S. Korea seeks additional 14 tln won spending to stimulate economy

(ATTN: TRIMS throughout; ADDS details in last 5 paras)
SEOUL, Nov. 3 (Yonhap) -- South Korea announced Monday that it will increase government spending by 14 trillion won (US$10.76 billion) next year as part of efforts to stimulate the slumping economy and help low-income households tide over the current financial turmoil.

The amount included a 10 trillion won expansion in budget spending, 4 trillion
won in tax incentives and other economic stimulus measures, according to the
Finance Ministry.
The ministry forecast South Korea's economy to grow around 4 percent next year on
the back of those stimulus measures, despite the latest financial woes and
growing jitters over a global economic slowdown.
Earlier this month, the ministry sent a 274-trillion won budget plan for 2009 to
the National Assembly for approval on assumption that next year's growth will be
around 5 percent.
"The ongoing global financial turmoil originated from the U.S. subprime mortgage
credit crunch is causing concerns over the global economic downturn. Financial
market uncertainties have been aggravated and are exerting a knock-on impact on
the real economy," Finance Minister Kang Man-soo told reporters in a press
briefing.
"(Against this backdrop), the economy may expand just around 3 percent next year
and it will difficult to achieve the growth if global economic conditions further
worsen," he added, emphasizing the need for such economic stimulus measures.
The decision was made at a policy consultation meeting between the government and
the ruling party on Sunday night, officials said. It is also part of a wide range
of economic stimulus measures unveiled in the joint press briefing attended by
key economy-related ministers.
Also in a bid to revitalize the slumping construction sector, the government said
that it will remove most zones designated as speculation-prone areas where
home-backed lending is limited to stem a surge in housing prices.
Speculation-prone designated zones will be limited to three areas including
Kangnam in the metropolitan area.
South Korea's construction sector has been under pressure from slumping trading
of houses amid anemic market sentiment. With some builders on the verge of
bankruptcy, the government has been seeking to boost the construction sector,
which accounted for around 20 percent of the nation's gross domestic product.
On Oct. 21, the Finance Ministry said that it will spend around 5 trillion won to
buy land and unsold houses from builders as part of efforts to help cash-strapped
local builders.
The spending increase, the latest stimulus measure, comes as South Korea's
economy is feared to slow down amid growing concerns that prolonged financial
turmoil could hit the real part of the world's 13th largest economy.
The government has been struggling to stabilize the financial markets, but a
recent currency swap deal with the United States has helped shore up
severely-dented market confidence.
The additional budget spending is in line with growing demand that the government
step up efforts to shield its economy from a possible prolonged financial turmoil
and a global economic recession, which hit local currency and equity markets
hard.
The won has lost 28 percent against the greenback so far this year and the
benchmark stock index KOSPI nearly halved since its peak late last year.
The government recently announced that it will guarantee banks' external debts
for three years and inject more liquidity to help ease a liquidity crunch.
"The government and the Bank of Korea (central bank) will continue their efforts
to maintain stability and avoid extreme volatilities in the foreign exchange
market through smoothing operation," the Finance Ministry said.
"Efforts will also be made to participate in international cooperation to calm
the turbulence in the financial markets.
In a related move, the Finance Ministry said that it will provide guarantees to
foreign currency deposits on the same level as with local currency deposits. It
also plans to increase the sale of bonds for currency market operations to 20.6
trillion won and seeks to expand currency swaps with Japan and China.
kokobj@yna.co.kr