November 1997, Seoul Hilton Hotel. This newspaper exclusively captured an economic official, his face hidden behind a suit jacket, hurriedly entering the hotel room of an International Monetary Fund (IMF) negotiating team. It was the moment Korea, with its foreign exchange reserves depleted, applied for a bailout.
Twenty-eight years have passed since then. When the IMF identified Korea alongside Belgium in its Fiscal Monitor on the 15th of this month as countries whose debt ratios would rise "significantly" over the next five years, the Presidential Office and the Ministry of Economy and Finance's Budget Office immediately pushed back. Kim Yong-beom, head of policy at the Presidential Office, dismissed the formula of "national debt equals risk" as "a one-dimensional fear narrative." The Budget Office even released explanatory materials, stating that "Korea's debt projections are low compared to major economies." Looking back at the era when the government held its breath over a single line in an IMF report, it feels like a different age.
Today's Korea, included in the World Government Bond Index (WGBI), cannot be placed on the same footing as Korea in 1997. As the government contends, the general government debt (D2) ratio relative to gross domestic product (GDP) stands at 54.4% this year, far below Japan's 204%. But the IMF used the word "significantly" not because a crisis is imminent, but because the pace is steep. The cumulative increase in Korea's D2 ratio from 2026 to 2031 (8.7 percentage points) is the largest among 11 advanced non-reserve-currency countries classified by the IMF. Looking only at national debt (D1), the direct obligations of central and local governments, debt has grown by 9.0% annually over the past five years while nominal GDP has expanded at an average of 5.3% — piling up at 1.7 times the pace of growth.
The Budget Office cites as rebuttal evidence that while the IMF projected Korea's 2023 debt ratio at 61.0% back in 2021, the actual figure came in at just 50.5%. But the fact that past projections missed the mark does not mean this warning will also prove wrong. The IMF's recent downward revision of its 2030 forecast from 64.3% to 61.7% reflects an upward adjustment in the nominal growth rate rather than improved fiscal management. What enlarged the denominator was effectively the semiconductor boom, and if the cycle turns, the debt ratio is likely to revert to the path the IMF has warned about.
The government on the eve of the 1997 foreign exchange crisis also claimed "the fundamentals are sound." That Korea has regained enough confidence to push back against IMF warnings is something to be proud of. But if it moves to a stage of shutting its ears to external warnings, the sense of a bygone era will turn into déjà vu.
