2008 OECD Economic Surveys: Korea 2008

image of OECD Economic Surveys: Korea 2008

This 2008 edition of OECD's periodic review of Korea's economy looks at key challenges including reforming the tax system, boosting productivity in the services sector, and sustaining growth by reforming labour markets and improving education.

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Priorities for macroeconomic policy

Macroeconomic policy faces difficult challenges in responding to the shocks from the global financial crisis. In the near term, the monetary authorities should focus on supporting activity and financial-market stability. While inflation is well above the target zone, it is expected to slow significantly over the next year as output growth decelerates, despite the depreciation of the won. Given that the won’s fall is driven by international financial-market turbulence, foreign exchange market intervention is likely to be costly and ineffective and should therefore be limited to smoothing operations. Fiscal stimulus has a role to play in cushioning the downturn. Over the medium term, the priority should be on maintaining a strong fiscal position given future spending pressures associated with population ageing. Slowing the growth of outlays is necessary to achieve the medium-term target of a balanced budget, excluding the social security surplus.

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