S. Korea un­veils US$14 bil. stim­u­lus pack­age


South Korea on Thurs­day an­nounced a US$14 bil­lion stim­u­lus pack­age to boost its trou­bled econ­omy, ham­mered by the deadly MERS out­break which has dented con­sumer spend­ing and busi­ness sen­ti­ment.

In an­nounc­ing the 15 tril­lion won pro­gram — which fol­lows a cen­tral bank in­ter­est rate cut to a record low this month — the fi­nance min­istry also slashed its growth out­look for this year.

Fi­nance Min­is­ter Choi KyungHwan said the ex­tra move was cru­cial as a re­cov­ery in Asia’s fourth largest econ­omy hinged on ef­forts to quickly con­tain the ef­fects of Mid­dle East Res­pi­ra­tory Syn­drome.

As of Thurs­day the virus had killed 29 peo­ple and in­fected 151 since the first case was con­firmed on May 20, mak­ing it the worst out­break out­side Saudi Ara­bia.

“We can say that we have over- come the MERS cri­sis only if our econ­omy re­bounds,” Choi said, warn­ing that growth could come in be­low 3.0 per­cent with­out sup­port from the ex­tra spend­ing.

“The econ­omy is be­ing weighed down by MERS, which has se­ri­ously hurt con­sump­tion and the ser­vice sec­tor,” he said, adding the gov­ern­ment would use all avail­able re­sources to prop up growth, sup­port ex­ports and cre­ate jobs.

Choi said the gov­ern­ment would is­sue bonds to fund the ex­tra bud­get, the size of which will be de­cided af­ter an­a­lyz­ing the im­pact of MERS.

The fi­nance min­istry slashed its growth forecast for this year to 3.1 per­cent from an ear­lier pro­jec­tion of 3.8 per­cent.

The min­istry said the MERS out­break could pare up to 0.3 per­cent­age points off an­nual eco­nomic growth, vow­ing to keep close tabs on ris­ing house­hold debt and en­cour­age cor­po­rate restruc­tur­ing that could re­duce risks to the econ­omy.

The slow­ing global eco­nomic re­cov­ery and a weak yen and euro are other risks to South Korea, it said.

As part of the pack­age pro­vin­cial author­i­ties will be en­cour­aged to spend more on in­fra­struc­ture projects, while it will also be used to help con­tain MERS, ad­dress the ef­fects of a se­vere drought and cre­ate more jobs.

“We’re try­ing to cope with shocks from non-eco­nomic is­sues by boost­ing fis­cal spend­ing suf­fi­ciently and keep­ing it ex­pan­sion­ary,” said Lee Chan Woo, a di­rec­tor gen­eral at the min­istry.

“This sup­ple­men­tary bud­get is to off­set the ef­fect of MERS, the drought, and to help low-in­come earn­ers.”

In­ter­est Rates Cut

The cen­tral Bank of Korea cut in­ter­est rates this month to a record low 1.5 per­cent as busi­nesses in­clud­ing shops, restau­rants and cine­mas re­ported a slump in sales.

South Korea’s ex­ports fell 10.9 per­cent from a year ear­lier in May, shrink­ing for the fifth con­sec­u­tive month.

The min­istry forecast this year’s ex­ports would fall 1.5 per­cent from a year ago. It also low­ered its in­fla­tion out­look to 0.7 per­cent.

South Korea’s bench­mark KOSPI failed to get a boost from the gov­ern­ment’s an­nounce­ment and fell 0.02 per­cent to 2,085.06 Thurs­day with sen­ti­ment weak­ened by stalled talks on a Greek bailout.

On Thurs­day the health min­istry re­ported two more deaths from MERS and one more new case of the dis­ease.

The two fa­tal­i­ties in­cluded a 65-year-old man who con­tracted the virus at a hos­pi­tal at the cen­tral city of Dae­jon. He was di­ag­nosed on June 6.

The other was a 70-year-old woman who was a rel­a­tive of another in­fected pa­tient. She was di­ag­nosed on June 22.

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