South Korean President Lee Myung-bak said yesterday his government would step up efforts to bolster the slumping economy, including boosting liquidity and introducing tax cuts.
His comments came as Seoul announced it had posted its first annual trade deficit in 11 years as the country struggles amid the global financial meltdown.
“Any country or individual in the world was unable to foresee the start of this global economic crisis. Likewise, no one is able to predict when it will end,” Lee said during the live address.
“There is a forecast that the economy will start getting better in the latter half of this year. I will do my best to make sure this positive outlook will come true,” Lee said.
He said last week that South Korea had sealed currency swap deals with China, Japan and the US worth a total of US$90 billion.
“Now, voices expressing concerns about South Korea’s foreign exchange reserves have died down,” he said.
But the won weakened sharply in the first trading day of the new year, trading at 1,322 won to the US dollar in mid-morning, compared with 1,259.5 won the previous trading day, as demand for the greenback rose for import settlements.
Lee said the government would give priority to easing the credit crunch, noting that Seoul has already been funneling more than 20 trillion won (US$15 billion) into banks for this purpose.
Financial support to small and medium-sized enterprises (SMEs) will be increased by more than 11 trillion won. For SMEs that place workers on temporary paid leave instead of laying them off, the government would shoulder up to three quarters of their wages to avoid unemployment, Lee said.
The government would ease regulations and cut taxes to encourage investment, while spending 60 percent of this year’s budget in the first half of the year to bolster demand, Lee said.
Lee’s speech came as gloomy report showed South Korea posted a trade deficit of US$13 billion last year, the first shortfall since 1997, because of weak demand caused by credit crisis.
Last year, total exports from Asia’s fourth-largest economy rose 13.7 percent from a year ago to US$422.4 billion. Imports soared 22 percent to US$435.4 billion, the Ministry of Knowledge Economy said.
However, South Korea recorded a trade surplus of US$670 million in December alone, with exports falling 17.4 percent to US$27.29 billion, while imports shrank 21.5 percent to US$26.62 billion, goverment data showed.
The ministry said it expected this year’s annual exports to grow just 1 percent to US$426.7 billion and imports to fall 4.7 percent to US$414.8 billion, for a trade surplus of US$11.9 billion.
“We shouldn’t expect good news from the export side in the first half,” HI Investment and Securities economist Park Sang-hyun told Dow Jones Newswires.
Last month, the Ministry of Strategy and Finance said in its “Outlook and Policy Outline for 2009” that growth next year would be “more or less 3 percent,” compared with last year’s expected 3.6 percent growth.
Even the revised growth target is a percentage point higher than the central Bank of Korea’s prediction of 2 percent made earlier this month.