South Korea has announced a robust government spending plan to prevent its economy from slowing down too rapidly, as a result of the worldwide financial crisis. With a potential drop in exports on the horizon, this is the latest move by Seoul to shield Asia's fourth-largest economy from the global credit squeeze. VOA's Kurt Achin has more from the South Korean capital.
South Korean government ministers announced a spike in government spending plans Monday, aimed at stimulating the economy in the face of global slowdown.
Seoul says it will spend nearly $11 billion above and beyond the budget it submitted to lawmakers earlier this month. About $4 billion is earmarked for infrastructure projects, such as building hospitals and schools. The rest of the funds are to provide relief for small and medium-sized businesses and expand investment by public companies.
South Korean Finance Minister Kang Man-su says the increased spending is a direct response to the financial crisis.
He says financial market uncertainties have been aggravated and are now exerting an impact on the real economy.
Only weeks ago, South Korea predicted the country's economy would grow this year by five percent. Kang says Monday's stimulus package reflects updated, more pessimistic assumptions.
He says the economy may expand by only around three percent next year. He says it will difficult to achieve growth, if global economic conditions further worsen.
South Korean analysts have been especially alarmed by a drop in export growth to a 13-month low in October. Exports are a key driver of South Korea's economy, which is the world's 13th largest.
Several major American banks collapsed last month, because of so-called "toxic assets" in their holdings. That caused confidence between major international lenders to plunge, as each institution began doubting whether others could repay short term loans.
South Korea's currency, the Won, nosedived in recent weeks, as investors took refuge in the American dollar, which they perceive for now as safe. In a radio address, earlier Monday, South Korean President Lee Myung bak said that volatility problem has been addressed.
He says South Korea's recent currency swap arrangement with the United States has alleviated concerns that South Korea would not have enough dollars to conduct its trade activities.
The swap deal allows South Korea to borrow up to $30 billion, on short notice, in exchange for deposits in Korean won. The deal is seen as largely symbolic, because South Korea already possesses more than $230 billion in foreign reserves.