Republic of Korea: Staff Report for the 2013 Article IV Consultation—Informational Annex

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.

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

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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). 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

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Korea—Table of Common Indicators Required for Surveillance

(As of November 20, 2013)

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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.

1

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