0.03 | 0.14 | 0.14 | 0.14 | 0.14 |
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). 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).
FSAP and ROSC Participation:
An FSAP update, requested by the authorities, was conducted in April and July 2013. The missions included an assessment of various financial sector standards; the soundness of the financial sector, including vulnerability to macroeconomic shocks; and the crisis preparedness and management framework of Korea. Prior to this, the previous FSAP mission was conducted in October 2002. The Financial System Stability Assessment (FSSA) report for the 2003 assessment has been published (Country Report No. 03/81) and is available on the web at: 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 on the Observance of Standards and Codes (ROSC) 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. Two missions to support reforms related to government finance statistics visited Korea during November 28–December 11, 2007 and November 8–19, 2010, respectively.
Resident Representative:
The resident representative office in Seoul was opened in March 1998 and was closed in September 2008.
Statistical Issues
As of November 20, 2013
| I. Assessment of Data Adequacy for Surveillance | |
| General: Data provision is adequate for surveillance. | |
| National Accounts: The overall structure of the national accounts follows the recommendations of the 1993 System of National Accounts. Chain-linked (reference year 2005) and nominal GDP estimates are compiled using the production and expenditure approaches; nominal GDP estimates are also compiled using the income approach. After the revision to reference year 2005, the estimation method for expenditure components has been altered from the commodity flow method to the direct estimation method, in which each expenditure component is measured directly. The size of the informal sector has not been measured. Improved methods are required to adjust quarterly (seasonally-unadjusted) GDP estimates to agree with annual (benchmark) GDP estimates. | |
| Consumer Price Index: The Consumer Price Index (CPI) covers 92.9 percent of total households of Korea; it excludes farming and fishing households. The geographical coverage, which includes 37 urban areas, should be extended to rural areas. The consumption basket is updated only every five years; currently, expenditure weights are derived from the 2010 Household Income and Expenditure Survey. The new CPI index adopts both geometric means and the ratio of arithmetic means. The geometrics means should be used for all unweighted aggregation. The missing prices of products, except for the seasonal items, are imputed by the price movements of similar products of the same item in the same geographic area. However, the CPI could be improved further by imputing missing prices of the seasonal items rather than carrying forward the last reported prices. | |
| Producer Price Index: The Producer Price Index (PPI) covers all domestic industrial activities and a large segment of service activity. It excludes exported products, however, because the Export Price Indexes are compiled separately in Korea. The rebased PPI (2010 = 100) employs 2008 SNA concepts and definitions for the record and valuation of the prices and weights. The PPI could be improved by making more use of imputing missing prices using the prices of similar commodities, rather than carrying forward the last reported price. Mostly, the simple geometric average and the weighted geometric average are employed in the elementary level index compilation. But in some, the indices are computed by the weighted arithmetic average .Nevertheless, the headline PPI should be changed to the one based on a geometric mean at the elementary level. The PPI classification by activity conforms to the KSIC, which is itself based on the International Standard Industrial Classification (ISIC)—with slight modifications only to reflect local considerations. The Korean commodity classification used for the PPI does not conform to the Central Product Classification (CPC) and one based on the CPC should be adopted as soon as possible. | |
| Government Finance Statistics: Two sets of government finance statistics (GFS) are compiled for the central government, one using national definitions and the other using internationally recognized standards. Concepts and definitions used in the latter followed the recommendations of the Manual on Government Finance Statistics 1986 until recently. The authorities have embarked on an ambitious program to implement reporting according to GFSM 2001, and the first set of financial statements based on the reformed system was released in 2012. The 2009 ROSC indicated that while compilation practices are generally sound, some room for improvement of the accessibility and timeliness of data and metadata existed. Following the 2009 ROSC, the Korean authorities resumed reporting consolidated GFS data on the general government for publication in the Government Finance Statistics Yearbook (GFSY). The timeliness of these data does not comply with SDDS requirements, mainly due to the lack in timeliness on local government source data. During the 2009 ROSC, the authorities also agreed to improve national dissemination practices and initiated work on improving national websites. However, high frequency data for inclusion in the International Financial Statistics (IFS) are not yet reported. | |
| Financial Sector Data; Monetary and financial statistics (MFS) compiled by the Bank of Korea (BOK) broadly follow the IMF’s Monetary and Financial Statistical Manual 2000. Both liabilities and assets in foreign currencies are converted into Korean Won at the previous business day’s trading volume weighted average rate prevailing on the balance sheet date. The data are revalued monthly. The BOK is in discussion with STA about reporting MFS using the standardized report forms (SRFs) and drafting related metadata for publication in the IFS. Draft SRFs for the central bank and other depository corporations were reported to STA. Korea participates in the regular reporting of Financial Soundness Indicators (FSIs) to the IMF for dissemination on its website. FSI data and metadata are available to the public through the IMF’s website at: http://fsi/FSIHome.aspx#Country. | |
| External Sector Statistics: The BOK currently compiles the BOP and IIP statistics consistent with the Balance of Payment and International Investment Position Manual, sixth Edition (BPM6) analytical framework (see http://ecos.bok.or.kr/). The authorities have indicated that the data published in the BOK website are the results of the first-stage implementation of the BPM6, and data compiled by fully using this framework are scheduled to be disseminated in 2013. The quality of the quarterly external debt statistics has greatly improved. In early 2007, the BOK switched from annual to quarterly reporting of the International Investment Position. Data dissemination on international reserves and foreign currency liquidity meets the SDDS specifications. Since April 2006, the authorities have disseminated foreign reserves data on a monthly basis rather than twice a month, as had been done since 1997. Korea reports balance of payments and IIP data for the IFS (quarterly data) and the Balance of Payments Statistics Yearbook (annual data) publications. | |
| II. Data Standards and Quality | |
| Korea has subscribed to the Fund’s Special Data Dissemination Standard (SDDS) since September 1996, and it uses SDDS flexibility options for the timeliness of the general government operations, central government operations and. analytical accounts of the banking sector data. Korea is also availing itself of a relevant flexibility option for the coverage of exchange rates. | A Data ROSC reassessment was published in July 2010. |
| I. Assessment of Data Adequacy for Surveillance | |
| General: Data provision is adequate for surveillance. | |
| National Accounts: The overall structure of the national accounts follows the recommendations of the 1993 System of National Accounts. Chain-linked (reference year 2005) and nominal GDP estimates are compiled using the production and expenditure approaches; nominal GDP estimates are also compiled using the income approach. After the revision to reference year 2005, the estimation method for expenditure components has been altered from the commodity flow method to the direct estimation method, in which each expenditure component is measured directly. The size of the informal sector has not been measured. Improved methods are required to adjust quarterly (seasonally-unadjusted) GDP estimates to agree with annual (benchmark) GDP estimates. | |
| Consumer Price Index: The Consumer Price Index (CPI) covers 92.9 percent of total households of Korea; it excludes farming and fishing households. The geographical coverage, which includes 37 urban areas, should be extended to rural areas. The consumption basket is updated only every five years; currently, expenditure weights are derived from the 2010 Household Income and Expenditure Survey. The new CPI index adopts both geometric means and the ratio of arithmetic means. The geometrics means should be used for all unweighted aggregation. The missing prices of products, except for the seasonal items, are imputed by the price movements of similar products of the same item in the same geographic area. However, the CPI could be improved further by imputing missing prices of the seasonal items rather than carrying forward the last reported prices. | |
| Producer Price Index: The Producer Price Index (PPI) covers all domestic industrial activities and a large segment of service activity. It excludes exported products, however, because the Export Price Indexes are compiled separately in Korea. The rebased PPI (2010 = 100) employs 2008 SNA concepts and definitions for the record and valuation of the prices and weights. The PPI could be improved by making more use of imputing missing prices using the prices of similar commodities, rather than carrying forward the last reported price. Mostly, the simple geometric average and the weighted geometric average are employed in the elementary level index compilation. But in some, the indices are computed by the weighted arithmetic average .Nevertheless, the headline PPI should be changed to the one based on a geometric mean at the elementary level. The PPI classification by activity conforms to the KSIC, which is itself based on the International Standard Industrial Classification (ISIC)—with slight modifications only to reflect local considerations. The Korean commodity classification used for the PPI does not conform to the Central Product Classification (CPC) and one based on the CPC should be adopted as soon as possible. | |
| Government Finance Statistics: Two sets of government finance statistics (GFS) are compiled for the central government, one using national definitions and the other using internationally recognized standards. Concepts and definitions used in the latter followed the recommendations of the Manual on Government Finance Statistics 1986 until recently. The authorities have embarked on an ambitious program to implement reporting according to GFSM 2001, and the first set of financial statements based on the reformed system was released in 2012. The 2009 ROSC indicated that while compilation practices are generally sound, some room for improvement of the accessibility and timeliness of data and metadata existed. Following the 2009 ROSC, the Korean authorities resumed reporting consolidated GFS data on the general government for publication in the Government Finance Statistics Yearbook (GFSY). The timeliness of these data does not comply with SDDS requirements, mainly due to the lack in timeliness on local government source data. During the 2009 ROSC, the authorities also agreed to improve national dissemination practices and initiated work on improving national websites. However, high frequency data for inclusion in the International Financial Statistics (IFS) are not yet reported. | |
| Financial Sector Data; Monetary and financial statistics (MFS) compiled by the Bank of Korea (BOK) broadly follow the IMF’s Monetary and Financial Statistical Manual 2000. Both liabilities and assets in foreign currencies are converted into Korean Won at the previous business day’s trading volume weighted average rate prevailing on the balance sheet date. The data are revalued monthly. The BOK is in discussion with STA about reporting MFS using the standardized report forms (SRFs) and drafting related metadata for publication in the IFS. Draft SRFs for the central bank and other depository corporations were reported to STA. Korea participates in the regular reporting of Financial Soundness Indicators (FSIs) to the IMF for dissemination on its website. FSI data and metadata are available to the public through the IMF’s website at: http://fsi/FSIHome.aspx#Country. | |
| External Sector Statistics: The BOK currently compiles the BOP and IIP statistics consistent with the Balance of Payment and International Investment Position Manual, sixth Edition (BPM6) analytical framework (see http://ecos.bok.or.kr/). The authorities have indicated that the data published in the BOK website are the results of the first-stage implementation of the BPM6, and data compiled by fully using this framework are scheduled to be disseminated in 2013. The quality of the quarterly external debt statistics has greatly improved. In early 2007, the BOK switched from annual to quarterly reporting of the International Investment Position. Data dissemination on international reserves and foreign currency liquidity meets the SDDS specifications. Since April 2006, the authorities have disseminated foreign reserves data on a monthly basis rather than twice a month, as had been done since 1997. Korea reports balance of payments and IIP data for the IFS (quarterly data) and the Balance of Payments Statistics Yearbook (annual data) publications. | |
| II. Data Standards and Quality | |
| Korea has subscribed to the Fund’s Special Data Dissemination Standard (SDDS) since September 1996, and it uses SDDS flexibility options for the timeliness of the general government operations, central government operations and. analytical accounts of the banking sector data. Korea is also availing itself of a relevant flexibility option for the coverage of exchange rates. | A Data ROSC reassessment was published in July 2010. |
Korea—Table of Common Indicators Required for Surveillance
(As of November 20, 2013)
Any
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.
Korea—Table of Common Indicators Required for Surveillance
(As of November 20, 2013)
| Date of Latest Observation | Date Received | Frequency of Data7 | Frequency of Reporting7 | Frequency of Publication7 | Memo Items: | ||
|---|---|---|---|---|---|---|---|
| Data Quality–Methodological Soundness8 | Data Quality–Accuracy and Reliability9 | ||||||
| Exchange Rates | 11/20/2013 | 11/20/2013 | D | D | D | ||
| International Reserve Assets and Reserve Liabilities of the Monetary Authorities1 | Oct. 2013 | Nov. 2013 | M | M | M | ||
| Reserve/Base Money | Sep. 2013 | Nov. 2013 | M | M | M | O, O, O, LO | O, O, O, O, O |
| Broad Money | Sep. 2013 | Nov. 2013 | M | M | M | ||
| Central Bank Balance Sheet | Sep. 2013 | Nov. 2013 | M | M | M | ||
| Consolidated Balance Sheet of the Banking System | Sep. 2013 | Nov. 2013 | M | M | M | ||
| Interest Rates2 | 11/20/2013 | 11/20/2013 | D | D | D | ||
| Consumer Price Index | Oct. 2013 | Nov. 2013 | M | M | M | O, O, O, O | O, O, LO, O, O |
| Revenue, Expenditure, Balance and Composition of Financing3–General Government4 | NA | NA | NA | NA | NA | O, O, O, O | O, O, N/A, O, NA |
| Revenue, Expenditure, Balance and Composition of Financing3–Central Government | Jun. 2013 | Sep. 2013 | M | M | M | ||
| Stocks of Central Government and Central Government-Guaranteed Debt5 | Q2 2013 | Sep. 2013 | Q | Q | Q | ||
| External Current Account Balance | Sep. 2013 | Oct. 2013 | M | M | M | O, LO, LO, LO | O, O, O, O, O |
| Exports and Imports of Goods and Services | Sep. 2013 | Oct. 2013 | M | M | M | ||
| GDP/GNP | Q2 2013 | Sep. 2013 | Q | Q | Q | O, O, O, O | O, O, LO, O, LO |
| Gross External Debt | Q2 2013 | Oct. 2013 | Q | Q | Q | ||
| International Investment Position6 | Q2 2013 | Oct. 2013 | Q | Q | Q | ||
Any
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.
Korea—Table of Common Indicators Required for Surveillance
(As of November 20, 2013)
| Date of Latest Observation | Date Received | Frequency of Data7 | Frequency of Reporting7 | Frequency of Publication7 | Memo Items: | ||
|---|---|---|---|---|---|---|---|
| Data Quality–Methodological Soundness8 | Data Quality–Accuracy and Reliability9 | ||||||
| Exchange Rates | 11/20/2013 | 11/20/2013 | D | D | D | ||
| International Reserve Assets and Reserve Liabilities of the Monetary Authorities1 | Oct. 2013 | Nov. 2013 | M | M | M | ||
| Reserve/Base Money | Sep. 2013 | Nov. 2013 | M | M | M | O, O, O, LO | O, O, O, O, O |
| Broad Money | Sep. 2013 | Nov. 2013 | M | M | M | ||
| Central Bank Balance Sheet | Sep. 2013 | Nov. 2013 | M | M | M | ||
| Consolidated Balance Sheet of the Banking System | Sep. 2013 | Nov. 2013 | M | M | M | ||
| Interest Rates2 | 11/20/2013 | 11/20/2013 | D | D | D | ||
| Consumer Price Index | Oct. 2013 | Nov. 2013 | M | M | M | O, O, O, O | O, O, LO, O, O |
| Revenue, Expenditure, Balance and Composition of Financing3–General Government4 | NA | NA | NA | NA | NA | O, O, O, O | O, O, N/A, O, NA |
| Revenue, Expenditure, Balance and Composition of Financing3–Central Government | Jun. 2013 | Sep. 2013 | M | M | M | ||
| Stocks of Central Government and Central Government-Guaranteed Debt5 | Q2 2013 | Sep. 2013 | Q | Q | Q | ||
| External Current Account Balance | Sep. 2013 | Oct. 2013 | M | M | M | O, LO, LO, LO | O, O, O, O, O |
| Exports and Imports of Goods and Services | Sep. 2013 | Oct. 2013 | M | M | M | ||
| GDP/GNP | Q2 2013 | Sep. 2013 | Q | Q | Q | O, O, O, O | O, O, LO, O, LO |
| Gross External Debt | Q2 2013 | Oct. 2013 | Q | Q | Q | ||
| International Investment Position6 | Q2 2013 | Oct. 2013 | Q | Q | Q | ||
Any
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.
When a number has overdue financial obligations outstanding for more than three months, the amount of arrears will be shown in this section.