South Korea May Frontload Spending in 2007, Kwon Says (Update3)
bloomberg.com
By Seyoon Kim
Oct. 20 (Bloomberg) -- South Korea's government may accelerate its budget spending in the first half of next year if its economy slows more than expected because of falling consumer confidence after North Korea's nuclear testing, Finance Minister Kwon Okyu said.
``If needed, we could review the possibility of frontloading spending,'' Kwon said in notes of a speech delivered at a breakfast meeting today with businessmen in Seoul. ``Economic growth is slowing in the second half and there are more external and domestic downward risks.''
North Korea said on Oct. 9 it ``successfully and safely'' detonated its first nuclear bomb. The United Nations Security Council passed a unanimous resolution on Oct. 14 that bars the sale or transfer of missiles, warships, tanks, attack helicopters and combat aircraft, as well as missile-and-nuclear related goods to the communist state.
``We can't rule out the possibility that the width and depth of the impact may be serious depending on the developments of the United Nations Security Council resolution, countries involved and further actions by North Korea,'' Kwon said. ``There's a possibility that a short-term impact may become visible.''
U.S. Secretary of State Condoleezza Rice sought a bigger role for South Korea in a U.S.-led program to intercept weapons, calling in Seoul yesterday for ``scrutiny of North Korean cargo.''
Central Bank
The government will also discuss the economy with the central bank, Kwon said.
``We'll try to share the recognition with the Bank of Korea about the macro-economy based on the future analysis of economic trends, inflationary pressure and downward risks on the economy,'' he said.
The Bank of Korea left its benchmark interest rate unchanged for a second month at 4.5 percent on Oct. 12. It increased borrowing costs five times in less than a year to curb inflation in an economy that imports almost all its oil.
South Korea's economy probably expanded 4.6 percent in the third quarter and will likely grow 4 percent in the fourth quarter, Kwon says. This will ensure the economy meets the government's target for 5 percent growth in 2006, he said.
Kwon also said the government is concerned about the exchange rate between the Korean won and Japanese yen and its impact on exporters.
Export Safeguards
``The won-yen rate is at a level of pre-1997 Asian financial crisis due to yen-carry trade,'' Kwon said. ``The yen exchange rate affects South Korean exports because the two countries compete in export areas. I think in this sense the government needs to provide help.''
Kwon said a weaker won against the dollar helped ``ease the burden'' on the economy. The won, which has been gaining versus the dollar, fell 1.6 percent on Oct. 9 when North Korea announced it detonated its first nuclear bomb. A weaker won helps exporters by increasing their profit made overseas.
South Korea's government has said it will unveil measures in November aimed at helping smaller exporters counter competition stemming from the won's advance against the Japanese yen.
Officials earlier this week said they would look at ways to safeguard exporters' competitiveness from the currency.
The South Korean currency on Oct. 16 rose to its highest against the yen since November 1997. The rate between the yen and won is closely watched in South Korea, which competes with Japan in key exports such as chips, autos and ships.
Free Trade
A successful free-trade negotiation with the U.S. would help restore foreign investors' confidence in South Korean economy, Kwon said.
``The free-trade agreement with the U.S. will not only contribute in improving our productivity, but will be an effective tool to reduce uncertainty in our economy after the North Korean announcements,'' he said.
The U.S. and South Korea are discussing what would be the largest free-trade accord for the U.S. since the North American Free Trade Agreement of 1994. The fourth round of negotiations will take place in South Korea's Jeju Island from later this month. |
