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S. Korea faces scaled-back spending under provisional budget: sources

The delayed passage of South Korea's budget for next year by a protracted parliamentary stalemate is raising concerns that the government might have to prepare a provisional budget for the first time in history, which could eventually severely hurt its spending capacity intended to help boost the economy, experts and government sources said Tuesday.

In September, the government drew up a 357.7 trillion won ($337.6 billion) budget proposal for 2014, which is larger than the 342 trillion won budget set aside for this year. It was later submitted to the National Assembly for deliberation and approval.

However, a prolonged standoff between rival parties over allegedly organized intervention in last year's presidential election by state agencies has hampered debate and approval over the government's spending plan for next year.

This raises concerns that the government might have to prepare an unprecedented provisional budget unless its earlier spending plan is approved by the end of this year.

In that case, the government will have to suspend about 140 trillion won worth of its spending under a provisional budget since it is authorized only to carry out its expenditure as stipulated by the Constitution, sources said. That accounts for over 40 percent of the budget that it proposed in September.

The Constitution stipulates that, under a provisional budget, the government is allowed to go ahead with its mandatory expenditure, spend money in running and maintaining some public organizations, and keep up only with previously approved business projects.

The September budget plan showed that the government's mandatory expenditure stands at 168.8 trillion won and its discretionary expenditure is 188.9 trillion won.

Of the discretionary spending, about 48 trillion won is guaranteed by the Constitution but the remaining 140 trillion won worth of spending will be temporarily suspended once a provisional budget is put in place, the sources said.

Much of the possibly suspended spending has to do with the government's push to support job creation, the construction of social infrastructure, and benefits for childcare and other welfare programs.

In addition, under a provisional budget, government borrowing through bond sales will also come to a partial halt. The government will have to rely only on its tax revenue to operate.

The government and ruling party lawmakers keep assuring that they will do everything they can do to pass the 2014 budget plan within this year in order to avoid what they call the Korean version of a fiscal shutdown.

Some observers still remain worried that such scaled-back spending and restrictions on borrowing under a provisional budget could throw cold water on the government's efforts to support the economic recovery, which recently shows some signs of bouncing back from a prolonged slump.

"If the government enforces a provisional budget, it would mark the first time in history. If coupled with other (unfavorable) external risks, it could have a negative impact on the overall economy," said a senior researcher at the state-run Korea Institute of Public Finance. (Yonhap News)



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