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Big Push Policy Put in Place to Boost Consumption, Investment
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Big Push Policy Put in Place to Boost Consumption, Investment
  • By matthew
  • July 25, 2014, 09:37
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President Park Geun-hye presides over an economic ministerial meeting on July 24 in the Government Complex in Sejong City.
President Park Geun-hye presides over an economic ministerial meeting on July 24 in the Government Complex in Sejong City.

 

Deputy Prime Minister for Economic Affairs and Minister of Strategy and Finance Choi Kyung-hwan launched new expansionary macroeconomic policy for a household income increase. The big push policy is characterized by an input of 41 trillion won (US$39 billion) for raising household income, corporate earnings, domestic consumption, and investment at the same time.

The government held an economic ministerial meeting on July 24 to announce its policy direction for the rest of this year. The meeting, the first one since the inauguration of the Deputy Prime Minister, was presided over by President Park Geun-hye herself.

“The foremost goal of my team is to boost domestic consumption,” he said, adding, “I will implement the expansionary macroeconomic policy until visible effects are shown and boost the household income and corporate earnings for higher consumption and investment.” The sources of the 41 trillion won funds can be divided into 11.7 trillion won (US$11.3 billion) from public funds such as the National Housing Fund (6 trillion won, US$5.8 billion) and the Korea Credit Guarantee Fund (1 trillion won, US$973 million), 10 trillion won (US$9.7 billion) from policy finance channels including the Korea Development Bank and the Industrial Bank of Korea, and over 26 trillion won (US$25.3 billion) from financial and foreign exchange means such as the exchange equalization fund (5 trillion won, US$4.8 billion). The budget expansion for next year will be fixed later.

“The policy package proposed by the government at this time is mainly about lending money, and its problem is that it is unsure if 100 percent of the funds will be borrowed,” said Korea Institute of Finance Manager Park Sung-wook, continuing, “If users do not seek financial resources, the policy effect cannot but be reduced no matter how much money is hoarded.” The Deputy Prime Minister remarked in response that the resources will flow into the segments which have suffered from the lack of money and thus be a boon to domestic consumption.

In addition, the government is going to help earned and dividend incomes increase by modifying tax systems. The previous government, in fact, cut the corporate tax rate from 25 percent to 22 percent to encourage investment, only to show limited effects. What President Park Geun-hye is aiming at is to impose taxes on internal reserves to drive corporate earnings to investment, dividend payment, and labor costs. However, the business world is expressing concerns over the policy measure, claiming that it infringes on the autonomy of corporations in terms of asset utilization and could deter investment.

Also, the loan-to-value (LTV) and debt-to-income (DTI) ratios, which have been different by region and financial segment, are uniformly adjusted to 70 percent and 60 percent, respectively. “As of now, household liabilities are rather unlikely to result in systemic risks and the adjustment seems not to lead to any increase in household liabilities,” the government explained.

It is going to move ahead with large-scale construction projects ahead of schedule, too. Examples include the Second Seohaean Expressway (worth 2.6 trillion won, US$2.5 billion) connecting Pyeongtaek to Iksan and the metropolitan rapid railway (3.1 trillion won, US$3.0 billion). The Safety Investment Fund, worth up to 5 trillion won (US$4.8 billion), is raised as well.