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S. Korea to unveil economic stimulus

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Published : 2013-03-27 20:42
Updated : 2013-03-27 20:42

The Park Geun-hye government is set to introduce its first package of economic measures aimed at boosting jobs and the sustainability of small and medium enterprises.

The Ministry of Strategy and Finance headed by Deputy Prime Minister Hyun Oh-seok is set to reveal to the public its stimulus plans on Thursday after a last-minute check with President Park, whose priority is improving job growth in the country entering a low-growth period.

A ministry official said Thursday’s announcement would show the “big picture” of which direction the government wants to head with its fiscal budget and policy. Further details are expected to be drawn out by early next month.

The measures will likely include budget and tax reform plans to secure financing for the low and middle income groups, as well as plans to revive the sluggish real estate market and reduce household debt.

Hyun had mentioned that the new government was seeking to secure extra funding of 10 trillion won through the issuances of state bonds for job creation.

The ministry is also moving to reform the tax system by reducing various tax exemptions to get hold of about 15 trillion won over the next five years until the end of the president’s term.

The planned supplementary budget will also be used to help finance SMEs’ research and development, culture and arts and childcare programs in line with the president’s vision to boost the economy through the convergence of science, information technology and cultural arts.

“While a supplementary budget of 1.3-1.5 percent of the GDP would be consistent with previous supplementary budgets, we believe a larger stimulus, potentially some 2 percent of GDP, could be justified given weaker external demand and property markets than before,” said Kwon Goo-hoon, an analyst at Goldman Sachs said in a report.

Real estate policy is likely to be outlined with the Ministry of Land, Infrastructure and Transport, but the government may not ease some of regulations governing loan qualification and assessment indicators such as loan-to-value and debt-to-income ratios.

Financial policymakers and regulators expressed caution over relaxing LTV and DTI rules just to revive the housing market as they are key part of taming rising debt mostly by households, which the president aims to decrease as it pose a risk to its economic sustainability.

Hyun also said that it will provide a revised estimation of the country’s gross domestic product growth. The Finance Ministry initially projected a 3-percent GDP growth for 2013 last year, and analysts suggest that it may lower it to around 2 percent due to the global slowdown still expected throughout this year

The Bank of Korea revised its growth outlook down to 2.8 percent in 2013 from the initial 3.2 percent predicted in October 2012.

It also remains to be seen whether the central bank will pursue a policy mix with the current administration by lowering its key base rate to stimulate the economy given that inflation, which is hovering below its target range, does not pose a risk at the moment.

The central bank has recently defended its rate position, responding to market speculations that it may move to decrease it, as various indicators show signs of global economic recovery.

By Park Hyong-ki (hkp@heraldcorp.com)

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