South Korea said on Sunday it will hand out $10.2 billion to its lowest-income citizens over the next year to offset the skyrocketing price of oil, emulating Asian neighbours in targeting subsidies at the poor.
The measures come as President Lee Myung-bak's approval ratings plummet to 20 percent from over 50 percent since winning December's election in a landslide, hit by public discontent over an agreement to allow US beef imports and economic troubles.
Prime Minister Han Seung-soo told a news conference the government planned to refund part of the additional money that low-income earners spend on buying fuel.
"The super-high oil prices are affecting not only our country but the whole world. But the difficulty is especially severe with our country that produces not a single drop of oil but is the world's fifth-largest oil consumer," Han said. South Korea's package accounts for half of the additional cost rising oil prices inflict on the country of 49 million people annually, Han said.
He added the government did not need to collect more tax or incur debt to fund the package but would use surplus tax revenues from last year and a surplus expected over the next year.
Lee won the election with a pledge to achieve economic growth of 7 percent on average per year and set this year's target at 6 percent, but the finance ministry has admitted the target would have to be cut as high oil and food prices hit consumption. The central bank chief said last month Asia's fourth-largest economy would be lucky if it could achieve growth of 4.5 percent, having expanded 5 percent last year and 5.1 percent in 2006.
Annual consumer price inflation in May hit a seven-year high of 4.9 percent, led by fuel costs, data showed last week, above the central bank's target of between 2.5 percent and 3.5 percent for the sixth month in a row.
PROTESTS AROUND THE GLOBE:
South Korea's financial measures to alleviate the pain on oil users come as other Asian countries roll back oil subsidies which are proving too costly for governments to shoulder.
India and Malaysia raised fuel prices last week, joining a growing list of Asian governments no longer able to afford big subsidies and triggering protests.
The move also comes as protesters from farmers and fishermen to truckers and students have staged rallies or strikes around the world in recent weeks to demand a cut in oil prices. Oil prices have doubled over the last year and risen 44 percent this year alone, with US crude surging to a record $139.12 a barrel on Friday, due to factors such as new demand from India and China and supply threats in the Middle East.
Prime Minister Han said the government would consider cutting domestic fuel sales taxes and other additional measures once the Dubai crude price 1M-rose past $170 per barrel. Prices are presently at $122.89. Finance Minister Kang Man-soo said at the news conference the government decided against lowering domestic levies on fuel sales as lower taxes could spur consumption and it wanted to ensure the poor benefited more.
Group of Eight energy ministers are meeting on Sunday amid unprecedented volatility in oil markets and growing public discontent over a failure by governments to soften the blow on consumers. Energy officials from five top consumer nations including South Korea urged producers to step up investment on Saturday, but they offered no new ideas on how to deal with record prices and remained divided on fuel subsidies.
The United States called for an end to heavy price subsidies that protect many Asian drivers from soaring costs, but China and India said they could only raise domestic rates gradually in view of their fragile economies.
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