South Korea to propose $12 billion stimulus package

South Korea will soon propose $12 billion of spending plans to boost domestic demand in Asias fourth-largest economy now headed for its first recession in 11 years, a top ruling party official said on Tuesday.
The government will soon submit to parliament for approval a supplementary budget bill worth 27 trillion won ($19 billion) to 29 trillion won, including about 17 trillion won in additional spending to revive the economy, he said.
The remaining amount will be to plug an expected shortfall in tax revenue this year in the face of a deepening global recession, which has been biting into corporate profits and consumers income.
"The government is working on a supplementary budget of between 27 trillion and 29 trillion won," Lim Tae-hee, the policy chief of the Grand National Party, told reporters after holding a consultation meeting with Finance Minister Yoon Jeung-hyun. The additional spending is equivalent to about 2 percent of the countrys annual gross domestic product.
He said the government would probably sell up to 19 trillion won in treasury bonds to fund the supplementary budget, but did not say how it would fund the remaining amount. "I think the government will be able to reduce the amount of funds to be raised through bonds by about 10 trillion won from the total budget of 27-29 trillion won," he said.
Concerns about a big amount of government bond offerings to fund the extra budget have dampened the local bond market since late January, pushing up the yield on benchmark 5-year treasury bonds by half a percentage pnt since then. The Ministry of Strategy and Finance has promised to finalise details of the supplementary budget bill by the end of this month, although it already announced 6.1 trillion won of stimulus measures last week partly to be covered by the extra budget.
The fresh spending plans are being introduced in addition to some 51 trillion won of fiscal spending and tax cut plans that South Korea has adopted since the middle of last year for implementation until 2012 to revive the economy. Separately, the central bank has slashed the benchmark interest rate by a total of 3.25 percentage points to a record low of 2.0 percent since early October to ensure money keeps flowing through the financial system.
South Koreas export-dependent economy is widely feared to be hit especially hard by the global recession, with the government forecasting gross domestic product will contract by around 2 percent this year for the first time in 11 years. Analysts paint a much bleaker picture, predicting the economy will shrink by as much as 7 percent to suffer the worst year in the countrys nearly 40 years of industrialisation.