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[Editorial] Boost Investment before Drawing up Additional Budget

[Editorial] Boost Investment before Drawing up Additional Budget

Posted May. 24, 2005 03:33,   


The Finance Ministry indicated that it may consider drawing up supplementary budget. The decision seems to reflect the fact that 67 percent of this year’s budget was allocated in the first half, but the growth rate for the first quarter was a mere 2.7 percent. However, increasing government spending without reviving corporate investment and domestic consumption will only lead to a bigger fiscal deficit rather than economic recovery.

Since 2003, the ministry has made a supplementary budget three times, two of a total 7.48 trillion won in 2003 and 1.83 trillion won last year. Nevertheless, the annual growth rate was no more than 3.1 percent and 4.6 percent respectively due to stagnating consumption and investment. The effect of the supplementary budget was further tempered because it was allotted mostly in stabilizing people’s livelihood, rather than in social overhead capital, according to the analysis of the National Assembly Budget Office. This year’s supplementary budget, if drawn up, should be focused on its influence on growth and economic recovery.

To find a fundamental solution to the sluggish economy, the ministry should find out the reason why investment and consumption flows are stuck fast. According to a survey by the Federation of Korean Industries, excessive regulations by the government hamper investment. For example, 3.6 trillion won of investment by large companies was invalidated by the regulation on the Seoul metropolitan area. Investment losses by other regulations such as limit system on the amount of investment are innumerable. Some analyze that deregulation on corporations can raise investment worth of tens of trillions of won.

Last year, Koreans spent more than $20 billion in overseas countries by traveling and studying. Market opening in education and medical services will enhance the competitiveness of the domestic service providers, and significant portion of overseas consumption will be absorbed back. For several years, the government has not conducted any large-scale national projects that might have boosted the economy and enhance the growth potential. According to the Korea Chamber of Commerce and Industry, it is estimated that the total losses caused by stopping five national projects amounted to 4.18 trillion won, which is the result of the government’s failure to settle disputes among interest groups.

The government should not be obsessed with the supplementary budget. Rather, it should deregulate the companies, open the service market, and effectively pursue various national projects, so that the investment and consumption can be stimulated.