South Korea considers supplementary budget as MERS risks grow

[June 15, 2015]  By Christine Kim

SEOUL (Reuters) - South Korea is considering issuing a supplementary budget to bolster a flagging economy, its finance minister said on Monday, as the spread of Middle East Respiratory Syndrome (MERS) has subdued domestic demand at a time when exports are struggling.

The government could wait until the end of June before deciding whether the economy needs extra stimulus. The finance ministry releases its policy strategy at the end of this month for the second half of the year, as well as its biannual economic forecasts.

"I agree with your comments that if a supplementary budget is to be made, it should be of a substantial size," said Finance Minister Choi Kyung-hwan to lawmakers in parliament.

"Right now there is a lot of liquidity in the markets...if we decide to have an additional budget the negative effects from procuring the funds shouldn't be large."

The export-reliant economy has struggled for momentum in recent quarters in the wake of a collapse in shipments and sluggish domestic demand.
 

Many South Koreans have been avoiding crowds in recent weeks for fear of catching MERS, which has killed 16 people in the country so far. South Korea reported five new cases of MERS early on Monday, taking the total to 150.

"Although the overall effect from MERS on the economy is limited for now, there are concerns downside risks to growth will expand should the outbreak persist long-term," the finance ministry said in a statement earlier in the day."We will maintain expansionary macroeconomic policy until the recovery gains footing in earnest."

Choi added the current situation does not yet meet the legal requirements for a supplementary budget and more time would be needed to observe the economic impact from the virus outbreak.

"Even if the effects from MERS are cut short, there is no doubt that some parts of the economy have been hit," Choi said.

As the respiratory virus spread rapidly, lawmakers including ruling Saenuri Party chairman Kim Moo-sung have called on the government to draw up an additional budget to limit the economic damage wrought by MERS.

"Now is the time for the government to actively respond to the demands of the people as fiscal policy is desperately needed to minimise the economic impact of MERS, as well as to boost public safety," said Kim in a party meeting.

Last week, the Bank of Korea cut its key policy rate to a record low 1.50 percent, citing growing risks to demand from MERS as a major reason for the fourth easing since August.

(Editing by Simon Cameron-Moore)

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