Would boost in job spending work?

By Kim Tong-hyung

In announcing its 2012 budget plan, the government made no secret of wanting to kill two birds with one stone: implementing more generous social policies in an election year while wrestling to keep the fiscal deficit under control.

The attempt at juggling these conflicting agendas was justified by the Strategy and Finance Ministry’s rosy forecasts for next year’s economy, which it says will grow at 4.5 percent on consumer price inflation of 3 percent. However, it bears further watching whether policymakers will manage to keep all the balls in the air when it seems the recession winds could blow hard at any minute.

Creating more jobs was clearly the central theme of the finance ministry’s budget proposal, which is contingent to approval by lawmakers. Speaking to journalists, Finance Minister Bahk Jae-wan repeatedly stressed that new jobs and a renewed commitment toward sparking entrepreneurship could provide the elusive link between the government’s dual goals of spurring growth and improving social welfare.

``The main idea is to enable a circular process between growth, jobs and welfare, and jobs obviously would be the key to the connection … There could be no better welfare policy than employment, and we focused on achieving better welfare levels through improving employment conditions and providing more opportunities,’’ added Kim Dong-yeon, the head of the finance ministry’s budget planning division.

The country’s job-related budget is to increase by 6.8 percent to 10.1 trillion won (about $8.57 billion), representing the highest rise among items of government spending. About 9.4 trillion won of the money will be spent on creating 562,000 new jobs, which will predominantly go to youngsters and old people who tend to be more sensitive to the economic weather.

The government arranged 500 billion won for its efforts to encourage entrepreneurship, highlighted by the creation of a 200 billion won fund to provide generous loans and other forms of financial support to people starting their own businesses.

Another 600 billion won will be dedicated to schemes aimed at increasing the employment of high-school graduates.

The government will also spend around 1 trillion won to create 175,000 social work positions and 12,000 jobs in culture and tourism, with the priority being fostering quality talent for movies, music and performance arts to support an entertainment industry that continues to pump out lucrative cultural exports. It will spend more on encouraging people to get jobs and provide job training for those in their 40s and 50s.

According to the budget plan, overall infrastructure spending is to be reduced by 7.3 percent to 22.6 trillion won next year. However, when excluding money spent on the nearly-completed project to refurbish the country’s four major rivers, the infrastructure budget will actually be 4.5 percent larger than what it was last year, with policymakers looking to maintain a certain level of spending to support its pro-job drive.

``When considering the outlook for next year’s economy and also growth and job situations, we concluded that we needed social overhead capital (SOC) investment to back local economic activity and employment,’’ Kim said.

``An increase in investment is more urgent in environment-related projects like improving water quality. There will also be more financial support for expanding bullet-train coverage and building more highways as well as adding pace to the preparations for the 2018 PyeongChang Winter Olympics.’’

The government’s optimism for creating jobs is a hard-sell to critics, who point to the heightening uncertainty surrounding the sovereign debt problems in Europe and a sluggish U.S. economy.

The finance ministry’s prediction of 4.5 percent economic growth next year is much better than the forecasts by private economic think tanks like the Samsung Economic Research Institute (SERI) and LG Economic Research Institute (LGERI), which anticipate growth to fall in the mid-3 percent range.

Korea’s economy is particularly vulnerable to external factors as it relies heavily on exports. The country’s GDP growth pulled back sharply in the three months to June this year when it annually expanded at 3.4 percent, down from 4.2 percent in the previous quarter.

Earlier this month, the International Monetary Fund (IMF) shaved its growth forecast for Korea to 4 percent from its earlier projection of 4.5 percent.

The increasing sense of helplessness over the widening eurozone debt problems suggests that the global economic environment could get worse before it gets better.

Facing the possibility of another full-blown economic crisis, it’s hard to imagine companies spending more to expand their payrolls. The government may also find it extremely difficult to suppress spending enough to achieve its goal of balancing the budget at 2013 when the cost would be throwing the country’s fragile recovery off course.

Reflecting Koreans’ concern over the country’s economic outlook, the Bank of Korea (BOK)’s measurement of consumer confidence in September stayed at the lowest level since March, according to its report released Tuesday.