IMF chief urges social, economic reform in South Korea

AFP, Thursday 5 Dec 2013

South Korea needs a new economic program to avoid fall of long-term growth to 2 percent by 2025, Lagarde

IMF chief Christine Lagarde urged South Korea on Thursday to embark on an ambitious programme of costly social and economic reforms to ensure longer-term growth of up to 4.0 percent.
In a speech at Seoul National University, Lagarde noted the challenges posed to Asia's fourth-largest economy by a rapidly ageing population, growing income inequality, weak social security and gender inequalities in the workplace.
"Korea needs to continue what it does so well -- combining stronger growth with greater equity," she told the largely student audience.
While praising the country's resilience at a time when many others were reeling from market turmoil, Lagarde said key issues needed to be addressed.
South Korea's population is predicted to become one of the oldest in the Economic Cooperation and Development (OECD) by 2050 and, without action, "long-term growth could fall to 2.0 percent by 2025", she said.
At the same time, income equality is rising, while around one third of the labour force enjoys little employment security and poor welfare coverage.
"One way to reduce (this) is to boost social insurance coverage and training for non-regular workers, to bring them inside the fold," Lagarde said.
At the same time, there should be more vocational education for young people and more investment in childcare and flexible hours to bring more women into the workforce, she said.
South Korea has one of the lowest rates in the OECD for women's participation in the labour market.
Lagarde also called on the government to focus on the service sector, where productivity is only half that of the manufacturing sector that has driven South Korea's economic "miracle" over the past five decades.
"I should note that many of these reforms come with a price tag," Lagarde said. "The good news is that South Korea can afford it."
By carrying out the right mix of the proposed reforms, the country will be able to keep growth at 3.5-4.0 percent over the next decade, she said at a news conference later in the day.
Once a juggernaut that surged by double digits through the 1960s to 80s, the South's growth has since then entered a more measured phase.
The country's gross domestic product expanded 2.0 percent last year -- the slowest in three years -- and is expected to grow 2.8 percent this year.
It is expected to grow 3.8 percent in 2014, according to Seoul's central bank that warned last month that the economy could be "trapped in slow growth" for years to come unless exports and investment were dramatically revived.
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