World Bank optimistic on Korean recovery

The World Bank said yesterday that the Korean economy will contract about 3 to 3.5 percent this year, but would make the quickest recovery among major economies.

It forecasts Korea will achieve 2 percent growth in 2010 and a 4 to 5 percent expansion in 2011.

In the report, it also cut the world`s growth forecast for 2009 to minus 2.9 percent from the previous projection of minus 1.7 percent, as growth of developing countries is expected to be slower than previously expected.

"Developing countries are expected to grow by only 1.2 percent this year, after 8.1 percent growth in 2007 and 5.9 percent in 2008," the World Bank said in the report released in the press conference for the Annual Bank Conference on Development Economics in Seoul.



"When China and India are excluded, GDP in the remaining developing countries is projected to fall by 1.6 percent, causing continued job losses and throwing more people into poverty."

The World Bank`s growth projection for the global economy is more pessimistic than the forecast by the International Monetary Fund, which said in April the world would contract 1.3 percent this year.

"Many corporations will be hard-pressured to service their foreign currency liabilities with revenues earned in depreciating domestic currencies, at the same time that export demand has plummeted," said Mansoor Dailami, manager of international finance in the development prospects at the World Bank.

The bank projected that the Korean economy would start to recover from the second half of this year and pull off 2 percent growth in 2010, which is a more optimistic view than the IMF`s projection of a 4 percent contraction this year and 1.5 percent growth in 2010.

Justin Yifu Lin, chief economist and senior vice president of the World Bank, attributed the bank`s optimistic view on Korea to preemptive policy responses by the government and trade with East Asia.

"Due to good fundamentals, the government`s stimulus packages and the East Asian trade linkage, the Korean economic recovery will be strongest among OECD countries," Lin told reporters.

The bank`s view on Korea has not much changed from that of March, when the bank painted a 1.7 percent contraction scenario for the world economy, bank officials said.

SaKong Il, chair of the G20 Summit Korea Coordinating Committee and chairman & CEO of the Korea International Trade Association, noted that it is too early for the Korean government to discuss "exit strategies," or measures to reduce liquidity pumped into the markets by the government to prevent inflationary pressures.

"The economy is showing some signs of recovery due to the government`s stimulus packages but we need to secure a sustained recovery. It`s too early to discuss exit strategies," SaKong said.

Meanwhile, at the ABCDE conference, academics actively engaged in a discussion on themes such as industrial policy and development and social capital.

Chang Ha-joon, economics professor at the University of Cambridge, said that it is important to conduct mixed export policies to boost exports and protect infant industries.

"While there is a tendency for both proponents and opponents of industrial policy to consider `grand` stories like, for instance, the `Big Push,` it is more important to focus on the practical sides than the policy implementation and progress in order for the industrial policy to generate more productive results," Chang said.

In the Big Push theory, economists assume that governments of developing countries can overcome market failures by giving a big push on industrial planning and investment.



(yoonmi@heraldm.com)

By Kim Yoon-mi