Cho Yong-beom, Vice Minister of the Ministry of Economy and Finance, explained the South Korean government's fiscal direction, including active fiscal measures and the Future Response Fund, to the Organization for Economic Cooperation and Development (OECD). The OECD's chief economist praised the Future Response Fund as a 'wise policy choice' that can mitigate revenue volatility and support future growth investments.
According to the Ministry of Economy and Finance, Vice Minister Cho attended the 14th Korea-OECD International Fiscal Forum held in Paris from September 30 to October 1, where he held a bilateral meeting with Stefano Scarpetta, the OECD's chief economist.
During the meeting, Cho explained that the 2027 budget proposal focuses on addressing structural challenges such as demographic changes and polarization while enhancing future growth potential.
He introduced investment plans in strategic areas, including three major mega-projects and seven key technologies (SEED), stating that the Future Response Fund aims to boost growth potential while providing a financial buffer against future revenue fluctuations.
Scarpetta described the establishment of the Future Response Fund as a 'wise policy choice,' noting its potential to reduce revenue volatility and promote strategic investments from a medium- to long-term perspective. The OECD also mentioned that countries like Ireland and Norway have systems in place to allocate a portion of their fiscal revenues for long-term financial needs and future generations.
In his opening remarks at the International Fiscal Forum, Cho diagnosed that the global economy is facing a complex crisis due to geopolitical risks affecting supply chains, the transition to artificial intelligence (AI), and issues related to low birth rates and aging populations. He stated, 'In the face of complex crises and major transitions, fiscal policy must serve as the last bastion to protect the national economy and people's livelihoods, as well as the key to opening the future.' He added that the 2027 budget is the largest ever, with a 12.8% increase from the previous year, reflecting the South Korean government's commitment to overcoming the current crisis through bold fiscal measures.
Plans include increasing investments in three major mega-projects related to semiconductors, physical AI, and AIDC, as well as expanding the R&D budget for future advanced industries. The government also aims to enhance social safety nets for vulnerable groups and youth who may be left behind in the growth process.
Cho stated that the Future Response Fund will function as a financial stabilization mechanism by accumulating resources during prosperous times and utilizing reserves during downturns.
The government plans to allocate approximately 100 trillion won from additional tax revenues secured through the semiconductor boom to the Future Response Fund. Additionally, it intends to restructure discretionary spending, saving about 40 trillion won, which will be reinvested in key areas.
Cho also outlined a vision for establishing a virtuous cycle of growth and finance through this fiscal management. He said, 'We will strive to lead new growth through bold fiscal investment and ensure the establishment of a 'virtuous cycle of growth and finance' where growth reinforces the foundation of finance.'
The forum included discussions on fiscal policies for growth and transition, fiscal management in crisis situations, and overcoming future fiscal challenges. The OECD recommended a medium-term fiscal framework to encourage private investment through research and development, human capital and infrastructure investment, and regulatory improvements to prepare for long-term spending pressures due to aging populations.
During the session on fiscal management in crisis situations, participants shared experiences from European countries regarding fiscal crises and responses to COVID-19, agreeing on the need for rapid fiscal support and budget flexibility during crises. The session on future fiscal challenges discussed strategies to address fiscal burdens arising from low birth rates, aging populations, and supply chain disruptions while ensuring both growth and fiscal sustainability.
* This article has been translated by AI.
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