South Korea’s Minister of Finance Kyung Hwan Choi (centre) listens to the opening remarks at the G20 finance ministers and central bank governors meeting in Cairns yesterday. Choi said he is pursuing expansionary fiscal policy to lift economic growth to about 4% next year.
Reuters/Cairns, Australia
South Korea’s finance minister said he is pursuing expansionary fiscal policy to lift economic growth to about 4% next year, and said it would be best if the central bank adopted a similar policy stance.
In Cairns for a Group of 20 meeting of financial officials from leading economies, Choi Kyung-hwan also urged major countries to avoid the “timidity trap” of failing to deliver decisive action to counter sluggish growth.
“I am of the view that globally the major economies have to implement more active policies to promote growth,” Choi told Reuters in an interview yesterday.
“We are now seeing low growth and low prices throughout the world, and we have to try and overcome such a situation.”
Since being appointed finance minister in June, Choi has repeatedly warned of the risk that South Korea could fall into a long, Japan-style slump and has introduced multi-billion-dollar stimulus measures. “The Korean monetary authorities have recently undertaken a rate cut to be in line with the government’s expansionary fiscal policy,” Choi said.
“They should also keep closely monitoring the economic circumstances and... it would be best if we could have harmony between the expansionary fiscal policy and monetary policy.”
The Bank of Korea cut its policy interest rate by 25 basis points to 2.25% in August, a decision seen as influenced by Choi. It kept the rate unchanged at the September 12 meeting but investors and analysts see a considerable chance of a further cut as early as next month.
Choi plans a 5.7% increase in government spending to help spark activity in Asia’s fourth-largest economy. Recent data has shown domestic demand picking up, partly thanks to recent stimulus, with money supply growth accelerating and retail sales improving.
“Hopefully there will be a growth recovery by about 1% per quarter until the end of this year, and next year I hope that we will be on the path towards the growth level of about 4%,” he said.
Choi said currency moves did not come up at talks on Friday with his counterparts from Japan and China.
“Recently we are seeing more sharp fluctuations, not between the won and the dollar but between the won and the yen exchange rate,” he said.
“For the current government we do not intervene in the foreign exchange market, then perhaps some smoothing operations or some fine-tuning, that would be the extent of it.”
The Korean won has risen to near its strongest level in six years against the yen, and businesses have said the currency’s strength has hit their competitiveness and weakened export earnings.
Choi was hopeful of securing more emerging market representation on the Financial Stability Board, a key regulatory body, at the G20 leaders’ summit in November.
“There has been discussion that there needs to increase representation of the emerging markets in light of their growing economic size and especially the increase in their financial markets,” he said of the FSB.
