South Korea reveals $15bn extra budget to back slowing economy
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Seoul - the capital of South Korea

Seoul - the capital of South Korea

After much anticipation, South Korea informed that it had prepared a 17.3 trillion won ($15.4 billion) extra budget aimed at spurring its recently fragile economy. Indeed, the Asia’s fourth economy has lately witnessed a slowdown in its economy due to the weakness of yen and escalating North Korean threats. All recent initiatives of the South Korean government are designed to boost the country’s economy and support its exporters.

Supplementary budget of $15bn

On the 16th of April, the Ministry of Strategy and Finance informed that it decided to introduce a $15.4 billion supplementary budget. According to estimates of the authorities, the extra measures will stimulate recently sluggish growth by approximately 0.3 percent. A detailed statement released by the country’s officials indicated that the net increase would amount to more than 5 trillion won as  12 trillion won would be used to cover a staggering  shortfall in revenue. The supplementary budget is due to be delivered to parliament on the 18th of April as it needs to be passed by the legislature.

The supplementary budget was much anticipated as the South Korean government had been talking about extra fiscal measures for the last couple of weeks. However, the Ministry of Strategy and Finance underlined that the extra fiscal measures would be covered by issuing government debt which in turn would lead to the fiscal deficit of roughly 1.8 percent in 2013, according to initial projections.

The extra money will be used to create jobs, about 40,000 positions, support new business ideas and balance consumer prices as well. But the government also aims to stimulate the housing market through partially financing rents or home purchases. Commenting on the new fiscal measures, Finance Minister Hyun Oh-seok underlined that the supplementary budget would help to foster economic growth.

Also South Korean exporters, including Samsung Electronics Co. and  Hyundai Motor Co., are expected to get it on the extra budget as they have been hit by escalating North Korean threats and the weak yen.

Roots of the South Korean extra budget

South Korea has been struggling due to worsening economic conditions, including the global slowdown. The official figures indicated that the South Korea witnessed growth of around 2 percent in 2012 and it was the slowest pace since 2009, not to mention that it was really below the growth rate of 3.6 percent recorded in 2011. The picture is not too rosy as the Asia’s fourth economy strongly depends on exports and these were also negatively affected by the aforementioned global slowdown and the weakening yen. Certainly, the new policy of Japanese Prime Minister Shinzo Abe worsens the situation of the South Korean exporters who have to also operate amid decreasing foreign demand and the increasing political tension.

But the South Korea’s economy has also been deeply hurt by the escalating North Korea’s threats. Indeed, the uncertain situation when it comes to its wayward neighbor makes South Korean financial markets vulnerable to all menaces from the North Korean regime.

Therefore the supplementary budget is also aimed at showing that the government is ready to back the economy as it tries to increase consumption. The shot in the arm is indeed essential.

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