Laura Alfaro, chief economist at the Inter-American Development Bank, said in Seoul on Tuesday that South Korea should set aside some of the profits from its semiconductor boom to cushion against future economic downturns. South Korea is currently planning to establish a 162 trillion won (approximately $122 billion) "future preparedness fund" to use the extra tax revenue from the chip boom for long-term investment and to build reserves to cover future revenue shortfalls. Alfaro said that while she is not familiar with the details of the fund, its principles are in line with common practices for economies to cope with shocks. "This helps prevent excessive currency appreciation and the impact of large-scale, rapid capital inflows," she said. She suggested that in addition to establishing a stabilization fund, flexibility in the labor market, economic structure, and government spending should be maintained. "In boom-bust cycles, the problem lies not only in excessive consumption during economic booms, but also in the lack of adjustment capacity during downturns," she said. She cited South Korea's experience during the Asian financial crisis and the semiconductor cycle as examples, saying that its subsequent exchange rate and financial reforms enhanced economic resilience.
