Yonhap Interview) S. Korea unlikely to fall into double dip: vice finance minister

By Koh Byung-joon
SEOUL, Dec. 21 (Yonhap) -- South Korea's economy is unlikely to fall into a
"double dip" and would rather be able to achieve its earlier projection of 5
percent growth next year, though it depends largely on whether the private sector
would recover, a top government official said Monday.

Vice Finance Minister Hur Kyung-wook expressed full confidence in the South
Korean economy but stressed that the government still intends to keep its
"expansionary" macroeconomic policy for some time and consider rolling back
stimulus measures based on the pace of an economic recovery.
"Despite lingering uncertainties such as the pace of a global recovery and future
crude oil prices, our economy is expected to grow around 5 percent in 2010." Hur
said in an interview with Yonhap News Agency. "With an expected steady global
economic recovery next year, our major trade partners such as China and other
Asian countries are also expected to have an economic recovery at a relatively
faster clip."
In its economic management plan for next year announced on Dec. 10, the
government forecast that Asia's fourth largest economy will grow 0.2 percent in
2009 before expanding 5 percent in 2010. The forecasts compare with a 1.5 percent
contraction and a 4 percent growth projected by the finance ministry for this
year and next year, respectively.
Only months ago, fears mounted that the Korean economy may contract for the first
time in more than a decade this year.
Citing the private sector as a key to achieving the projected 5 percent growth,
Hur said that consumption and corporate investment should lead the Korean economy
for solid growth.
"Next year's growth is expected to be driven by the private sector such as
consumption and facility investment so that it is important how much economic
activities in the private sector recover," Hur said. "If employment recovers at a
pace slower than expected and sentiment dips due to internal or external
instabilities, consumption and corporate spending could not rebound as fast as
earlier projected."
He, however, ruled out the possibility that the Korean economy would lapse again
into a "double dip," or a downturn after a brief period of recovery.
"Concerns over a double dip are mostly based on such scenarios that the global
economy could return to recessions, fresh anxiety could affect the world
financial markets and the impact of the government's stimulus fiscal measures
could not be as strong as this year," he said.
"Admittedly, there are such worries but it is a widely-accepted forecast that the
world's economy will make a steady recovery and there will be no rerun of sharp
fluctuations in the international financial markets??? Chances are not high that
our economy would fall into a double dip," he added.
Pummeled by the U.S.-sparked global financial turmoil and a resulting recession
worldwide last year, South Korea was forced to take diverse stimulus measures,
including tax cuts, fiscal spending and additional budget assignment, to sustain
its economy.
The Bank of Korea, the nation's central bank, also joined the move by slashing
its key interest rates to a record low of 2 percent and has kept it steady for a
10th straight month.
As a result, the Korean economy is now rebounding fast, with its stock and
currency markets gaining ground. Experts attribute it to a series of aggressive
government fiscal and monetary policies.
The steep turnaround in the market has sparked debate on when and how to roll
back those stimulus measures in force without any side effects.
Hur said the government has already launched an exit strategy on the
microeconomic policy front by withdrawing financial measures temporarily taken in
response to the crisis, but stressed that it will be some time before it would
consider rolling back its expansionary macroeconomic policy because the private
sector is not strong enough to grow on its own.
"The government will keep its expansionary macroeconomic policy stance for the
time being," Hur said. "We need to step up our crisis-responding capability not
to be easily affected by external shocks, while determining (the timing of exit
strategies) based on the pace of an economic recovery driven by the private
sector."
Regarding the strong local currency against the U.S. dollar, the vice finance
minister admitted that it is hurting the profitability of Korean exporters but
noted that it will also help them secure price competitiveness in the long term
by lowering the overall import costs.
He also said that the won-dollar exchange rates should be moving based on
economic fundamentals and market principles but added that the government is
ready to take "appropriate" action when there is a "herd behavior" and other
market-distorting factors.
As for the recent announcement by the U.S. Federal Reserve that it will not renew
its US$30 billion currency swap line that has been available to South Korea since
late last year, Hur said its expiration will have an "extremely limited" impact
on the Korean financial markets.
Hur also said that the nation's current foreign reserves are "sufficient" to cope
with a crisis but added that the government will continue its efforts to increase
the holdings and improve the overall debt structure in order to strengthen its
ability in bracing for a possible recurrence of a foreign liquidity crunch.
South Korea's foreign reserves stood at a record $270.89 billion at the end of
November, the world's six-largest, according to the central bank.
kokobj@yna.co.kr
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