SEOUL (AFP) - South Korea resorted to a massive stimulus package to prop up the sagging economy as a rising won threatened to put exports, the engine for so much of its growth, at risk.
The government package called for expanded spending on public works in an effort to end a slump in domestic demand and keep the country's economic growth rate above five percent in coming years.
Reminiscent of the US "New Deal" pump-priming initiatives of the 1930s, officials said, full details of the package, which requires approval from parliament, will be announced next month.
The draft package, reportedly worth 10 trillion won (nine billion dollars), was presented to a meeting of top government officials and ruling party leaders Sunday, the ministry of finance and the economy said.
"We need economic growth of five percent next year to create more than 400,000 jobs," the ministry said in a statement.
The government wants to raise the necessary money by tapping pensions and other state funds. It will also ask private firms to participate in state projects.
The ministry plans to frontload the government's 2005 fiscal spending in the first half and finance new highways and other public building works over the next few years.
About two trillion won would be allocated to boost the technology sector.
The package marks a turnaround in the government's long-held reluctabce to use massive economy-boosting measures and underscores the seriousness of a prolonged slump in domestic demand, analysts say.
Stock market investors welcomed the stimulus package initially but the market fell 1.69 percent to close at 846.11 on concern that a stronger won would hurt exporters.
"All the boosts, both external and internal, quickly fizzled out, giving way to fears of sharp forex fluctuations," said Dongbu Securities analyst Chang Hwa-Tak.
The US dollar tumbled to a 50-month low at 1,105.30 won on Monday, the lowest level since September 4, 2000, when it stood at 1,104.35 won.
A strong won makes South Korean products more expensive abroad and erodes dollar-based profits.
Dealers attributed the globally-weakening dollar to increasing concerns about how the United States will handle its massive current account and budget deficits.
South Korean exporters scrambled Monday to convert dollar earnings on expectation that the US unit would fall further, adding to the downward pressure.
Share prices of South Korea's key exporters -- including automakers, shipbuilders and chipmakers -- fell on growing concerns about the won with Hyundai Motor down 1,400 won at 54,900, Hyundai Heavy down 1,750 at 32,800 and Samsung Electronics down 12,500 at 440,000.
The government has forecast the economy would grow more than five percent this year, with the central Bank of Korea projecting 5.2 percent growth.
However, Fitch Ratings last week cut its South Korean growth forecast to 4.2 percent for this year, citing high oil prices and sluggish domestic demand.
The world's 11th-largest economy has been dogged by feeble domestic demand since a consumer credit bubble burst last year.
The stimulus package requires approval from parliament but the main opposition Grand National Party has already come out to oppose it, accusing the government of pushing risky pump-priming measures.
"The government is trying to spend a huge amount of national funds to stimulate the economy," the party said in a statement.
"Who will bear the responsibility for growing deficits in pension funds?," it said, adding the package would only mean a greater debt burden to future generations.
11/08/2004 - 10:55 GMT - AFP