Finance minister rules out additional fiscal stimulus

Korean Finance Minister Bahk Jae-wan ruled out additional fiscal stimulus for now, saying it could do more harm than good because the global economy is too weak to make it meaningful.

“You don’t plant a tree in winter,” Bahk said in an interview with Bloomberg on Monday. While Asia’s fourth-largest economy retains room to boost growth both through monetary and fiscal measures, 3 percent growth “is not bad, given the global economy,” he said. Gross domestic product rose 2.8 percent in the first quarter from a year before.

Korea’s government and central bank have stepped up efforts to ease the impact from Europe’s debt crisis, a Chinese slowdown and muted U.S. job creation. The Bank of Korea unexpectedly cut its benchmark rate last week and the Finance Ministry announced economic support measures on June 28.

Bahk, 57, said there was no way to say if the effect on Korea’s economy from the European debt crisis has peaked, though the situation may improve later this year with “occasional hiccups.” Policy makers in Seoul “still have ammunition” and would favor joining other nations in a coordinated approach if the global economy worsens significantly, he said.

The central bank lowered its main rate a quarter percentage point to 3 percent on July 12, the first reduction since February 2009, as it joined a global stimulus push from Europe to China. The following day, the BOK pared its 2012 growth forecast to 3 percent from 3.5 percent, the second cut this year.

“They do not need too much additional policy support beyond monetary easing” to achieve 3 percent growth this year, Wai Ho Leong, a senior regional economist at Barclays Capital in Singapore, said in an e-mail on Tuesday. “The real issue that the finance minister and BOK are concerned with is what happens to growth next year and the year after.”

When the collapse of Lehman Brothers Holdings Inc. in 2008 sparked a global financial crisis, South Korea accompanied monetary easing with rounds of stimulus.

Parliament in April 2009 approved a 17.2 trillion-won ($15 billion) package of cash handouts, cheap loans, labor-market aid and infrastructure spending that added to 50 trillion won in relief measures. 

(Bloomberg)