Disputes about `Increasing 10 Trillion Won Additional Expenditure in Budget Execution`

Korean Government and Millennium Democratic Party (MDP) decided to release 10 trillion won by way of early budget execution and increase of finance expenditure in order to help the frozen business conditions.

However, since most of the money is scheduled to be used for pump-priming construction projects and may lead to the domestic demand increase, the effectiveness is pointed out to be questioned. In the worst case, it may turn out to be a stagflation, in which the prices go up despite the bad business conditions.

Government and the ruling party held a meeting with supreme council members and economy-related ministers in the party headquarters in Youido, Seoul on August 8. They decided that a total of 10 trillion won, including supplementary budget of 5.555 trillion won and unused budget of 4 trillion won, would be expended early in order to boost the business conditions. In addition, they agreed to foster the business conditions by spending 3.7 trillion won, which were originally supposed to be used for the third and fourth quarters of this year, during the third quarter increasing domestic demands.

Also, they concluded that the tax resources should be expanded, while the tax rates would be decreased. Related to this, they will outline the measures of tax reduction in September and modify any necessary regulations in November. Additionally, they would do their best to eliminate any unstable factors in markets, such as finding the solutions of the insolvent enterprises (including Daewoo Motors) or banking business by next month.

They also decided to make measures to loosen the business restrictions in next month based on the survey results of 350 companies which will be done by the end of this month, and then review whether or not the regulations of the total investment amount restriction and 30 company designation system should be modified, which had been requested by businessmen.

In high-profit, high-risk fund, which will be on sale from next month, they decided to make a way not to include the bonds of companies whose interest compensation ratios are below 1 for the last 3 years out of 1,544 companies classified as `credit risk`.

Many economy experts said, ``If the business conditions will get better in the fourth quarter, as government had predicted, there is no need to use such pump-priming policies.

Such policies are in the risk of stimulating the prices and leading to inflation.``

Lee, Wonki, director of research center of Merrill-Lynch, said, ``Under current circumstances, pump-priming policies should be limited to complementing the easiness of restructuring. If the prices and real estate prices go up in the middle of pump-priming the business conditions, these may add the burdens onto the future economy.``

Meanwhile, in this meeting, the participants were as follows; from the Millennium Democratic Party, Kim, Joongkwon, chairman of the ruling party, Kang, Woontae, Chung, Taechul, Chung, Tongyoung, Kim, Wonki, Han, Hwagap, Lee, Inche, Kim, Kijae supreme council members, and from Government, Jin, Nyum, vice prime minister and minister of Finance and Economy, Chang, Jaesik, minister of Commerce, Industry and Energy, and Hwang, Duyeon, director of economy and trade center.

yhchoi65@donga.com