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South Korea Plans to Settle on Details of Stimulus by Next Week

April 3 (Bloomberg) -- South Korea will decide on details of a stimulus package by next week, a Finance Ministry official said, as the country seeks to revive an economy forecast to grow less this year than anticipated in December.

“The size and scope of the stimulus will be decided as we discuss with the ruling party,” Bang Moon Kyu, director general for budget coordination at the finance ministry, said on April 1 at an embargoed briefing on a ministry report submitted to the president today. “It will be prepared by next week.”

President Park Geun Hye’s government is seeking to boost growth after the economy recorded its slowest expansion in three years last year. South Korea faces a 12 trillion won ($10.7 billion) tax shortfall this year, creating the potential for a U.S.-style fiscal cliff, according to Cho Won Dong, Park’s chief economy adviser.

South Korea’s exports rose 0.4 percent in March from a year earlier, less than forecast, as a weaker yen damped overseas sales of cars and electronics. Finance Minister Hyun Oh Seok said April 1 the government will monitor the effects of a weaker yen “at all times.”

The stimulus should be big enough to spur confidence in a recovery, Hyun said March 28, after the government cut its growth projection to 2.3 percent from 3 percent.

Failing to jump start the economy soon “could mean another year of stagnation, a weaker Korean won and lower interest rates, with elevated risks of losing growth potential and weakening household balance sheets,” Kwon Goo Hoon, a Seoul-based economist at Goldman Sachs, wrote in a March 21 report.

Separately, the government will come up with a funding plan for Park’s welfare pledges by May, the ministry said in its report to the president today. Of the 135 trillion won required to fulfill Park’s election pledges, 53 trillion won, or about 40 percent, will be financed by cracking down on the underground economy and cutting some tax benefits, the ministry said.

To contact the reporter on this story: Cynthia Kim in Seoul at ckim170@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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