Monetary policy on right path in Korea - South Korea

Business Asia, May 31, 1999 by Bill Tarrant

IMF managing director Mr Michel Camdessus says South Korea should maintain its loose monetary policy despite an unexpected surge in first-quarter economic growth.

Mr Camdessus praised South Korea for breaking out of a severe year-long recession under the tutelage of the International Monetary Fund, but he urged the country's bloated conglomerates to redouble efforts to shed capacity and reduce debt.

"I would consider Korea's monetary policy on the right track," Mr Camdessus told a meeting of South East Asian central bankers.

"I don't see any indication for tightening the money supply."

South Korea said last week its economy had expanded 4.6 per cent in the first quarter year-on-year, compared to a 3.6 per cent contraction in the same period the previous year.

"This is indeed remarkable," Mr Camdessus said, adding he had heard economists suggest that growth could be even stronger in the second half.

But he said: "We want to be prudent, because your economy, even growing at that level, is still below its potential."

Mr Camdessus praised the government for implementing reforms on schedule, but said the pace of restructuring among the largest business groups has been "disappointing".

In an earlier speech to the central bankers, Mr Camdessus said other crisis-hit Asian nations should also maintain loose monetary and fiscal policies until recovery is well under way.

He praised Asian governments for accepting open competition as a condition for progress.

In the news conference, Mr Camdessus said South Korea may no longer need fresh loans from the IMF in three months, but would still be getting guidance from the fund until the program formally ended in November, 2000.