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Finance Ministry Aims to Cut Budgets

Posted April. 03, 2008 06:25,   


“We need large-scale water surface cleaning ships in order to prevent oil spills from further contaminating the water, like what happened at Taean. We need a 31.8 billion won budget.” (Korean Coast Guard)

“We have converted existing ships into more efficient ones which can clean the water’s surface. We will allot only 4 billion won.” (Ministry of Strategy and Finance)

The coast guard asked the government to appropriate 5.7 billion won to construct water surface cleaning ships and water cleaning activities. The government normally approved such requests in the past since water contamination accidents fall within the coast guard’s jurisdiction. This year, however, the government refused to accept such a request. The finance ministry decided to provide only 2.5 billion won for water surface cleaning ship construction and water cleaning activities, saying, “The Coast Guard can use existing facilities, instead of building new warehouses, and reduce research cost and other expenses.”

In an effort to foster technical experts, the government has supported specialized universities with the nation’s unemployment insurance fund. However, the project’s existence is in question. The Labor Ministry asked the government to allocate 24 billion won to support the project, but the Finance Ministry decided to provide a mere 8 billion won. A spokesperson for the Ministry of Strategy and Finance said, “Since the Labor Ministry’s project may overlap with university projects supported by the Ministry of Education, Science and Technology, the government needs to consider whether to abolish the Labor Ministry’s project to finance specialized universities next year.”

The Finance Ministry added that it wants to avoid creating a new project so that jobs might be created in those localities. It added that the project lacks concrete details and so is unlikely to receive any money.

A government official who has dealt with the Finance Ministry several times complained, “The ministry doesn’t accept our request at all even when we suggest justifiable projects. It seems that the people at the ministry are really cold-hearted.”

The Finance Ministry’s mandate, as announced on March 12, is to reduce the nation’s budget by 10 percent. The Ministry of Strategy and Finance had received a mid-term business plan for 2008-2012 from 45 government agencies and 60 pension funds at the end of last month. The ministry is now adjusting detailed expenditure items as spending for 2009 will be finalized by September of this year.

The Finance Ministry changed the standard for the government’s budget limit for next year. It ordered all government agencies to reduce discretionary expenditure by 20 percent but to increase spending on projects requested by the central government by 15 percent. By doing so, the amount of discretionary expenditure should decrease 3 trillion won from 65 trillion won in 2008 to 62 trillion won in 2009. A year ago, the relevant ministry’s standard for the budget limit was very loose since it stated that each government agency’s expenditure would be calculated based on the amount of the budget spent in the past and potential cost of projects.

Consequently, government agencies and pension funds today find themselves tightening their belts as they draft budgets for next year. Every government agency is struggling to meet the new government’s fiscal mandate.

However, some experts argue that the new government’s one-size-fits-all approach may prevent necessary projects from being executed. Lee Yeong, an economics professor at Hanyang University, said, “The government needs to establish measures to efficiently budget for politicized programs, like those related to the agricultural industry or small firms.”

legman@donga.com tesomiom@donga.com