South Korea `Open' to Possibility of More Stimulus, Shin Says

By Shamim Adam

Nov. 15 (Bloomberg) -- South Korea is ``open'' to the possibility of implementing more fiscal measures to boost its economy amid expectations growth will slow further, Deputy Finance Minister Shin Je Yoon said.

Korea's economy has the resources to introduce such steps, and won't need to tap the International Monetary Fund for loans because it has sufficient foreign-exchange reserves and other lines of credit it can draw upon, Shin said to reporters in Washington today after leaders of the Group of 20 nations met.

South Korea is boosting spending and pumping money into the banking system to limit economic damage from the global credit crisis that has sent its currency down 33 percent this year and led to a 43 percent plunge in the benchmark stock index. The government has guaranteed banks' debt up to $100 billion and provided lenders with U.S. dollars.

``If circumstances worsen, we are ready anytime to take more action,'' Shin said. ``We want to stimulate domestic demand by using fiscal policy. We still have much room to implement'' such measures.

The South Korean stock market is unlikely to see any further ``drastic'' outflow of capital, Shin said.

Finance Minister Kang Man Soo this month unveiled a 14 trillion won ($10 billion) package of extra spending and corporate tax breaks, adding to almost $20 billion in income-tax reductions announced in September.

Room to Lower

The Bank of Korea also has room to lower interest rates to bolster the economy, Shin said, adding that any decision by policy makers will be an independent one.

The central bank has slashed interest rates, most recently on Nov. 7, in an effort to shield the economy from sinking into the first recession in a decade.

South Korean President Lee Myung Bak met with U.S. President-elect Barack Obama's representatives, former Secretary of State Madeleine Albright and former Republican Congressman Jim Leach, during his visit to Washington.

Completion of the U.S.-South Korea free-trade agreement, which hasn't been ratified by lawmakers in either country because of opposition to U.S. beef and South Korean automobiles, is the most important economic issue between the two nations, Shin said.

The pact ``will be a very big stimulus to the Korean economy,'' Shin said.

To contact the reporter on this story: Shamim Adam in Washington at sadam2@bloomberg.net