After BOK cut, extra gov’t spending urgedThe surprise rate cut by the Bank of Korea (BOK) was a clear message from its governor, Lee Ju-yeol, that the central bank is doing its part to spur the struggling economy, which could lose more steam amid continued corporate restructuring.
The question now is whether the government will seek a supplementary budget to further support efforts to raise economic growth, which many are expecting to fall to the mid-2 percent range. In fact, Governor Lee on Thursday explicitly mentioned the need for a supplementary budget.
“There is a limit to securing sustainable growth solely with monetary policy,” Lee said during a press briefing held after the monetary policy committee decided to cut the key interest rate to its all-time low. “Because the government front-loaded the budget earlier this year, it was able to make some contributions to economic growth in the first half.
“But in the second half, this move will act as a negative factor. The supplementary budget is an issue on which the government needs to make the call, but they know very well the influence that the government’s fiscal policy will have on the growth.”
The possibility of tapping into a supplementary budget was also mentioned during a meeting between the ruling party and government officials on Thursday. But the ruling party tried to downplay the discussion.
“Although there wasn’t a direct mention to a supplementary budget, there was a discussion on the need for government support by expanding the budget if an increase in jobs in the public sector [for the shipping and shipbuilding industries] is needed,” said Kim Sang-hoon, senior vice chairman of the Saenuri Party’s policy committee. “One can see it as possible consideration of a supplementary budget if it is needed.”
The government, however, said it is not considering tapping into the additional budget.
“With the central bank agreeing to finance 10 trillion won [$8.5 billion] for the corporate restructuring [of shipping and shipbuilding companies], it seems the issue of a supplementary budget is no longer an issue,” a Finance Ministry official said.
The government has been reluctant to use government money to fund the restructuring of the shipping and shipbuilding industries, as it would raise the government’s debt-to-GDP ratio, even though Korea’s ratio is among the lowest in the world.
The Finance Ministry is planning to announce its support measures for the economy, as well as its outlook on economic growth later this month.
Other think tanks and financial institutions have lowered their growth outlooks for this year to the mid-2 percent level, but the Finance Ministry has kept its forecast at 3.1 percent.
The BOK lowered its outlook two months ago to 2.8 percent, shaving off 0.2 percentage points.
BY LEE HO-JEONG [firstname.lastname@example.org]
with the Korea JoongAng Daily
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