Expansionary Economic Policies to Continue

MOSF Minister Yoon to keep expansionary policies due to lingering uncertainties in the way of economic recovery

Minister Yoon Jeung-hyun of the Ministry of Strategy and Finance said the economy shows no signs that it is on the way to recovery. But its outlook looks less pessimistic at this stage and the government boosted the projected economic growth rate to -1.5 percent from -2 percent initially projected.
He said the global economic recession touched off by the Lehman Brothers fiasco in the United States in the second half of last year still continues to hang on with a long shadow over the Korean economy.
The global economic slump is felt all around the world impacting both advanced and developing world and has been hurting Korea's exports. One of the results from the global economic fiasco was that the country's economic growth in the Q4 last year registered -5.1 percent negative growth, the minister recalled.
The minister cautioned that high oil, raw material prices and the North Korean risks could still derail the growth of the economy. It is too early to be optimistic for the economy to recover and its sustainability due to a number of uncertainties remaining, Yoon said.
Current expansionary policies will continue until clear signs of economic turnaround are apparent, given uncertainties surrounding the economy. However, temporary measures will be reviewed in terms of their impact on the economy, and subject to be withdrawn when they expire. Real estate markets will be under close scrutiny, and any signs of market instability are sure to be responded to in advance with appropriate measures, in particular mortgage loans with tighter provisions. (According to the press briefing given on June 24, the Korean economy saw better-than-projected real GDP growth in the second half of 2009, registering a 1.7 percent increase from the previous quarter, while 0.7 percent growth was forecast originally.)
The current policies concerning job creation and public welfare will continue to be pursued in the second half, but their impact and effectiveness will be reviewed. In this respect, supplementary budget spending, measures for promoting the service sector promotion and supporting business startups, and programs for training human resources will be put under evaluation.
On-going corporate reform efforts will definitely be made: Creditor-led corporate restructuring at all times, early removal of bad loans in the financial sector, and more flexible job markets with improved labor-management relations. Relaxed lending conditions and expanded credit limits will be removed if the financial market stabilizes. State-owned agencies are obliged to make on-going efforts to improve their management efficiency, and those subject to privatization will be prepared for it.
The government will boost its efforts to raise the nation's growth potential to prepare for the post crisis period. This will include measures to promote investment in R&D and green growth related industries, create a more business-friendly environment, offer deregulation on high value added service industries, conclude FTAs with resources rich countries, and prepare for future risks such as an aging population, climate change, and high oil prices.
The Korean economy shows signs of reviving faster than other economies, as some economic indicators are improving, financial markets stabilizing, and real GDP growth entering an upward trajectory in the second quarter of 2009. However, there are still obstacles: Facility investments are still weak, negatively affecting employment, corporations are suffering from low profitability and high debt, worries are growing over economic bipolarization with the crisis mostly affecting the socially vulnerable, the potential increase in oil prices and the North Korea's nuclear ambition are posing risks, and social conflicts may quell consumer sentiment. These are the reasons behind the expansionary fiscal spending the government decided to take in the second half of 2009. nw

Minister Yoon Jeung-hyun of the Ministry of Strategy and Finance