By Kim Tae-gyu
President Park Geun-hye said Monday that the “economic democratization” should not mean constraining top conglomerates’ business activities.
The so-called democratization of the economy is one of Park’s key campaign pledges for helping small-sized companies.
Park warned against some areas, designed to realize economic democratization, going too far as the National Assembly is drafting steps to rein in top chaebol’s business expansion into the realms of small businesses.
“Suppressing companies, whether small or big, is not economic democratization or the government’s job,” Park said in a meeting with her top secretaries at Cheong Wa Dae. “On economic democratization, I am concerned that things might be going too far.”
Park also said that the recent standoff with North Korea and the imminent supplementary budget, if not dealt with properly, would negatively affect the sovereign credit ratings of South Korea.
On top of its 342 trillion won regular budget for 2013, the Park administration plans to raise around 17 trillion won the supplementary spending via state bonds. The related bill will be sent to the National Assembly for passage this week.
“I am concerned that the recent North Korea nuclear risk and the expanding budget deficit caused by the supplementary budget will negatively affect our sovereign credit ratings,” Park said.
“If we issue massive bonds to cover insufficient tax revenue, we won’t be able to avoid having a budget deficit for some time without a drastic cut in expenditure. Hence, we’re required to beef up management of our fiscal balance and state debt.”
Park urged her aides and bureaucrats to come up with preemptive measures such as offering detailed explanations and data to foreign ratings agencies so they will not cut their outlook for Asia’s No. 4 economy.
Standard & Poors, Moody’s and Fitch raised the country’s sovereign credit ratings last year to levels seen before the Asian financial crisis in the late 1990s.
However, the outflow of foreign funds this year amounting to around 4 trillion won, and North Korea’s continuous provocations, have generated some concern. Plus, government debt has jumped although the amount is still relatively small compared to other advanced economies.
Park has made it clear that her administration will push ahead with the supplementary budget as initially planned, and will ask the Assembly to discuss and approve the bill in a timely manner.
“If the supplementary budget is not fixed in a timely manner, we will not be able to expect its pump priming effect. Worse, we might end up wasting financial resources,” Park said.
“Along with bureaucrats, I ask you to explain the details to lawmakers of both the ruling and opposition parties so that they can immediately discuss the supplementary budget without any problems.”
Park also called for private companies to increase their investments to maximize the effect of the supplementary budget.
“For economic recovery, corporate investment is very important. If companies do not invest, the supplementary budget’s effect on economic recovery will be limited,” Park said.
“As of now, listed companies hold cash and cash equivalents totaling 52 trillion won. If they invest just 10 percent of that, it will be complementary to the government’s extra spending.”
Out of the 17 trillion won supplementary budget, 12 trillion won will be used to cover the envisioned government deficit caused by the lower-than-expected annual tax revenues. The remaining will be channeled into new projects.
The main opposition Democratic United Party claims that the additional outlays for new programs must be more than 10 trillion won to boost the struggling economy.
But the governing Saenuri Party is against the idea because it wants to secure the necessary funds for extra spending without raising taxes in line with President Park’s promises.