Korea faces growing downside risks: ministry

Korea's economy is recovering at a slow pace in the face of expanding downside risks stemming from eurozone debt problems and uncertain global economic situations, the finance ministry said Tuesday.

In a report to lawmakers explaining its policy direction during the rest of this year, the ministry also said that it will place its top priority on bolstering the economy and stabilizing the livelihoods of ordinary citizens.

"Despite continued improvement in employment and eased inflation, the economic recovery has been weakening and the overall downside risks are expanding due to worsening external situations," the ministry said.

"As a whole, a sluggish trend has persisted longer than expected, and as the eurozone concerns are deepening, downside risks are also expanding," it added.

The ministry also expressed concerns that the contagion of the eurozone crisis could spread to other areas, which it worried could increase uncertainty about the already-bleak outlooks for global financial markets.

The pessimistic view of the global economy is in line with the ministry's earlier estimate of economic conditions at home and abroad.

Last month, the ministry revised down its 2012 growth projection for Korea from 3.7 percent to 3.3 percent, saying that its exports could get hurt by the prolonged debt problems in Europe and possible global slowdowns.

In the report to lawmakers, the ministry renewed its commitment to boost the local economy and stabilize the livelihood of working-class families.

It also placed emphasis on "economic democratization," a much-talked-about issue in the political community ahead of the December presidential election.

Both the ruling and opposition parties are calling for economic democratization aimed at fixing unfair practices and other problems with family-controlled conglomerates, known here as chaebol, and keeping their ever-growing clout under control.

"With regard to efforts to ease concentration of economic power and other factors related to economic democratization, (we) will make steady efforts to carry out polices such as fostering coexistence between small and large companies and realizing a fair society," the ministry said.

The ministry, however, noted that related efforts will be made in a way not to undermine market economic rules and dampen overall economic momentum, suggesting it will not be at the mercy of political pressure to impose what it sees as excessive business regulations.

In a meeting with lawmakers, meanwhile, Finance Minister Bahk Jae-wan hinted that he could revise down the government's growth projection for next year when he submits the government's budget proposal for 2013.

Last month, the government predicted the economy will grow 4.3 percent next year. The ministry will submit its 2013 budget proposal to the National Assembly by the end of September.

"In consideration of downward trends (of growth projections) by each agency, we will make a realistic revision (of our growth forecast) in the budget proposal," he said.

Touching on the slumping property market, he said that the government's recently-unveiled measures to ease mortgage lending limits would not worsen the country's household debt problems.

On Sunday, the government said that it will ease some of lending regulations including debt-to-income (DTI) ratio by removing or adjusting what it sees as "irrational" parts in a way to help actual house purchasers.

The DTI ratio is a major tool to control housing loans by tying the maximum amount of money that home buyers can borrow to their income levels. It is applied mostly to speculation-prone areas in and around Seoul.

An eased lending limit could boost home purchases and reactivate the property market but experts worry that it could also exacerbate the country's household debt problems.

"The problem is the debts of low-income earners, those who owe to multiple creditors and other vulnerable population groups including some senior citizens and self-employed," the minister said.

"As the adjustment of DTI regulations unveiled by the government will not affect those population groups, it will not worsen household debt problems," he said.

Bahk emphasized that regulation changes will be focused on senior citizens with a "sufficient" amount of assets and younger people with high potential of income growth. (Yonhap)