The International Monetary Fund (IMF) underscored the importance of South Korea’s commitment to its restrictive fiscal and monetary strategies during its team’s recent visit. Harald Finger, Korea missions chief at the Washington-based organization, highlighted that even though South Korea experienced a sharper-than-expected inflation rate of 3.4% in August, driven mainly by higher prices of agricultural and manufactured goods, inflation should gradually settle, targeting 2% by the end of 2024.

The Yoon administration unveiled a budget for 2024 last week that called for the smallest annual hike in spending in nearly two decades. Capped at $496.5 billion (656.9 trillion won), the budget marked the most modest increase since 2005 at just 2.8%. Finger expressed confidence in this budgetary approach, suggesting that it would aid in controlling inflation and curb the further accumulation of public debt without hindering the nation’s growth prospects.

Why It Matters

The IMF’s endorsement of South Korea’s stringent fiscal and monetary policies couldn’t have come at a more opportune moment for the Yoon Suk-yeol administration. This endorsement allows the Yoon administration to align itself with globally acknowledged best practices, emphasizing its commitment to the long-term financial stability and economic growth of South Korea. Additionally, this endorsement may bolster the administration’s stance, as evidenced by Prime Minister Han Duck-soo’s remarks on Wednesday, which described the previous Moon Jae-in administration’s economic approach as “quite irresponsible.”

However, the main opposition Democratic Party will likely maintain its critiques of the Yoon administration’s economic policy. The Moon administration, which oversaw increased government spending, framed its economic policy as “income-led growth.” Democratic Party leader Lee Jae-myung previously proposed an expansive government budget in 2022 and supported the idea of a universal basic income during his presidential campaign. Given rising international interest rates, South Korea’s ballooning debt and the upcoming parliamentary election in April, the debate between the administration and the opposition will continue to shape the ROK’s economic discourse in the coming months.