KIF, “Control the Pace of Managing Economy”

There appeared an insistence that the government should control the management of economy from `pump-priming` to `neutral`. The insistence of Korea Institute of Finance (KIF) came after private economic institutes like Samsung and Hanhwa estimated the economic growth rate in the first quarter (January to March) at 6 percent, and carefully brought up the view to regulate the pace of business.

In the `Report on the Economic Trend` that KIF submitted to the Ministry of Finance and Economy (MOFE), KIF pointed, “it requires to change the tone of economic policy to `business neutral` at proper time, as the recovery of economy this year will last to 2004. ”

The report said, “with the increase of domestic consumption and continual recovery of export, the growth ratio of Gross Domestic Product (GDP) will reach 3.9 percent in the first half of this year, 5.3 percent in the second half or total 4.6 percent this year. However, we should prepare measures beforehand in order to keep the stability of economy in 2003, as side effect of the expansion of domestic consumption might appear although prices are not likely to rise. ”

And the report requested, “after business has recovered, interest rate (corporate bond yield) might soar to yearly 7.4 percent in the second half. The government should take a measure prior to the expiration of massive public fund so as not to allowing interest rate to soar. ”

The government`s official stance is that `it is not the time to control the business as there is no possibility of the business overheated`. Deputy Prime Minister of Economy and MOFE minister Jin Nyum expressed a negative view to the regulating opinion at the meeting with New York correspondents saying, “I won`t scatter chemicals on the forest for some sick trees. ”

But different from the official view, there are subtle changes on the tone of economic management like nullifying △reduction of corporate tax for the investment on facilities and △temporary cut of special consumption tax on the car, which it introduced to recover business last year.

Rae-Jeong Park ecopark@donga.com