Tuesday, South Korea's government said it has decided to spend an extra KRW 17.7 trillion to stabilize employment and living conditions of the public, in a bid to protect its economy from the a recession.
The package is part of a KRW 28.9 trillion supplementary budget, which includes KRW 11.2 trillion won in funds for the previously announced projects. The ministry is expected to submit the supplementary budget to the parliament by the end of this month. This is in addition to a KRW 284.5 trillion annual budget for 2009.
The purpose of the supplementary budget is to help ride out the economic crisis by creating and maintaining jobs, the Ministry of Strategy and Finance said in a statement.
The amount of this supplementary budget is more than twice that spent during the Asian Financial Crisis, the ministry said. The amount of the second supplementary budget in 1998 was KRW 13.9 trillion, of which KRW 6.70 billion for fiscal expenditure and KRW 7.20 billion for revenue shortfall.
The ministry noted that the KRW 17.7 trillion increase in fiscal expenditure is projected to bring 1.5% growth in the country's gross domestic product or GDP and 552,000 new jobs.
With the announcement of the economic stimulus measures, South Korea joined the list of Asian nations implementing economic stimulus packages to revive struggling economies that are in or near recession.
Continuing weakness in overseas demand due to global economic meltdown has hit South Korea's export-driven economy. Asia's fourth-largest economy contracted 5.6% in the final quarter of 2008, the biggest fall since the Asian financial crisis in 1998.
Minister of Strategy and Finance Yoon Jeung-hyun said, The global economic downturn is taking place at a faster pace than has been expected in terms of its depth and breadth.
He stated that the government set the size of the supplementary budget considering the economy's past experience and measures taken by developed countries. Yoon had previously forecast that the South Korean economy might contract 2% in 2009.
Of the KRW 17.7 trillion announced, KRW 3.5 trillion will be spent to offer more jobs by maintaining and creating jobs. KRW 4.5 trillion will be used to assist small and medium sized enterprises and the self-employed through expanded credit guarantees and increased government financing, government investments in funds of funds among others.
To revitalize provincial economies, an amount of KRW 3.0 trillion is set aside to support municipal governments by purchasing municipal government bonds and facilitating early completion of infrastructure projects being constructed by provincial firms. KRW 2.5 trillion will be invested in nurturing future growth engines such as education to prepare for the post-crisis period. KRW 4.2 trillion will be allocated to help lower-income families manage their living expenses. This includes increased support for the unemployed.
The government debt is expected to reach KRW 366. 9 trillion, 38.5% of GDP, an increase of KRW 17,200 from the initial 2009 budget.
The ministry said the budget would facilitate achieving the current account surplus projected at USD 13.0 billion this year. There is a chance of inflationary pressure. However, inflation is expected to be at the upper half of 2%, as forecast.
Also on Tuesday, South Korea and the European Union reached a tentative trade agreement. Both parties are expected to finalize the deal in a meeting of trade ministers' on April 2. South Korea and the EU started free trade agreement negotiations in May 2007.
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