Government’s Contingency Plan

The Ministry of Strategy and Finance announced Tuesday that the government has devised a contingency plan to deal with the surging oil prices, which include an oil rationing system and price control.

The plan consists of a supply and demand program to prepare the nation against a lack of oil supply, regardless of oil prices; energy-saving measures depending on oil prices; and measures to stabilize foreign exchange and financial markets so as to prevent economic crisis.

Under the supply and demand program, the government would secure oil reserves by forcing oil refineries to cut their export of petrochemical products when the volume of imported oil is smaller than expected by less than 10 percent.

When the volume of imported oil is smaller than expected by 10-30 percent, the government will release its oil reserves and prevent oil refineries from exporting petrochemical products.

And when the volume of imported oil is smaller than needed by more than 30 percent, the government will intervene in the market by rationing oil to the people and publicly announcing the highest sales price of oil.

The energy-saving measure is divided into two phases: the first phase will be implemented when the Dubai crude oil price is lower than 170 dollars per barrel; and the second phase will be introduced when the price exceeds the 170-dollar-per-barrel mark.

The government Tuesday introduced first-phase measures such as even-odd day vehicle restriction (under which government officials’ cars with license plates ending with even numbers are not allowed to be driven on even-days and vice versa), and a 30 percent decrease in the operation of government vehicles.

In the second phase, mandatory energy-saving measures will be implemented. For example, people will not be able to take elevators when they go up to and down from the second and third floors, and the amount of energy spent to light streetlights will be cut by 70 percent. According to the government’s principles, the second phase will be introduced only when the oil price exceeds 170 dollars per barrel. However, some mandatory measures under which citizens will not be allowed to drive cars every five days and broadcasting stations will be forced to cut broadcasting hours are highly likely to be introduced if the oil prices exceed 150 dollars per barrel.

Considering that the oil price hike may invite economic uncertainties, the government also came up with measures to deal with foreign exchange and financial issues when the oil prices surpass the 170-dollar-per-barrel mark.

The gist of its foreign exchange measure is to increase the issuance of foreign exchange stabilization fund bonds to 5 billion dollars next year. For comparison, the government issued foreign exchange stabilization fund bonds amounting to 1 billion won, this year. The Finance Ministry expects that a surge in the amount of dollars in circulation will contribute to lowering the won-dollar exchange rate which, in turn, will help the economy buffer shocks from surging import price.

Under the government’s contingency plan, the Bank of Korea will provide financial support for the nation’s financial institutions if individuals and corporations facing an emerging economic crisis withdraw their deposits and bring about a liquidity crisis to the financial market.

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