Finance Minister Bahk says greater uncertainty calls for long-term policy measures


Korea’s finance minister said on Monday the government will focus on revitalizing the economy and pushing for sustainable growth next year.

Finance Minister Bahk Jae-wan said in a meeting with the heads of think tanks that the global sovereign debt crisis is generating high volatility and low growth, which will continue for a considerable period of time.

Bahk’s remarks come as the Korean economy is confronting a slew of challenges, including the ongoing eurozone crisis abroad and slowing export growth at home.

Bahk’s sees the global economy as “clouded by uncertainties” that allow for no visibility for the immediate future.

The eurozone is still mired in disputes and confusion, with the Italian bond yield spiking to 8 percent and Germany failing to meet its bond sales target by a wide margin.

While the danger of contagion in the eurozone has heightened, the U.S. economy is seeing no significant improvement, particularly in new jobs figures, a threat to Korea that depends heavily on exports. 

“The cuts in government budgets are leading to lower growth in a vicious circle, which in turn extends the recovery period,” Bahk said. “Eurozone member countries differ in their stance on resolving the sovereign debt crisis.”

The prolonged downturn in the world economy calls for long-term policy measures, he said.

But the Korean economy also needs a shot in its arm, as Bahk noted: “In the second half of this year, external conditions are deteriorating and the country’s growth is slowing down a bit.”

Exports to China and other Asian economies are on the rise, but shipments to the U.S. and the eurozone are sliding. Domestic spending is relatively solid, but consumer sentiment remains wobbly in the face of growing concerns about the global economic slump. Inflation growth has also been at a high level, though it stabilized a notch recently.

“While maintaining consumer prices at a stable level, the government will run the macroeconomic polices in a way that props up domestic spending through deregulations and system overhauls,” Bahk said.

Policies for creating new jobs and lessening the cost of living will be also in focus, he said.

Bahk projected that the Korea-U.S. Free Trade Agreement, which was ratified at the National Assembly on Nov. 22, will help bolster exports and investment when it goes into effect next year.

A Finance Ministry official quoted participants in the meeting as saying that they called for the government to frontload fiscal spending next year more than this year and take on easing the household debt burden.

Korea’s household debt reached 892.5 trillion won ($773.3 billion) as of the end of September as worries persist over its negative impact on the broader economy.

By Yang Sung-jin (insight@heraldcorp.com)