On Wednesday evening, local television channel MBC claimed that the nation’s balance of payments has been exaggerated since 2010, when the Bank of Korea began applying new International Monetary Fund standards to its statistics.
The chronic trade deficit in the service sector shrank to $6.6 billion in 2010 from $17.2 billion in the previous year due mainly to a surge in overseas construction exports.
The surge came as the BOK classified the total “sales” -- not “profits” -- of overseas construction projects as the nation’s exports by applying the new IMF standards, the report said.
For instance, when a Korean construction firm built a plant, whose total project cost $900 million, in the Middle East, the BOK classified the entire $900 billion as exports in its statistics.
Until 2010, it had excluded local labor costs or material costs in order to classify only “profits” as exports.
The amount of “inflated” export volume over the eight years was estimated to be around $163 billion, according to the news report.
“The artificially reduced deficit (in service trade) can mislead research in both the private sector and the government,” said Joo Won, a chief of Hyundai Research Institute’s economic research division.
The US and Japan applied the same IMF standards, but there was no changes between the previous and current statistics, according to the media report.
The report also said that the figures for the balance of payments also did not match with those used to calculate the nation’s gross domestic product. Since the new standard was applied, the difference between the service trade deficit used to calculate the balance of payments and that used to work out GDP has gradually widened, the report said.
The BOK, meanwhile, immediately issued a rebuttal to MBC’s report.
“Since the statistical standards are all different for each country, a mechanical comparison of those between South Korea, the US and Japan is fallible,” the bank said in a statement, explaining how for instance, the US does not implement much of the IMF standards.
“(The service trade balance was improved) because we have changed the classification of overseas construction projects from direct investment to construction services since 2010 by applying the new IMF standard,” said the BOK spokesperson.
As to the difference between GDP and BOP, the BOK said, “A gap is created as the purposes of making GDP and BOP statistics are different.” The central bank said GDP statistics is made to figure out the size of the local economy and BOP statistics is to figure out the outflow of foreign currencies. So, overseas construction projects are excluded from GDP statistics as it has less relevance with the local economy.
“Still, discussion is ongoing among international organizations about how to narrow the difference and we are actively monitoring the international discussion to address this issue,” the BOK said.
By Shin Ji-hye (firstname.lastname@example.org)