David Lipton, first deputy managing director of the International Monetary Fund, on Tuesday warned that the Korean economy still faces “serious” risks from the ongoing European fiscal crisis, wild capital flows and inflationary pressure.

“There remain serious risks (for Korea), including risks of recurrence problems from Europe, inflationary pressure and volatile capital flows, as well as the possibility of oil price increases,” Lipton told reporters in Seoul.

On a trip to discuss the possible expansion of the fund’s resources with Korean policymakers, Lipton said his meeting with Finance Minister Bahk Jae-wan earlier in the day was “good” in that they “exchanged views on the global outlook” and had discussion on how “development in the world economy affects Asia and Korea in particular.”

The acting chairman of the IMF said while Korea would enjoy “significant growth” for the next few years, banking sector risks in Europe could slow growth and undermine exports. He also picked wild oil price movements as a major risk especially for energy-dependent countries such as Korea.

“We don’t think it (oil prices) has been a great threat to the world economy but the risk of further increases from the Iran situation is significant, and further increases could have effects on growth, especially for countries like Korea that import so much energy from overseas,” Lipton said.

Lipton is said to have had an extended discussion with Bahk on the plan to increase the size of the European rescue fund. Lipton confirmed that “Korea is willing to participate in expansion of those resources” as a member of the IMF. 

IMF members are scheduled to hold their annual spring meeting in Washington on April 20-22 where the group is expected to make a decision on increasing the rescue fund to stem the crisis from spilling into other regions. Germany this week came out in support of raising the bailout funds to $929 billion until next year.

By Cynthia J. Kim (cynthiak@heraldcorp.com)