The International Monetary Fund (IMF) has made a package of recommendations for Korea to bring more transparency to its fiscal practices based on findings by its mission in June. The following is the first part of the draft IMF recommendations, entitled ``Report on the Observance of Standards and Codes -- Fiscal Transparency Module: Korea,'' the copy of which The Korea Times has recently obtained. -- ED.
IMF Staff Commentary
Korea meets international best practices in fiscal transparency in many area. Expenditure appropriations and taxation have a clear legal authority and there is a clear demarcation between the roles of the various levels of government. The government has a modern budget process, an effective accounting system and produces timely statistics for the consolidated central government that conform to international standards. In addition, Korea has clear standards for procurement and public employment as well as independent, active and professional national audit office.
Despite these achievements, Korea still falls short in some key areas of fiscal transparency. Some recommendations are contained below.
The government should take the opportunity, now that the effects of the financial crisis are waning, to reassess and more clearly define its fiscal role by
-- Reducing public sector direct involvement in the corporate and financial sector, citing the subsidy components of the activities of the credit guarantee funds and allowing the corporate and financial sector to be run purely on a commercial basis. The fiscal consequences of any remaining government participation in the financial and corporate sector should be clearly reported and have an explicit budgetary authorization.
-- Clearly distinguishing the Bank of Korea (BOK)'s monetary policy activities from the activities of the fiscal authorities. The BOK should be operationally independent and have full autonomy in the setting of monetary policy. All quasi-fiscal activities of the central bank such as sterilization of foreign exchange intervention as well as refinancing at below market rates for financial institutions that lend to small and medium enterprises (SMEs) should be clearly identified and reported as fiscal activity.
-- Conducting all intra-government lending on market-based terms. The recent legislation prohibiting direct lending from the National Pension Fund to finance budgetary activities is a a welcome development and should be adhered to. As the non-market security holdings of the pension fund mature, the assets should be reinvested in marketable instruments.
-- Reducing the current extensive recourse to lending from the budget at subsidized rate and the offering of loan guarantees for commercial purposes. Such activities obscure the boundaries of the government's fiscal activities. …