Korea targets 2% GDP growth: IMF

Korea targets 2% GDP growth: IMF

SEOUL (Reuters): South Korea has targeted 1999 annual GDP growth of two percent but growth could be higher, the Finance Ministry said on Friday in its latest policy review with the International Monetary Fund.

Prospects for higher gross domestic product growth would depend "critically on continued improvements in domestic confidence, as well as the external environment," the review said.

GDP was estimated to have contracted more than five percent in 1998 from a year earlier.

The fifth quarterly review of South Korea's economic policies will be presented at end-March to IMF directors who are expected to approve release of another $250 million in aid to Korea. Future reviews will be done on a semi-annual basis.

The IMF arranged a record $58.35 billion bailout for South Korea in December of 1997 after a severe foreign exchange crisis left Korea, once the world's 11th largest economy, on the brink of sovereign default.

The 39-page quarterly review covered policies on restructuring banks, non-bank financial institutions including insurers and corporations.

South Korea would set a timetable by June 30 to dispose of the government's share of holdings in domestic commercial banks and said it would prepare by May 15 guidelines for stricter and more forward looking provisions for non-performing bank loans, it said.

On inflation, the review said Korea would contain the increase in consumer prices to around three percent this year. Consumer prices rose 7.5 percent last year.

The current account surplus, which topped $40 billion last year, would "narrow significantly, but remain substantial" in 1999, it said.

The current account surplus has been estimated at about $20 billion this year, though the IMF review contained no target.

Interest rate policy would continue to be conducted in a flexible manner, the review said.

"Interest rates, which have been reduced significantly to support the recovery, may continue to be lowered if this is consistent with achievement of the inflation target and providing that the external position remains strong," it said.

Budgetary spending accelerated in the fourth quarter of 1998 and outlays for a social safety net increased as planned, but other expenditures, including interest costs, were lower than expected, it said.

Korea posted an estimated 1998 fiscal deficit of about four percent of GDP, compared to a target of five percent, it said.

The aim of fiscal policy in 1999 would be to provide "a continued stimulus to the real economy in conjunction with a further strengthening of the social safety net," it said, adding the fiscal deficit of five percent of GDP had been targeted.

Direct social safety net outlays were projected to increase by at least one-third in 1999 to 1.75 percent of GDP, it said.