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President cautions against premature exit from stimulus

President cautions against premature exit from stimulus

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Published : 2010-03-30 16:32
Updated : 2010-03-30 16:32

President Lee Myung-bak yesterday cautioned against a premature "exit" from stimulus efforts, saying that the economy needs further growth and the poor need more protection.
With signs of an economic recovery growing, some economists have recently recommended the government prepare post-crisis measures to tame inflationary pressure and asset bubble risks.
"There has been talk about an exit strategy. I think it is premature. We still need to make more efforts for growth," Lee said in a fortnightly address on radio and the internet.
Policymakers have warned that an early rollback of expansionary policies could choke the burgeoning growth momentum, which is still far from self-sustainable.
The economy grew 2.3 percent in the second quarter from the previous three months on surging exports and sound consumption driven by government spending and tax benefits.
Concerns linger, however, that recovery could fizzle in the second half due to a still-high unemployment rate, rising oil prices and a slump in global trade. In addition, the government has already used 60 percent of this year`s budget.
Lee cited widespread consensus among international institutions that Korea will register the highest growth among OECD members next year and will become the first in the rich nations` club to recover from the global crisis.
"Many talk that way. But we respond cautiously to this," Lee said.
The president worried that even if the economy improves, it would take a longer time before citizens recover from the damage inflicted by the current crisis.
"What is deplorable is that poor people are hit first by an economic crisis like this. In addition, when the economy turns around, those who run large and middle-sized businesses benefit early, but the benefit comes to the needy very late."
In line with Lee`s new centrist agenda, the administration is preparing for various means of financial support and tax measures to better protect low-income earners.
The debate over exit strategy flared up after the state-run think-tank called for tightening fiscal and monetary policies last Tuesday, citing a dangerous buildup of asset bubbles. Apartment prices have continued to rise during the past six weeks and in June household loans reached their highest level in two and a half years.
In its report, Korea Development Institute urged the central bank to consider raising interest rates from the current 2 percent. It also said extraordinary crisis measures such as the state guarantees on banks` overseas borrowings and the central bank`s purchase of their bonds should be reconsidered.
Finance Minister Yoon Jeung-hyun said Saturday that the government needs to be watchful of the excessive liquidity but will not roll back stimulus policy.
"Cautious judgment is needed because of problems such as inflation, asset bubbles and moral hazards if we maintain expansionary policies too long," Yoon said in a forum hosted by the Korean Chamber of Commerce and Industry on Jeju Island.
"However, if we withdraw the expansionary policy stance too early, it would harm economic recovery and make the economy fall into recession again."

By Hwang Jang-jin

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