News & Notice

News & Notice
Subject Gov''t pledges W10 tril. more to boost economy Date 2016-10-11 08:11:58

Gov''t pledges W10 tril. more to boost economy

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By Yoon Ja-young

The government announced Thursday an additional stimulus package worth 10 trillion won ($8.9 billion) to attain its economic growth target of 2.8 percent for this year.

“Domestic consumption picked up a little in retail sales and services in August, but the economic recovery remains weak due to sluggish exports and production,” Strategy and Finance Minister Yoo Il-ho said at an economy-related ministers’ meeting.

“While the stimulus package and Korea Sale Festa are positive factors for the fourth quarter, both external and internal risks are also increasing,” he said.

The 10 trillion won stimulus is in addition to 16.6 trillion won allocated for the fourth quarter in the previously announced pump-priming.

Of the 10 trillion won additional package, 6.3 trillion won will come from the central and local governments as well as state-run enterprises.

There will also be 3.3 trillion won worth of exports-financing to help businesses win orders in developing countries, as well as a 500 billion won addition to corporate investment promotion programs.

The government also announced measures to boost consumption, such as easing the use of credit card mileages and the Korea Sale Festa, a government-led sales event. As 133 billion won worth of credit card mileage expired last year, the government determined that facilitating using it like cash could help the economy.

The stimulus measures come amid concern that external and internal risks could hamper the economy in the fourth quarter. Exports are clouded by a strike at Hyundai Motors, and Samsung Electronics’ recall of Galaxy Note 7s, while an anti-graft law, which was implemented from the end of the last month, is negatively affecting the already sluggish consumption. Corporate restructuring and a typhoon which hit the manufacturing facilities in southeastern part of the country are also clouding the economic outlook.

As neither private consumption nor investment is picking up, it seemed inevitable for the government to pour in money to sustain the economy. “We think the economy followed the estimated growth track until the third quarter, but there are downward risks in the fourth quarter. We expect 2.8 percent economic growth will be attainable through diverse policy measures,” Vice Finance Minister Choi Sang-mok said.

Most private economic think tanks, however, expect growth to fall short of the target. LG Economic Research Institute suggested the economy will grow 2.5 percent this year, and drop to 2.2 percent next year.

The Korea Economic Research Institute suggested 2.3 percent growth for 2016.

What is worse, they see the economy as entering a long-term recession. “The biggest risk for the Korean economy is not a short-term plunge, but loss of economic vitality in the mid- to long-term. Instead of temporary and short-term policies, the government should focus its fiscal spending on sustainable measures where growth potential could be enhanced,” the LG Economic Research Institute noted in a report.

“The past growth strategies are hampering changes. Society needs flexibility and new regulations to help new industries stemming from new services and technologies,” it added.


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