South Korea’s Ruling Party Is Open to More Stimulus, Yim Says

By Heejin Koo and Sangim Han

Jan. 15 (Bloomberg) -- South Korea’s ruling Grand National Party is open to increased stimulus measures to revive an economy that may fail to meet official growth forecasts in 2009, said Yim Tae Hee, chairman of the party’s policy committee.

The government in December predicted about 3 percent growth this year and the central bank estimated an expansion of 2 percent. Goldman Sachs Group Inc. and Nomura International Ltd. in the past week forecast that Asia’s fourth-largest economy will contract for the first time since the region’s financial crisis a decade ago amid a decline in exports.

Latest indicators “show economic growth may be below 2 percent to 3 percent this year,” Yim, 52, said in an interview at his office at the National Assembly in Seoul yesterday. He said the economy may contract in the first quarter.

“Depending on the economic performance, we remain open to the possibility of further fiscal spending,” he said.

Vice Finance Minister Kim Dong Soo said today the government is prepared to undertake more stimulus to boost domestic demand and create jobs amid deepening economic fallout from the global financial crisis. South Korea already has unveiled tax cuts and spending packages worth 51 trillion won ($37 billion), coupled with 90 trillion won in liquidity injections to financial institutions.

“The government will take more steps aggressively if needed,” Kim said in Seoul. “We need to act preemptively and decisively.”

South Korea’s 10-year economic expansion has largely been driven by increased exports of ships, consumer electronics and cars to China, Europe, the U.S. and the Middle East. Overseas shipments, which are equivalent to about 50 percent of gross domestic product, slumped 17 percent in December.

Keep Spending

“Those who can spend should do so, so that this economy can function,” Yim said, citing wealthy households and large businesses among those that can afford to spend.

Since the government’s 2009 economic-growth forecast was released, reports have shown that factory production fell by the most on record in November, manufacturers’ confidence for January slumped to the lowest level ever and the number of people with jobs declined for the first time since October 2003.

The GDP outcome this year is likely to be less than “forecasts by institutions like the Bank of Korea and the International Monetary Fund,” Vice Minister Bae Kook Hwan told businesses today.

Yim said the ruling party will seek agreement from the opposition party lawmakers to implement laws that would allow business groups to own bigger stakes in Korean banks and to abolish investment caps for large companies. The legislation is due to be discussed next month.

Chaebol

The opposition has opposed the changes, saying the laws would only benefit family owned business conglomerates, known as chaebol. These groups racked up debt in the 1990s to fund expansion, helping trigger a currency collapse that forced South Korea to turn to the International Monetary Fund for a $57 billion bailout in 1997 during the Asian crisis. Several chaebol failed, including Daewoo and Hanbo.

“There is a tendency for the opposition to look at what’s big as evil and what’s little as good,” Yim said. “So according to them, large conglomerates are evil and small companies are good. We should not be discussing moralities when talking about these issues.”

Allowing business groups to own banks would enable South Korean pension funds, which are categorized as large businesses, to invest in domestic financial companies rather than overseas, he said.

The ruling party has said there are enough regulations in place to prevent chaebol owners from dictating the lending practices or financial operations of banks.

Yim also said the government should ease restrictions on real estate investment, including those that prohibit property speculation in the southern Seoul area.

“I am well aware of the sensitivity of the subject,” Yim said. “So I don’t think we will push for further deregulation at any time soon. But I believe it should be done sooner than later.”

To contact the reporters on this story: Heejin Koo in Seoul at hjkoo@bloomberg.net; Sangim Han in Seoul at sihan@bloomberg.net.