Govt to Increase Fiscal Spending to Stimulate Economy

Top economic policymakers hinted for the first time this year that the economic growth this year might fall short of the 5% target. They added, however, the government would stick to existing policies instead of coming up with additional economic stimulus packages.

The government held a top economic policymakers` meeting at Bankers Club in Myungdong, Seoul on March 3 and discussed a wide range of economic issues.

˝The 5% growth target still remains attainable for now, but such factors as a possible U.S. attack on Iraq and an oil price hike will most likely put negative spins on growth,˝ said Deputy Prime Minister and Minister of Finance and Economy Kim Jin-pyo presiding over the meeting.

This is the first time that the government ever mentioned the possibility of lower-than-expected growth this year.

˝Exports picked up in the second half of last year (July through December), but the overall economic growth is expected to slow down for some time facing the weak demand and consumer confidence at home,˝ he also noted.

The government, however, has decided not to take additional short-term measure to prop up the economy because some of its policies such as low interest rate and temporary investment tax exemption can be seen, to an extend, as measures to boost the slowing economy.

Participants at the meeting agreed on that short-term stimulus policies might hurt growth potential and stability in the mid and long term by resulting in heavy household debt and a real estate speculation boom.

The government, instead, will issue treasury bonds and borrow funds from the Bank of Korea to increase fiscal spending in the short term, while promote corporate investments by easing regulations on land, environment and urban development and lowering corporate tax rates.

Of the second-phase oil price stability programs, however, it has decided not to adopt the plan to reduce the size of neon signboards, given the concern that it would dampen consumer sentiment.

The government plans to unveil its economic reform plan later in the middle of this month covering such issues as collective law suits, limit on capitalization, inheritance taxes, privatization of ailing banking institutions and spin-off of financial service arms of large businesses.

Kwang-Am Cheon iam@donga.com