Heo Jang IMF Director: "No Worries About Korea's Foreign Exchange Crisis... Foreign Exchange Reserves Are Sufficient"

Heo Jang, IMF Executive Director

[Asia Economy Washington DC=Reporter Moon Jewon]

Hur Jang, Executive Director of the International Monetary Fund (IMF), said he is "not worried" about concerns that South Korea could experience another foreign exchange crisis. He explained that since the current account is expected to show a surplus on an annual basis and foreign exchange reserves are sufficient compared to the past, there is no reason for concern.

On the 12th (local time), Hur met with reporters covering the G20 Finance Ministers' Meeting and the IMF-World Bank (WB) Annual Meetings in Washington DC and responded to a question about the possibility of a recurrence of a foreign exchange crisis.

He said, "(The IMF) is not worried at all about the possibility of a foreign exchange crisis in South Korea," adding, "South Korea is expected not to have a current account deficit on an annual basis, and even if there is a slight monthly current account deficit, it is still very healthy." Hur added, "Back in late 1997, a current account deficit of 3-4% was common, but now the situation is very healthy."

Regarding the recent rise in the credit default swap (CDS) premium, which indicates national credit risk, he pointed out, "It is moving around 50 basis points (1bp=0.01%), and when calculating the probability of national default, it is about 0.9%. This is different from 2008 (financial crisis), when the default probability rose to 11%."

Hur also said that South Korea's foreign exchange reserves are at a sufficient level. Bank of Korea Governor Lee Chang-yong has previously stated that "no one at the IMF says South Korea's foreign exchange reserves are insufficient," which aligns with this view. He said, "The IMF rather points out that South Korea is accumulating too much in foreign exchange reserves" and added, "Unlike in the past, not only the government but also the private sector holds a significant amount of foreign exchange."

However, Hur noted that attention should be paid to labor market reforms and aging issues. He said, "There are no particularly risky areas the IMF sees in South Korea, but if anything, it would be labor market flexibility, household debt, and the real estate market." He also said, "In fact, the most important issue South Korea needs to address is aging. As aging progresses, everything in society slows down. South Korea needs to accept foreigners and resolve the inter-Korean issues."

Hur, a former official of the Ministry of Strategy and Finance, has served as Economic Counselor at the South Korean Delegation to the Organisation for Economic Co-operation and Development (OECD), Deputy Director-General for International Economic Affairs, and has been an IMF Executive Director since November 2020.

Washington DC=Reporter Moon Jewon nest2639@asiae.co.kr