Economy can withstand welfare splurge, say IBs

Korea’s welfare-related spending is expected to jump by more than 50 trillion won ($44 billion) though such a development will not adversely affect the economy, a report showed yesterday.

According to the Korea Center for International Finance (KCIF) report based on predictions made by global investment banks (IBs), outlays to bolster the country’s welfare infrastructure are inevitable outcomes of last week’s parliamentary elections.

Both conservative and liberal parties pledged to strengthen welfare programs to win votes.

Foreign IBs such as Bank of America, Merrill Lynch and JP Morgan said that while all parties promised to increase welfare by trillions of won, such a move will not really disrupt the national economy and the financial sector.

They also said that because the ruling Saenuri Party, which advocated sustainable welfare programs, won a majority 152 seats in the 300-seat National Assembly, any fallout will be very limited.

Saenuri supports increasing welfare outlays but objects to raising taxes or increasing state debt.

Morgan Stanley and Goldman Sachs predicted that with the parliamentary elections now over, Seoul will again focus on tackling inflation and pushing for stable economic growth. They added that the government will take steps to fuel domestic demand and spend more on public infrastructure works leading up to the critical presidential elections set for December.

Fitch Ratings said Seoul’s welfare outlays may grow to around 89 trillion won, but that this will barely affect the country’s fiscal health. Yonhap