Korea needs a ‘different kind of growth’

In a New Year interview with Korea's Maeil Business Newspaper, IMF Managing Director Christine Lagarde suggested that Korea should adopt an "inclusive growth" model, not just unfettered globalization.

This means promoting efficiency but also keeping equity in mind when setting fiscal policy. It also means fairness in sharing the burden of adjustment, and protecting the weak and vulnerable. Better financial inclusion is necessary, so that everyone has access to credit and financial markets. It means better transparency and governance.

Lagarde believes that Korea is well-positioned to guard against the risks to growth, in particular given its relatively small public debt and low inflation.

She also advised on transforming from an export-dependent economy into domestic-oriented economy. Korea's manufacturing exports are globally competitive and will continue to be an important engine of growth for the economy. However, Korea needs to rebalance its economy by developing the non-tradable sector as an additional engine of growth. To facilitate the adjustment, Korea can favor a stronger exchange rate and eliminate policy incentives favoring the export sector in order to encourage investment in the non-tradable sector. It can also liberalize the services sector to attract foreign investment into the sector and increase social spending on workfare, education, and the healthcare program.