S Korea to increase budget spending, investment to spur recovery

[SEOUL] South Korea will increase budget spending in the first half of the year to spur demand as its economic recovery remains weak and investment sluggish, the finance ministry said on Friday.

The Ministry of Strategy and Finance said in a statement that there have been some signs of improvement in hiring and in asset markets, but this recovery has not spread to consumption or investment. "All the ministers should work to make sure that factors like lowered interest rates, low oil prices and the exchange rate can help the economy," said Finance Minister Choi Kyung-hwan in his opening remarks at a meeting with government officials in Seoul.

The decision to increase spending and Choi's comments come just a week after the Bank of Korea lowered interest rates to a record-low 1.75 per cent as economic indicators early in the year reflected poor growth.

In order to boost public demand, spending by end-June will be boosted by 3 trillion won (S$3.71 billion), with 2 trillion coming from the annual budget and the remainder coming from funds left over from a spending project launched last year to spur economic activity, the ministry said.

South Korean public agencies will increase their investment by 1.4 trillion won before the year ends.

The spending would be taken from surpluses created by low oil prices and the sale of a plot of land in Seoul's high-end Gangnam District from state-run Korea Electric Power (KEPCO) to Hyundai Motor Group last year.

The government will also announce new plans in April to prop up private investment, largely through reforming existing investment policies.

REUTERS