MEXICO CITY (MNI) – Further macroeconomic stimulus by advanced
economies is probably not what is required by the global economy, Bank
of Korea Gov. Kim Choong-soo said Friday.

Kim, speaking at the IIF conference taking place prior to the
meeting here of G-20 finance ministers and central bank governors,
called it a “challenging question” what would be needed to restore
sustainable growth at a global level.

“I am suspicious that more macroeconomic stimulus by advanced
economies can be a solution to reviving growth going forward,” he said,
noting that “in the midst of high uncertainty” that exist now, the
investment- and consumption-boosting effects would “still fall short.”

In contrast, emerging market economies where inflation is under
control “should not hesitate to use the policy space available to them
to address the downside risks to growth,” he urged.

Kim warned of a “substantial tail risk associated with the European
sovereign debt crisis, which, if it materializes could wreak havoc” on
emerging markets.

“I am hopeful” that the agreement recently reached with respect to
Greece “will contribute to a sharp reduction in the uncertainties now
facing emerging markets,” he said.

However, emerging markets still will “face challenges going forward
if advanced economies do not grow fast enough,” he said, while “advanced
countries also face challenges” such as “high and rising public debt”
and “high long-term unemployment.”

As well, “the euro area has and will remain vulnerable to growing
structural imbalances between core members and its periphery,” he added.

“Global financial resources may have in recent years been directed
too much to the financing of unsustainable fiscal deficits in
debt-ridden countries and too little toward growth.”

A redirection of these resources towards promoting growth “could
bring substantial productivity benefits to all in the long run,” he
said.

Kim noted the IMF forecast of slow economic growth this year,
“particularly in Europe.”

–Frankfurt bureau tel.: +49-69-720142. Email: dbarwick@marketnews.com

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