[EDITORIALS]Flawed Fiscal Policy Hurts Economy

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[EDITORIALS]Flawed Fiscal Policy Hurts Economy

Seoul has decided to spend its way out of the economic slowdown. The government is showing a strong intention to boost the economy by increasing its expenditures by 10 trillion won ($7.8 billion) and helping to spur investments.

Considering the desperate situation, in which the recession is intensifying, the government has a point in its case for stimulating domestic demand and increasing its spending to prevent the base for economic growth from collapsing amid slumping exports.

We also understand that limited economy-boosting measures are necessary to keep restructuring efforts on track, if policy priority is properly set.

Looking thoroughly over the government's pump-priming measures, we cannot help pointing out several problems in the way the policy is prioritized and will be implemented.The policy is focused on boosting the economy by expanding fiscal expenditures rather than on easing regulations on economic activities.

The government simply has paid lip service to restructuring the economy and eliminating uncertainties, failing to show how this will be done. It also went no further than "considering" deregulation, which, experts say, are a prerequisite for reviving investments. Therefore, we believe that the government's measures have a lot of room for re-adjustments.

For starters, the government should focus on overhauling the economy, rather than on spurring it. It should not forget that economic restlessness persists and the recession is prolonged because of delayed restructuring and lingering large corporate insolvencies.

If economic reforms are put on top of the agenda and pushed hard, they may entail economc shocks. Nevertheless, we are determined that we can overcome them and that only restructuring can bring the economic recovery once and for all. We cannot reiterate too much President Kim Dae-jung's comment Tuesday, when he ordered his economic team to "push ahead with major reform tasks without faltering."

Given that dwindling exports and investments are the key factors in the current economic downturn, there is no reason to oppose boosting them. However, the consensus among the experts is that exports and investments must be encouraged by deregulation, not by the government's financial support. We know by experience that the government's subsidies for exporters helps only a relatively few companies, and the effect does not last long.

When exports and investments are spurred by deregulation, which encourages corporate activities and independent management decisions, the recovery is strong and more sustaineable. If what the government intends is not just an immediate recovery but a boost in exports and investments so that the Korean economy will be able to capitalize on the predicted rebound in the global economy to make the most of its growth potential, it should be fully committed to deregulation.

We believe it was in this vein that President Kim told his economic ministers Tuesday to "drastically amend regulations that discourage investments."

Lastly, the spending by the government of 30 trillion won in just three months will stimulate inflation. Even if it improves economic indicators, such a recovery tends to be short-lived. We suggest that the government consider tax cuts because they will boost domestic consumption. A recovery achieved in such a way is easier to maintain.
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