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The Korean government took measures to reinvigorate the economy and stabilize the livelihoods of low- and middle-income families as presented in 2012 key economic policies on December 2011. The government focused on improving the economy while closely monitoring external and domestic conditions to swiftly respond to emergencies.
One of the measures to boost the economy was to frontload 60% of the budget in the first half of the year. As of May 30, 48.9% of the budget or 135.4 trillion won has been spent with 1.7%p more than has originally planned. The government strengthened savings banks’ lending standards for household and suspended four savings banks’ operations so that the problem of the ailing sector could not spread over the whole economy. The government also led the effort to build a strong financial safety net by contributing to US$456 billion of the IMF’s crisis fund and doubling the size of the Chiang Mai Initiative Multilateralization to US$240 billion.
The South Korean government worked to prevent the external conditions from affecting economic confidence while building up
momentum for a recovery. As the Korea-US FTA took effect and the negotiations on the Korea-China FTA began, the Korean exporters
will have more opportunities to sell.
In preparation for the future, the government increased the childcare support and built green growth infrastructure while holding weekly meetings to stabilize prices and create jobs. The government introduced several policies, such as providing scholarships and microcredit loans, while lowering the prices of medicine and expanding the welfare system to relieve any economic pressures felt by the low- and middle-income classes.
The Korean government has sought macroeconomic stability through risk management and policy fine-tuning to combat external uncertainties. However, these persistent uncertainties require continuous policy efforts to swiftly respond to emergencies, improve the economy, and reinvigorate the economy.
Consumer prices (%): 4.2 (Jun 2011) → 4.7 (Aug) → 4.2 (Dec) → 3.4 (Jan 2012) → 2.6 (Mar) → 2.5 (May)
Employment (thousand, y-o-y): 441 (Dec 2011) → 536 (Jan 2012) → 419 (Mar) → 455 (Apr) → 472 (May)
These external shocks have been absorbed relatively well given a spike in oil prices, the downgrade of French sovereign debt on January 13, North Korea’s missile launch on April 13, and Greek political uncertainty after its failure to form a coalition government in the May 6 general election, resulting in less volatility in capital and currency swings in local financial market.
Daily exchange rate movement (%): 0.69 (2009) → 0.57 (2010) → 0.48 (2011) → 0.35 (Jan-May 2012)
Moody’s raised the outlook on South Korea’s sovereign credit rating to positive citing its sound economic fundamentals even when advanced countries’ debts have been downgraded.
However, external conditions are in worse situation than projected, suggesting there may be trouble on the horizon. Therefore, the government needs to improve the economy and deal with these difficulties in advance. In particular, the government should be careful for fiscal frontloading not to restrain the economy’s current upward trend. Also, the government will continue to work to stabilize the livelihoods of low- and middle-income families.