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Fiscal chief vows ‘complete’ economic recovery this year

South Korean government ups growth outlook to 4.2%, plans to vouchers, cash rewards to lift consumption in H2

June 28, 2021 - 17:59 By Park Han-na
Finance Minister Hong Nam-ki (center) speaks during a press conference on the direction of economic policy for the second half of 2021, held at the government complex in Seoul, Monday. (Ministry of Economy and Finance)

Aiming for the complete recovery of the South Korean economy, the government will deploy a series of policies inducing domestic consumption and supporting pandemic-hit businesses and exporters in the second half, the Finance Ministry said Monday.

“The direction of economic policy for the second half of 2021 was established with a focus on two goals -- complete economic recovery and a major structural transformation into a leading economy,” Finance Minister Hong Nam-ki said while revising up the country’s growth outlook by 1 percentage point to 4.2 percent.

Labeling the latter half of this year as an important time to make a “quicker and more inclusive recovery” and to get back to normal life, President Moon Jae-in said the country will achieve economic growth of over 4 percent for the first time in 11 years and that the job market will bounce back from pandemic-induced job losses.

In order to achieve the goals, Hong said the economy should continue to recover at a faster pace with stronger momentum while helping to restore employment and address inequalities that have arisen during the COVID-19 pandemic.

In the meantime, the government will accelerate its push for the Korean New Deal initiative to promote a transition into a digital, low-carbon economy.

To shore up domestic consumption, the government will issue discount coupons, which will benefit over 14 million people, to help the coronavirus-hit accommodations, dining and cultural activities sectors. It will also resume the coupon program that was suspended after a second wave of COVID-19 infections emerged last year, in phases depending on the progress of vaccinations.

Consumers will be able to receive up to 300,000 won ($265) cash back rewards per person for credit card spending between August and October if they spend more than in the previous quarter.

To support the ailing aviation and tourism sectors, the country plans to sign travel bubble agreements with COVID-safe countries in July.

Nonlanding tourist flights, in which passengers depart from a local airport, pass through foreign airspace and return to another local airport for domestic travel, are readying to take off. Currently, travelers are only allowed to depart and return through the same local airport.

Asia’s fourth-largest economy has managed to rebound to pre-pandemic levels by expanding 1.7 percent in the first quarter this year from three months earlier, according to preliminary data released by the Bank of Korea on June 9.

But the rebound was mainly driven by the strong exports of chips and electronic manufacturing, while struggles of in-person service industries such as restaurants and tourism have continued.

This year’s second extra budget will be drawn up with larger-than-expected tax revenue to help support vulnerable groups, including owners of small businesses and those who were laid off or who lost their job because of the coronavirus outbreak.

“It is expected that the effectiveness of the economic policies will be higher than ever as we linked major policy tasks with the second supplementary budget projects currently being prepared as much as possible,” the minister said.

Tax incentives on R&D and facility investments will be granted to sectors designated by the government as key national strategic industries, which are semiconductors, secondary batteries and vaccines.

“In the case of exports, we have prepared a new plan to support freight costs for small and medium-sized companies, such as expanding export vouchers and supporting the signing of long-term transportation contracts, with a top priority on resolving the logistical difficulties faced by companies,” Hong said.

The government will spend 22.5 trillion won this year on 10 major projects tied to the Korean New Deal initiative centering on digitalization, sustainable development and the social safety net.

In detail, the fund will be used for the adoption of mobile driving licenses, high-performance Wi-Fi networks for 380,000 elementary and middle school classrooms and the expansion of zero-emission zones.

An expansionary fiscal policy mode will be maintained so that the economic recovery can lead to a reduction of the gap in job recoveries and improvement of people’s livelihoods.

It also expected that the number of people with jobs will increase by 250,000 this year to offset 220,000 job losses last year.

A loose monetary policy will be maintained for the time being to sustain robust economic growth, the ministry said. The Bank of Korea on May 27 kept the key rate unchanged at 0.5 percent, amid concerns over inflation and snowballing household debt.

The minister vowed all-out efforts to maintain inflation under 2 percent while raising its consumer price rate forecast to 1.8 percent, from the 1.1 percent increase it expected earlier this year.

By Park Han-na (