S. Korea likely to delay winding back emergency economic steps

SEOUL, Dec. 1 (Yonhap) -- South Korea is widely expected to hold back withdrawing emergency steps taken to combat the global economic recession, as uncertainties surrounding Dubai's debt problems create fears a recovery will be further delayed, financial sources said Tuesday.

In a bid to stem the economy's sharp free-fall, South Korea expanded fiscal
spending and provided support to smaller firms by giving state credit guarantees
for loans to them and extending loan maturity.
The Korean economy is recovering at a faster-than-expected pace on the back of
improving domestic demand and brisk exports, but policymakers have cast a
cautious outlook for the economy due to lingering uncertainty at home and abroad.
The Financial Supervisory Service, the financial watchdog, is widely expected to
extend its program to provide liquidity to small firms by an additional six
months. The support, designed to ease a funding squeeze experienced by smaller
companies, had been set to expire at the end of this year.
The regulator is considering lowering the portion of state-credit guarantees to
85 percent gradually, not at a stroke. Currently, the government provides
guarantees for lending to smaller firms by up to 95 percent.
Analysts said that amid economic uncertainty, the Bank of Korea may put off
raising its key interest rate, which stood at a record low of 2 percent for the
ninth straight month in November.
The administration has said it will continue to beef up its crisis management
scheme into next year.
"The government plans to frontload its budget next year as it will take
considerable time to expand job creation," Deputy Vice Finance Minister Noh
Dae-lae said, "uncertainty still lingers in global financial markets."
The government has reiterated that it will maintain its expansionary
macroeconomic policy stance until a sustainable recovery is assured. South Korea
has since last year unveiled a set of economic stimulus packages, including
aggressive fiscal spending, tax cuts and rate cuts, aiming to kick-start the
sluggish economy.
Global financial markets were severely dented after Dubai announced Wednesday it
has asked the creditors of Dubai World, a government investment company, to delay
repayment of around US$60 billion in debt until May.
The South Korean government and the financial watchdog said that the fallout of
the Dubai crisis will be limited on the local financial markets, but that they
will closely monitor its development in a bid to stave off possible market
turmoil.
"We will establish a daily monitoring system to throughly watch developments in
each related area until the Dubai debacle comes to a sure end," Vice Finance
Minister Hur Kyung-wook said Monday.
Hur added that shocks from the Dubai debt problems are showing signs of easing
and that the possibility is slim that the issue will develop into a full-blown
global financial crisis.
sooyeon@yna.co.kr