Government Struggles to Stabilize Prices

The government will emphasize price stabilization and job creation in its economic policy for the second half of 2008.

In an effort to prevent too much capital from circulating in the market, the government will strengthen qualifications of money borrowers and restrain lending to large corporations which pursue M&As.

It sharply reduced its forecast for economic growth from around 6 percent to about 4.7 percent. In other words, it drastically adjusted its promises of 7 percent annual economic growth, annual income of 40,000 dollars in 10 years, and Korea’s becoming one of the world’s seven strongest nations.

The government recently held a joint briefing at the government complex in Gwacheon represented by Strategy and Finance Minister Kang Man-soo, Knowledge Economy Minister Lee Yoon-ho, Health and Welfare Minister Kim Seong-I, Land Transport and Maritime Affairs Minister Jeong Jong-hwan, Financial Services Commissioner Jeon Gwang-woo, and Labor Minister Lee Yeong-hee, and announced its economic policy for the second half.

Its economic policies essentially boil down to price stabilization and support for the low-income bracket, job creation and support for smaller firms, strengthened growth potential and energy-saving.

Among them, the government will put priority on price stabilization and job creation. Certainly, many economic indicators have worsened. If the government tries to boost the economy in order to raise the economic growth rate or raise the won-dollar exchange rates to improve the current account balance, it would put a heavier burden on the people.

Based on the understanding that liquidity has increased sharply since large corporations have borrowed several trillions of won to pursue M&As, the government is considering putting regulations on large corporations which borrow money to pursue M&As or strengthening the government’s supervision on corporate lending.

In terms of the macroeconomic forecast, the government predicts that the nation’s economic growth rate will reach around 4.7 percent while its consumer price growth rate will be 1.2 percentage points higher than its initial estimation of 4.5 percent.

The government lowered its forecast for the nation’s economic growth rate since the annual average price of Dubai crude oil, Korea’s benchmark, is predicted to reach 110 dollars per barrel, 30 dollars higher than expected, and the world’s economic growth rate is expected to fall by 0.4 percentage points to 3.7 percent. The government said the forecast for Korea’s economic growth rate was cut by around 0.2 percentage points since the nation has yet to abolish the limitations on cross-shareholding or cut corporation tax.

The government announced that the nation’s current account deficit would exceed 10 billion dollars due to surging raw material prices and that the number of newly employed will reach 200,000, not 350,000 – which was the initial estimation released in March. At the briefing, Finance Minister Kang said, “Korea’s economic forecast may worsen depending on the international oil price. All Koreans should make efforts to overcome the crisis.”

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