Speedy Stimulus Steps to Mitigate Recession
By Hur Kyung-wook
Vice Strategy and Finance Minister
The world economy is facing unprecedented difficulties as the financial turmoil, which originated in the United States, has spilled over into developing economies, affecting the real economy sector as well as the financial markets.
This economic situation is weighing down on the Korean economy, which is highly export-dependent, dragging down Korea's economic growth prospect and employment figures.
In particular, domestic consumption and investment as well as exports have taken a heavy blow, while the credit crunch remains unabated, casting a pall over a deepening recession.
To address these difficulties, the Korean government will pursue policies on the basis of the following directions.
Economic Stimulus Measures
First, we will pursue an early implementation of economic stimulus measures to prevent the Korean economy from further deteriorating and will nurture internal engines of economic growth to grid itself for the possibility of the worsening global economic outlook. We will also lay the groundwork for the Korean economy to rebound in the post crisis era.
A few macroeconomic policies will be in place to help mitigate recessionary pressure to encourage job creation through increased domestic consumption, and supplementary budgets will be allocated and implemented at the earliest possible date to projects aimed at generating employment and supporting the vulnerable class.
Korea's relatively sound fiscal conditions, with its level of national debt at 33 percent of GDP, far lower than the OECD average of 75 percent, gives the government plenty of room to pursue this expansive fiscal policy.
We will ensure timely and cost-effective budget allocations and at the same time, make efforts to maintain mid to long term fiscal balance. The government will also make contingency plans to brace for the possibility of deepening global recessions.
Second, the Korean government will make every effort to make credit flow in the financial market. One of the measures will be to increase government guarantees to small and mid-sized enterprises (SMEs) to help them continue their businesses and retain employment despite temporary liquidity shortages.
The Korean government will offer to rollover all loans and guarantees for SMEs maturing in 2009. However, we will not allow this scheme to create moral hazard by extending assistance to corporations that are not credit-worthy and unwittingly help them to survive on government assistance.
The recipient companies will be placed under scrutiny to determine whether they are worthy of receiving government guarantees or should be subject to restructuring.
The government will specify companies, which do not deserve government support such as those with bad credit history. At the same time, we will make sure to make credit flow in the financial markets and the real economy by offering local and foreign currency liquidity sufficiently.
A bond market stabilization fund will be set up by the end of March to facilitate corporate financing through purchases of corporate bonds.
Third, the Korean government will spare no effort in creating jobs. The government is willing to relieve the burden of the unemployed and jobless youths. The priority will be given to retaining current jobs and we will support private companies to keep their current employment level and help participate in the job-sharing program initiated by the government.
Companies practicing job sharing on the basis of agreements with their trade unions will be given financial support and tax incentives.
Furthermore, the government will lead the way to job creation in the public sector through the Green New Deal, introduction of youth internships, which will provide jobs for everyone, including women and senior citizens. New laws regarding contracted workers and minimum wages will be enacted to make the labor market more flexible.
Fourth, the government will focus on stabilizing the basic livelihood of low-income families by expanding support for them. We believe that a country is responsible for meeting its citizens' basic needs such as food, shelter and education by introducing social safety nets.
The number of recipients who receive emergency livelihood support is increasing. To provide housing for low-income families, more multiplex houses will be purchased and rented by the government along with support for rent deposit.
To provide children from low income classes with educational opportunities, which are critical for them down the road, the government will increase scholarships available to kids and lower interest rates imposed on academic loans.
Fifth, to successfully ride out this financial crisis, Korea needs timely and effective corporate restructuring.
Corporate restructuring will take the following three steps: First, credit institutions will be in charge of evaluating and carrying out restructuring its borrowers as they see fit.
However, the government will take an exceptional measure in undertaking restructuring companies in construction and shipbuilding industries to wipe out uncertainties in the market.
The next step will be introducing regulations and setting aside additional capital to cope with the prospect of the increasing number of unviable companies, which may emerge as the economy spirals downward.
The last step is to provide promising companies with tax incentives and other supports in order to help them outlast this crisis and become locomotives of rebounding the economy.
Finally, improving Korea's economic fundamentals and nurturing future growth engines should be given a priority. The government should increase productivity and raise mid and long-term growth potentials, and prepares itself for the post crisis era.
This is as important as surviving the crisis. Above all, the service industries need to become more competitive.
To this end, the government will pursue industry-wide deregulation in the service sector, boost the competitiveness of medical and educational services and make the sector one of Korea's major engines for growth.
Furthermore, issues related to our economic sustainability such as climate change will receive unwavering attention.
Last year, the government unveiled ``low carbon ― green growth'' as Korea's new growth strategy. We cannot sustain growth without realizing green growth ``green technology,'' new technology related to developing renewable energy, and highly sophisticated industrial convergence, are receiving government support as future growth engines, and more detailed plans to nurture these industries will be unveiled in the near future.
We are facing the most severe and unprecedented crisis in decades.
We cannot be too optimistic about the situation, however, too much pessimism does not help, either.
The government will prioritize policies to win public confidence and carry them through decisively. It is time to rely upon our collective wisdom and weather the crisis.