Korea Joins the League of Wealthy Nations

Type:

Book Chapter

Author:

Jaejoon Woo

Published:

2022

Publisher:

Oxford University PressOxford

Abstract Korea’s large current account (CA) surplus has recently emerged as a silver lining of a country struggling to revive growth, providing a unique opportunity to build a significant net foreign asset (NFA) position. A new analysis predicts years of CA surpluses of a structural nature ahead. Under a central scenario, the NFA is forecast to reach 62 percent of GDP by 2030. In retrospect, however, it is surprising that Korea’s NFA position turned positive (i.e. Korea became a net creditor nation) only in 2014, although the country has run a CA surplus every single year since 1998. By definition, the current account balance and change in NFA move closely to each other, subject to valuation effects. Where did all the current account surpluses go? Why would this time be different? To provide answers for these questions, Chapter 12 examines Korea’s balance of payment system, the external capital structure (i.e. composition of foreign assets and liabilities), and valuation effects. The prospect of a more solid NFA position has positive implications for the economy, while helping to address issues such as the need for durable funding sources for the aging society and the emerging market-style volatility of the economy during major external events.

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