South Korea Plans Up to 29 Trillion Won in Spending

By Seyoon Kim and Kevin Cho

March 19 (Bloomberg) -- South Korea is planning an extra spending package of as much as 29 trillion won ($21 billion) to support an economy headed for its first recession since the Asian financial crisis a decade ago.

The spending plan, which may be adjusted after it’s submitted to the Cabinet next week, will range from 27 trillion won to 29 trillion won, Finance Minister Yoon Jeung Hyun was cited as saying by his spokesman at a lunch meeting with the local press in Seoul today.

Yoon, who has forecast the economy may contract 2 percent this year, said South Korea will place priority on creating employment. The government said earlier today it plans to spend an additional 4.9 trillion won to create as many as 550,000 jobs.

“It shows that the government has the will to boost the economy,” said Ryu Seung Sun, an economist at HMC Investment Securities Co. in Seoul. “The important issue will be how effectively that budget will be spent.”

About 11 trillion won of the additional spending will be used to make up for a decrease in tax collection amid an economic slowdown, while the net increase in expenditure may range from 16 trillion won to 18 trillion won, Yoon said today.

South Korea’s government and ruling party have tentatively agreed on an extra spending package of 29.4 trillion won, the JoongAng Ilbo newspaper said on March 17. The Grand National Party and the finance ministry hope to boost economic growth by 2 percentage points with the spending, the newspaper said, citing a document it obtained.

Bond Sales

Bank of Korea Governor Lee Seong Tae said last week he expects the government to propose a “significant” package of additional spending, financed through bond sales. The central bank will watch the effect of debt sales on financial markets as it decides whether to purchase bonds, Lee said on March 12.

Yoon said today there’s “no need” to ask the central bank to buy treasury bonds.

Asia’s fourth-largest economy shrank 3.4 percent last quarter, the first contraction in 11 years, as exports slid. Overseas sales of cars, ships, mobile phones and other goods, which make up more than 60 percent of South Korea’s gross domestic product, fell 17.1 percent in February.

To contact the reporter on this story: Seyoon Kim in Seoul at Skim7@bloomberg.net; Kevin Cho in Seoul at kcho2@bloomberg.net