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EDITIONS
 Wednesday, 8 January, 2003, 06:39 GMT
Korea vows to protect its boom
South Korean strikers
Korea's current boom is fragile, the government fears
South Korea has unveiled measures to protect its economy from the threat of friction with North Korea and the fall-out from any war against Iraq.

The programme, released ahead of a planning meeting for economic ministers, aims to bolster corporate investment while curbing household debt.

It is also designed to ready the economy for foreign exchange volatility and a surge in the price of oil.

The finance ministry is to loosen its purse strings, while stepping up its intervention in the currency and commodity markets, and says it remains confident of keeping annual economic growth above 5%.

But analysts have criticised the plan, arguing that it is insufficiently detailed, and that it underestimates the external risks faced by the Korean economy.

Spending and saving

"Domestic consumption has recently weakened and external conditions for our exports have become greatly uncertain," the finance ministry said in a statement.

"Therefore, we need policies aimed at boosting investment to prevent domestic demand from cooling further and sapping the economy's growth potential."

The commerce ministry said last week the country's top 200 manufacturing companies were planning to boost capital spending by more than 10% this year.

It has also argued that investment is the best way of underpinning South Korea's recent economic revival.

At the same time, the government is to increase its supervision of the consumer loan sector, which has boomed in recent years thanks mainly to low interest rates.

Although Korean personal debt is very low by international standards, ministers are concerned that it could eventually prove a source of instability.

Too little, too late?

Not everyone was impressed, however.

"The economic plan seems to be based on an optimism that uncertainties surrounding North Korea and the Middle East would go away soon," said Lee Soo-hee, an economist at Korea Economic Research Institute.

"In addition, it lacks details on what to do in case the dollar weakens against other major currencies more steeply than thought."

South Korea is highly reliant on imports of industrial commodities, especially oil, and is therefore vulnerable to any crisis in the Middle East.

And recent signs that communist North Korea is stepping up its controversial nuclear programme have sparked further fears of instability in the region.


Nuclear tensions

Inside North Korea

Divided peninsula

TALKING POINT
See also:

03 Jan 03 | Asia-Pacific
31 Dec 02 | Asia-Pacific
29 Dec 02 | Asia-Pacific
18 Dec 02 | Business
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