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`Economic Policy Mismatch`

Posted August. 14, 2001 08:22,   


There are indications that the administration is pursuing contradictory economic policies that simultaneously lower interest rates to release capital in the market, and withdraw money by issuing currency stabilizing bonds.

San Ha Korean Economic Research Institute, Chun Kyon Ryun commented from a report titled `Program For Increasing the Efficiency of Current Economic Policies For Economic Revitalization` on August 13 that the Korea Bank`s currency trust policy and the government’s fiscal policy contradict each other.

`Although Korea Bank lowered the call interest rate from the 5.25 percent in January to 4.75 percent last month to supply the market with capital, the amount of currency stabilization bonds have simultaneously increased and the currency rate of increase is actually falling.` said Chun.

He further stated, `The approximately 13 trillion won balanced budget financing in the first period is also part of the inconsistency in the policy.` The administration took more money in taxes than expenditures geared toward activating the economy.

`The administration plans to balance the budget by 2003 and is taking the rigid measure of maintaining the financial deficit at 1 percent of the national GDP. Economic regulations will have little effect.` added Chun.

Chun proposed that short-term financial deficit will have to be accepted and that flexible fiscal policies are needed to boost the capacity to regulate the economy.

He also observed that the administration will have to increase spending on SOC and decrease corporation taxes and income taxes.

Kim Seung-Jin sarafina@donga.com