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(2nd LD) Seoul to max out fiscal easing next year: minister

Economy 10:28 August 26, 2019

(ATTN: UPDATES with comments by vice finance minister and background in paras 20-24)
By Kim Kwang-tae

SEJONG, Aug. 26 (Yonhap) -- South Korea's finance minister said Monday the country will implement a "greater and aggressive" fiscal policy next year to deal with a series of economic headwinds, such as an escalating trade row between the United States and China, and another trade tussle with Japan.

Hong Nam-ki, the minister of economy and finance, said the government has drafted an expansionary budget next year, although a temporary fiscal deficit is likely.

"An aggressive fiscal role is more important than ever before," Hong said in a meeting with lawmakers of the ruling Democratic Party for consultations on next year's budget before submitting it to the parliament next month for approval.

Hong Nam-ki (R), the minister of economy and finance, speaks in a meeting with lawmakers of the ruling Democratic Party for consultations on next year's budget at the parliament on Aug. 26, 2019. (Yonhap)

South Korea is raising next year's budget to 513 trillion won (US$423.5 billion), up 9 percent from 2019.

The draft budget, if passed by the National Assembly, would raise South Korea's national debt to the upper end of 39 percent of its gross domestic product in 2020, compared with 37.2 percent in 2019.

The move comes amid concerns that trade frictions between the United States and China, along with Japan's expanded trade restrictions against South Korea, could further weigh on the South Korean economy already grappling with slowing exports and weak domestic demand.

Japan has imposed tighter regulations on exports to South Korea of three materials -- resist, etching gas and fluorinated polyimide -- that are critical for the production of semiconductors and flexible displays.

Japan has also removed South Korea from its "whitelist" of trusted trading partners in retaliation against last year's South Korean Supreme Court rulings ordering Japanese firms to compensate South Korean victims of forced labor.

South Korea's exports have been on a steady decline since December last year, again falling 13.3 percent in the first 20 days of August from the same period last year.

Last month, South Korea's central bank downgraded its growth outlook for this year to 2.2 percent from a 2.5 percent forecast three months earlier.

The finance ministry also trimmed its own growth estimate to between 2.4 percent and 2.5 percent from between 2.6 percent and 2.7 percent.

But the finance minister said it would not be easy to attain the growth target given the escalating trade tensions.

Kim Yong-beom, vice minister of economy and finance, said South Korea's financial markets could be influenced temporarily by global risks, such as Japan's trade curbs and the protracted Sino-U.S. trade dispute, as well as uncertainty over a U.S. rate cut.

South Korea depends heavily on exports and foreign capital investment, a situation that makes it vulnerable to external shocks.

Still, Kim said the South Korean economy is resilient enough to cushion external shocks, citing increased foreign reserves and stable sovereign ratings.

South Korea's foreign currency reserves came to $403.11 billion as of end-July, up $40 million from the previous month, according to the Bank of Korea.

Earlier this month, global credit appraiser Fitch Ratings reaffirmed its rating on South Korea at "AA-" with a stable rating outlook.

Fitch's rating for Asia's fourth-largest economy has been AA-, the fourth-highest level on its sovereign ratings table, since 2012, when the rating agency upgraded it from A+.

Last month, Moody's Investors Service also kept its rating on South Korea at Aa2 with a stable rating outlook.

Kim also reiterated South Korea's policy to stabilize the foreign exchange market in a preemptive and stern manner, signaling that authorities can intervene in the currency market to stem an excessively one-sided move in a short period of time.

The Korean won was trading at 1,218.50 won against the greenback as of 10:13 a.m., down 7.9 won from the previous session's close.

South Korea's financial authorities sold $187 million in the second half of 2018 to help stabilize the market, the Bank of Korea said in March.

Kim also said it is not desirable for the South Korean currency to show an increased volatility due to the Chinese yuan.

entropy@yna.co.kr
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