IMF chief defends lowered forecast for Korean economy

By Hwang Doo-hyong

WASHINGTON, Feb. 2 (Yonhap) -- The head of the International Monetary Fund (IMF) on Monday defended its prediction of South Korea's economy contracting 4 percent this year, but acknowledged difficulties in forecasting accurately during such a volatile period.

The latest figure represents a drastic reduction from an earlier IMF forecast of
2 percent growth this year, generating skepticism about the roller coaster
figures put out by the global lending agency that failed to predict the ongoing
economic crisis, as well as the Asian financial crisis a decade ago.
Speaking at a news conference called here late in the evening to include
reporters in Asia, IMF Managing Director Dominique Strauss-Kahn said there is
"every reason to be skeptical about the figure."
He defended the agency's prediction, however, saying, "We tried to give our best
estimates."
The director said the decision to release the reduced figure was not made
lightly. "I can understand that it creates some reactions... especially at
changing times," he said. "This figure of minus four percent for Korea has been
discussed a lot this week."
Kahn advised South Korea to "look more carefully at those figures" that predict a
robust recovery of 4.2 percent next year rather than fixating on this year's
growth contraction.
Anoop Singh, Asia-Pacific Department director, echoed Kahn's theme. "I would look
more importantly at the number during 2009 because minus four captures what
really happened."
Referring to the fourth quarter of last year when the South Korean economy
contracted by 5.8 percent, Singh said this year's figure was "heavily influenced
by the last part of 2008."
He advised South Koreans to "look at what to expect from now onwards," citing the
projected recovery of South Korea's economy to the level of its growth potential
next year.
"That is because of a lot of stimulus measures under the government's
macroeconomic policies," he said, adding South Korea's "flexible and active"
macroeconomic policies make it possible for the government to take a preemptive
approach to bank recapitalization.
Singh also discussed the difficulty in making accurate predictions during rapidly
changing times.
"If you go back to the last 50 years that have been studied, it's most difficult
to predict a turning point," he said. "It is easy to predict or project growths
at certain trends. But when you are looking at minus becoming plus and plus
becoming minus and looking at turning points and statistically, evidence shows
that is the most difficult area for people to make forecasts."
Despite the lowered predicition by the IMF, the South Korean government is
holding to its target of a 3 percent growth for this year, while the central bank
is aiming for a 2 percent expansion.
Last week, the IMF projected the global economy would grow by only 0.5 percent
this year, its lowest rate since World War II, due to the ongoing economic
crisis.
The figure is a sharp reduction from the IMF's earlier prediction of 2.2 percent
growth in November.
The global lending agency predicted that the world's economy will "experience a
gradual recovery in 2010, with growth picking up to 3 percent helped by continued
efforts to ease credit strains as well as expansionary fiscal and monetary
policies."
It said, however, that the "timing and pace of the recovery depend critically on
strong policy actions."
The IMF also said that global financial conditions could improve faster than
expected due to stronger policy actions. "This could boost consumer and business
confidence and alleviate the credit crunch, thereby lifting global growth," it
said.