Korea’s economy is expected to get back on track and improve, thanks to a surprising ― and controversial ― rate cut this week by the Bank of Korea, and the passage of the supplementary budget bill at the National Assembly.
Lee Suk-joon, vice finance minister for budget affairs, said Friday during an event that “Korea’s overall confidence in the economy will grow” on the back of the central bank’s rate cut and the government’s fiscal stimulus plan.
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Lee Suk-joon, vice finance minister for budget affairs |
Korea will be able to achieve its initial growth projection of 3 percent this year and closer to the country’s traditional growth of 4 percent next year, should the rate cut and the 17 trillion won extra budget help boost private spending and investment, the senior policymaker added.
The central bank on Thursday unexpectedly ― allegedly due to government pressure ― lowered its key base rate from 2.75 percent to 2.50 percent, an apparent move to support the government’s fiscal stimulus measures after earlier resisting government pressure.
Further, the Ministry of Finance said that it plans to inject 72.4 percent of 5.4 trillion won from its supplementary budget in the first half of this year.
These stimulus measures are expected work together help improve overall market sentiment, according to policymakers.
“The mood in the market and the economy appears to be improving as the National Assembly passed through an extra budget, and the BOK cut its interest rate,” said Lee of the Finance Ministry, who handles budget affairs. “I believe that we will be able to achieve our growth objective for this year if (improvements in) corporate investment and private spending also come along. Things will be better next year than this year,” he added.
He made the remarks at a meeting with primary dealers for Treasuries.
The remarks were natable in that the ministry is suspected of having used its influence to pressure the central bank to issue a cut.
In March, the finance ministry lowered its growth outlook for this year from 3 percent to 2.3 percent, citing growing market uncertainty at home and abroad. South Korea’s economy has grown by less than 1 percent for eight straight quarters.
The government earlier expected the extra budget to raise the country’s gross domestic product by 0.3 percentage point for this year and 0.4 percentage point in 2014. South Korea will frontload over 70 percent of additional fiscal spending during the first half of this year, the finance ministry said Friday.
The frontloading was finalized after the National Assembly approved a 17.3 trillion won ($15.7 billion) supplementary budget bill earlier this week to boost the slowing domestic economy.
Of the total, 12 trillion won is intended to make up for an expected revenue fall and the other 5.3 trillion won is a net increase in government spending.
Of the additional spending, 3.9 trillion won was set aside in the first half. “We decided to inject the additional spending in order to make its impact on job creation and economic recovery materialize earlier,” the Finance Ministry said.
By Park Hyong-ki and news reports (
khp@heraldcorp.com)
