Interview with Head Economist of the IMF Olivier Blanchard

Head economist of the International Monetary Fund (IMF) Olivier Blanchard said Korea's export will eventually dwindle in that the government will continuously need to implement stimulus packages to bolster the economy.

Blanchard also pointed out that property prices in Korea may be soaring from an excessive stimulus package, but assured that the problem is limited to particular regions and it's too early for the country to start worrying about the next bubble. However, he did not completely rule out the possibility of a long-term bubble in the future.

Blanchard applauded the government which is heavily reliant on export for responding quickly and decisively against the heavy blow dealt by the economic crisis stemmed in the U.S. and Europe in his exclusive interview with the Maeil Buisness Newspaper while visiting Korea to attend The Annual Bank Conference on Development Economics (ABCDE) 2009 held in Seoul. The head economist picked the government's quick decision to cut interest rates and creation of bank fund to supply much needed liquidity to banks as the smartest move made by the government.

Blanchard predicted Korea's export growth will naturally deteriorate along with strengthening of the won against the dollar as the weak won acted as the main driver behind the country's export growth. He said that the only way to keep the economy strong is for fiscal expenditure to take place of dwindling export.

Blanchard also pointed out that there is a need to boost demand in order to recover the global economy. To this end, he firmly believes that a recovery in the U.S. economy is essential. However, Blanchard put out his finger on weak consumption among U.S. consumers and corporate investment.

Accordingly, the U.S. government has expanded public spending until now, though the budget deficit was inevitable. The U.S., however, eventually has to increase net exports. In short, import has to be lessened while export has to grow.

Some experts see that inflation risk is quite low at the current stage. He said with confidence that if there are some signs indicating that inflation may occur, each country's central bank is possible to implement a contractionary policy but there is no need to raise such concern at the current stage.

[Yen-mi Hong/ JYJ]

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