Global economic uncertainty may threaten job-driven growth plan


The South Korean government has mapped out its 2012 budget plan aimed at creating jobs, in the hope it will bolster welfare and economic growth and ease the impact of global uncertainties.

The budget proposal, to be submitted to the National Assembly on Friday, envisions total spending of 326.1 trillion won ($272.7 billion) next year, a 5.5 percent increase from this year.

Unlike other budget plans in recent years, the key policymakers stressed creating new jobs could be the key to deal with the growing external problems in the global economy.

“It is inevitable to place the top policy priority on job creation to minimize the impact of the global fiscal crisis on the real economy,” Finance Minister Bahk Jae-wan told reporters.

The Korean economy is now beset by slowing exports, runaway inflation and stalled growth in its key export markets such as the U.S. and the eurozone countries.

The underlying principle that guided the formation of the 2012 budget is that new jobs would improve overall welfare conditions and also shore up the country’s economic growth.

The budget plan, in fact, is down 6.5 trillion won from the preliminary total of 332.6 trillion won that fully reflects all the requests from the government agencies.

Some of the budget requests, such as support for college tuition, were not included in the plan, suggesting that the government strengthened screening this time.

Estimated total income amounted to 334.1 trillion won, up 9.5 percent from this year ― a figure that is 4.0 percentage points higher than the expenditure growth rate. The previous target gap was 3.0 percentage points, so the newly released fiscal plan underscores the government’s determination to balance the budget by 2013.

In addition, the proportion of national debt to gross domestic product will be lowered to 31.3 percent by 2013, down from 35.1 percent this year.

The government’s focus on fiscal soundness instead of implementing aggressive policies to grapple with the global economic challenges generated mixed reactions.

The Finance Ministry’s release of the 2011-2015 budget plans includes a projection that the country’s growth would stand at more than 4 percent, a forecast used as a key base for the estimated rise in total income. The trouble is that analysts are skeptical about whether Korea could achieve such economic growth in the face of the mounting troubles at home and abroad.

“The estimated growth rate of 4 percent for next year is largely optimistic,” said Kim Dong-yeol, analyst at Hyundai Research Institute. “Recent data suggest that income should have been set lower.”

Balancing the budget itself is a good thing, if achieved smoothly, but the government might be forced to take more action if the recession risks in European countries and the U.S. worsen.

Back in 2009, Korea hiked spending through additional budget allocations shortly after the country was hit by the global financial turmoil. If a similar course of action is taken by the government due to the global economic troubles, the current budget-balancing target might be missed by a wide margin, analysts warned.

Job-driven economic growth of 4 percent was also met with doubts. After all, solid economic growth generates new, well-paid jobs for the local population, while the opposite cycle ― government’s push for new jobs bolsters economic growth ― is rarely witnessed, analysts said.

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