SEOUL, June 28 (Yonhap) -- South Korea said Thursday that it will maintain its macroeconomic policy stance and avoid taking drastic stimulus measures for some time as it needs to secure sufficient fiscal capacity in case the eurozone crisis drags on for a long time.
However, this does not mean that the government will just sit back, since it will keep close tabs on global market situations to prevent its export-oriented economy from being swayed by any external uncertainties, the finance ministry said.
Those policy stances were part of the ministry's second-half economy management plan unveiled late Thursday afternoon, which provides broad policy directions along with its updated outlooks for growth, exports, inflation and job creation for 2012.
"Given that the current crisis stems from a eurozone mechanism and other structural factors, it will take quite some time to find solutions. Our concern is that the economic recovery could be delayed and market anxiety could surface repeatedly," the ministry said in a report.
"At a time when the crisis situations will likely become a constant factor, we should refrain from making short-term responses. It is necessary to brace ourselves for any emergencies and take actions systematically and structurally with a deep breath," it added.
The ongoing eurozone crisis might remind many of the scathing moment for South Korea back in 2008 when its economy was rocked by the financial meltdown in the U.S. and faltering global markets. Capital exodus, tumbling financial markets and fast-changing global economic conditions stoked anxiety about the country not being strong enough to withstand worldwide chaos.
Against this backdrop, the government was quick to unveil diverse stimulus measures that successfully protected the country from the worst of the global financial crisis, including a 30 trillion won (US$25.9 billion) supplementary budget.
The ministry, however, said this time seems to be a little different. The 2008 crisis took the world off guard with its unexpected and powerful impact on the global financial system, but the eurozone crisis has been here for more than a year. Its impact might not be as strong as before but it seems to be much more persistent.
After all, the eurozone crisis is the result of aggressive fiscal spending that many countries pushed to get over the 2008 financial turmoil, which means many of them are now left with less capacity to take stimulus measures. South Korea is no exception to this problem.
"Under the current situation, it is not easy to respond with temporary expansionary macroeconomic policies," the ministry said. "Worsening fiscal positions and low interest rates leave less room for us to respond. Lingering concerns over oil prices and anxiety over inflation also remain in place and should be considered."
The ministry, in particular, is worried that the eurozone problem will put a brake on the country's economic recovery by hampering exports to Europe and other major markets.
According to the ministry, exports are expected to grow 3.5 percent this year, far lower than the 19-percent on-year expansion in 2011. Imports will expand 5 percent this year, compared with the 23.3 percent growth tallied in the previous year.
Based on the forecast, the ministry revised downward its growth projection for this year to 3.3 percent from its earlier estimate of 3.7 percent. Of the latest growth forecast, 0.3 percent will come from exports, less than half of the 0.8 percent contribution predicted under the previous estimate.
The government still plans to do its best within its capacity in order to ease slowing growth by expanding spending on infrastructure and providing more support for smaller enterprises and ordinary citizens who might have to bear the brunt of the present economic predicament.
Under the plan, the ministry said that it will pour 2.3 trillion won more into funds it can use to stabilize the livelihoods of working-class citizens and provide support for smaller enterprises.
It will also inject an additional 1.7 trillion won for investment in social overhead capital, while setting up facility investment funds aimed at helping smaller companies secure necessary capital.
The ministry, however, made clear it will not push for a supplementary budget as it is under pressure to secure sufficient fiscal capacity against possible worsening situations down the road.
"As as we have to prepare for a long battle, we need to secure sufficient fiscal capacity. Rather than pushing for a supplementary budget, it would be better to make the most of other available funds to boost the economy," Choi Sang-mok, the head of the finance ministry's economic policy bureau, said during a briefing on Tuesday.
"Think about baseball. If we have just one pinch hitter left and if we have to decide whether to use him this time or later, we of course have to analyze the overall game situations. We think this is not the time."
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