By Lee Hyo-sik
Staff Reporter
The government is set to take a range of steps to boost economic activity and strengthen fundamentals to minimize the fallout from the worsening global financial market turmoil in the wake of the U.S. subprime mortgage debacle.
According to the Ministry of Finance and Economy Sunday, the government is considering a comprehensive package of measures to help the world's 13th largest economy better cope with bad effects from the current global financial market volatility, rising global inflationary pressure and other external negatives.
Among possible measures are greater fiscal spending in the first half of the year, tax cuts and the expansion of corporate investment through deregulation.
This year, the world economy is projected to expand at a slower pace than 2007 as the U.S. economic slowdown ― due to its housing market downturn and the credit market turmoil ― will likely weigh on the global economy. Earlier this month, the United Nations forecast the world economy will grow 3.4 percent this year, down from an estimated 3.7 percent increase last year.
The organization projected that the Korean economy will expand by 5 percent in 2008 on strong exports and recovering domestic consumption, moderately up from last year's 4.9 percent growth. The government also said the country's gross domestic product (GDP) will increase by 4.8 percent this year.
However, many analysts are concerned that the local economy could suffer greatly if the ongoing financial market chaos further deteriorates and spreads to the broader economy across the globe.
A finance ministry official said the downside risk to the global economy has increased, adding the government is looking into tax cuts and other measures to help the economy weather the difficult external environment.
Last week, President-elect Lee Myung-bak's transition team announced it will extend the period of corporate tax exemption on new investments for one more year, claming it will raise the country's GDP by 0.2 percentage point and create 21,000 jobs this year.
The government is also expected to soon lower corporate income tax. The former Seoul mayor has pledged to reduce the tax to 20 percent from the current 25 percent, while halving real estate transaction taxes to 1 percent to help boost the sluggish housing market.
A ministry official also said the government is seeking to ease various rules governing business activities to promote corporate investment in line with President-elect Lee's promise to introduce the negative system, under which all business activities are permitted unless stated otherwise.
In the meantime, the Ministry of Planning and Budget is reportedly considering further frontloading fiscal spending to the first half to help spur business activities. It currently plans to spend 62.4 percent of the 2008 budget, or 137 trillion won, during the first six months of the year.
A ministry official said it will continue to monitor economic conditions for the time being and decide later whether to allocate more money to the first half.
Also, the Bank of Korea (BOK) has recently come under pressure to cut its benchmark interest rate to reduce borrowing costs and boost economic activity, following the U.S. rate cut of 0.75 percentage points to 3.5 percent last week.