Posted December. 15, 2008 10:08,
The National Assembly has approved the governments 2009 budget of 284.5 trillion won (207.2 billion U.S. dollars). The budget plan focuses on revitalizing the economy and tackling the financial crisis by helping small and medium-size enterprises in need of liquidity and providing a social safety net for the lower-income class. It is now up to the government to execute the budget with promptness and efficiency to achieve the intended outcome.
Notably, spending on social overhead capital to boost the economy will dramatically rise to 24.7 trillion won (17.9 billion dollars) next year, up 26 percent from this year and far above the annual growth rate of 2.5 percent over the past five years. Fiscal expansion has a larger role to play next year due to lackluster investment plans by the private sector. In this context, the construction of roads and railways will contribute to boosting the economy and creating jobs. Government funding to smaller companies will come through expanding financing to state-run banks and guarantees to institutions. The effects of such measures will be amplified if taken together with tax cuts.
Many government stimulus measures have failed to take effect largely due to the delayed passage of the budget plan and other important bills in the National Assembly. Now that the budget has been approved, the government has no one else to blame. That is why President Lee Myung-bak held an emergency meeting on fiscal expansion to order an early execution of the budget, and called an early briefing for next years plans for economy-related ministries as soon as Thursday. Sixty percent of the annual budget will be executed in the first half of next year, as well as 70 percent of those related to overcoming the financial crisis and creating jobs.
The severity of the global economic crisis requires an unprecedented execution of the Korean national budget. To maximize efficiency, the government must drastically simplify administrative procedures for budget execution and decide which investment areas deserve priority. Given the time needed for fiscal spending to have a real impact on the economy, the government must execute the budget with an early timeline.
If economic growth falls to just two percent next year as projected by the Bank of Korea, Koreans might have to brace for a worst-case scenario involving both sluggish domestic demand and a gloomy job market. Given such circumstances, the government must keep in mind that only timely and proper execution of the budget can save the economy. With the ruling party, the government should also promptly pass pump-priming bills in the National Assembly.