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Korean Sound Compared to other OECD Countries

Korea’s financial status is sound compared to that of other OECD countries, with its government debt to gross domestic product (GDP) ratio being 36 percent, said Gerhard Steger, Chair of the Organisation for Economic Co-operation and Development (OECD) Working Party of Senior Budget Officials (SBO) in a recent interview with Yonhap News.

In 2009, in the aftermath of the global financial crisis, Korea was one of the few OECD members that showed positive growth. Steger said Korea could become an international role model for financial management. He also forecast that difficulties such as increased demand for welfare expenditure due to population aging could arise, but that Korea can maintain its strong financial status with a timely response.

Regarding concerns of welfare expenditure and a tax increase in Korea, he explained that similar situations have taken place globally. Steger noted that raising funds by modifying non-taxation and exemption laws and legalizing the underground economy is not impossible.

The SBO Chair said that filling the loopholes in the taxation system should be done prior to the tax increase. He noted that the tax increase will be meaningless if people evade taxes. He analyzed funding welfare projects to be possible without increasing taxes if tax revenues were to be managed thoroughly and expenditures spent with a clear goal.

In terms of a vicious cycle of increased budget injection for economic growth in the midst of slow global economic growth, financial crises and worsening financial sustainability, Steger noted that sound financial conditions are prerequisites for economic development. He added that countries should focus on achieving both economic growth and financial health.

To solve the problem of a rapid increase in public agencies’ debt, the Chair mentioned that this debt should be transparent and that their management should be discussed. Privatization is one way to solve the problem, but not a cure-all that can be applied to all countries, he said.

Steger emphasized the need for OECD countries to improve budget management for successful fiscal policies.

Improvements in four areas, including mid-term budget plan development, the introduction of a lump sum budget and performance-based budget and use of an accrual basis of accounting, are required, according to Steger. He said that Korea is successfully facilitating all four areas through financial reform that has taken place over the last few years.

Chairman Steger visited Korea to attend the third Forum for Asian Insolvency Reform, to be hosted by the Ministry of Strategy and Finance, OECD and the Korea Institute of Public Finance and to be held in Seoul this week.

Participants will discuss improvement measures for financial management at the forum.

Source Text

Source: Yonhap News (Oct. 14, 2013)

** This article was translated from the Korean.

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